Filed 2026-03-11 · Period ending 2025-12-31 · 171,550 words · SEC EDGAR
# Stellus Capital Investment Corp (SCM) — 10-K
**Filed:** 2026-03-11
**Period ending:** 2025-12-31
**Accession:** 0001104659-26-026432
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1551901/000110465926026432/)
**Origin leaf:** 06fce052c31727fa23e967ec7713ecf6a8f7660ec6d9482a1ab258cfe304f667
**Words:** 171,550
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**Table of Contents
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**WASHINGTON, D.C. 20549**
**FORM****10-K**
| | ANNUAL REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934 | |
**For the fiscalyear ended****December 31, 2025**
**OR**
| | TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 | |
**COMMISSION FILE NUMBER:****001-35730**
**STELLUS CAPITAL INVESTMENT CORPORATION**
(Exact name of registrant as specified in its charter)
| Maryland | | 46-0937320 | |
| (State or other jurisdiction ofincorporation or organization) | | (I.R.S. EmployerIdentification No.) | |
| 4400 Post Oak Parkway, Suite2200, Houston, TX | | 77027 | |
| (Address of principal executive offices) | | (Zip Code) | |
Registrants telephone number, including area code: **(****713****)****292-5400**
**Securities registered pursuant to Section12(b)of the Act:**
| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered | |
| Common Stock, par value $0.001 per share | | SCM | | New York Stock Exchange | |
**Securities registered pursuant to Section12(g)of the Act: None**
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule405 of the Securities Act.Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section15(d)of the Act.Yes No
Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90days.Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 of RegulationS-T ( 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit such files).Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule12b-2 of the Exchange Act.
| Large accelerated filer | | | Accelerated filer | | |
| Non-accelerated filer | | | Smaller reporting company | | |
| | | | Emerging growth company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section404(b)of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).Yes No
The aggregate market value of the registrants common stock held by non-affiliates of the registrant as of June30, 2025 was $371,895,297.
The number of shares of the issuers Common Stock, $0.001 par value per share, outstanding as of March 11, 2026 was 28,947,254.
**Documents Incorporated by Reference**
Portions of the registrants definitive Proxy Statement relating to the registrants 2026 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120days following the end of the registrants fiscalyear, are incorporated by reference in PartIII of this Annual Report on Form10-K as indicated herein.
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STELLUS CAPITAL INVESTMENT CORPORATION
FORM10-K FOR THE FISCALYEAR
ENDED DECEMBER 31, 2025
TABLE OF CONTENTS
| | | | |
| PART I. | | | |
| ITEM 1. | BUSINESS | 1 | |
| ITEM 1A. | RISK FACTORS | 34 | |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS | 68 | |
| ITEM 1C. | CYBERSECURITY | 68 | |
| ITEM 2. | PROPERTIES | 69 | |
| ITEM 3. | LEGAL PROCEEDINGS | 69 | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 69 | |
| PART II. | | | |
| ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 70 | |
| ITEM 6. | [RESERVED] | 74 | |
| ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 75 | |
| ITEM 7A. | QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK | 96 | |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 98 | |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 181 | |
| ITEM 9A. | CONTROLS AND PROCEDURES | 181 | |
| ITEM 9B. | OTHER INFORMATION | 182 | |
| ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 183 | |
| PART III | | | |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 184 | |
| ITEM 11. | EXECUTIVE COMPENSATION | 184 | |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 184 | |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 184 | |
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 184 | |
| PART IV | | | |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 185 | |
| ITEM 16. | FORM 10-K SUMMARY | 189 | |
| SIGNATURES | 190 | |
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PARTI
Item1.Business
*Except as otherwise indicated, the terms we, us, our, and the Company refer to Stellus Capital Investment Corporation; and Stellus Capital Management, the Advisor or the Administrator refer to our investment adviser and administrator, Stellus Capital Management,LLC.*
General
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). We were organized as a Maryland corporation on May8, 2012, and formally commenced operations on November7, 2012. We originate and invest primarily in private U.S. lower middle-market companies (typically those with $5million to $50million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien, and unsecured debt financing, often with corresponding equity co-investments. Unitranche structures may combine characteristics of first lien senior secured as well as second lien and/or subordinated loans, and our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the last-out tranche. Unsecured debt includes senior unsecured and subordinated loans.
Our investment activities are managed by our investment adviser, Stellus Capital Management, an investment advisory firm led by Robert T. Ladd and its other senior investment professionals. We source investments primarily through the extensive network of relationships that the principals of Stellus Capital Management have developed with financial sponsor firms, financial institutions, lower middle-market companies, management teams and other professional intermediaries. The companies in which we invest are typically highly leveraged, and in most cases, our investments in such companies will not be rated by national rating agencies. If such investments were rated, we believe that they would likely receive a rating that is often referred to as junk.
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. We seek to achieve our investment objective by:
| | accessing the extensive origination channels established and developed by the Stellus Capital Management senior investment professionals, which include long-standing relationships with private equity firms, commercial banks, investment banks and other financial services firms; | |
| | investing in what we believe to be companies with strong business fundamentals, generally within our core lower middle-market company focus; | |
| | focusing on a variety of industry sectors, including business services, general industrial, government services, healthcare, software and specialty finance; | |
| | focusing primarily on directly originated transactions; | |
| | applying the disciplined underwriting standards that the Stellus Capital Management senior investment professionals have developed over their extensive investing careers; and | |
| | capitalizing upon the experience and resources of the Stellus Capital Management investment team to monitor our investments. | |
On May9, 2022, we and certain of our affiliates received an exemptive order (the Order) from the Securities and Exchange Commission (SEC) that superseded the prior co-investment exemptive relief orders and permits us to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus
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Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management, subject to the conditions included therein. Pursuant to the Order, a required majority (as defined in Section57(o)of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1)the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, (2)the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit the Advisor, the other affiliated funds that are participating in the investment, or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the exemptive relief and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. We co-invest, subject to the conditions in the Order, with an affiliated private BDC and other private credit funds managed by Stellus Capital Management that have an investment strategy that is similar or identical to our investment strategy, and we may co-invest with other BDCs, registered investment companies and other private credit funds managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management in the future. We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification.
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than qualifying assets as 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.
We have elected, qualified, and intend to qualify annually to be treated for tax purposes as a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as amended (the 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, 2025, we were in compliance with the RIC requirements. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income we distribute to our stockholders.
Under the provisions of the 1940 Act, we are permitted, as a BDC that has satisfied certain requirements, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of our gross assets, less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. As of December 31, 2025, our asset coverage ratio was 203%. 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.
Our principal executive office is currently located at 4400 Post Oak Parkway, Suite2200, Houston, TX 77027, and our telephone number is (713) 292-5400. We maintain a website on the Internet at *www.stelluscapital.com*(under the Public Investors section). Information contained on our website is not incorporated by reference into this Annual Report on Form10-K and you should not consider information contained on our website to be part of this Annual Report on Form10-K.
SBIC Licenses
Two of our wholly owned subsidiaries, Stellus Capital SBIC, LP and Stellus Capital SBIC II, LP (together, the SBIC subsidiaries and individually, the SBIC I subsidiary and SBIC II subsidiary, respectively), hold licenses to operate as small business investment companies (SBICs). Current U.S. Small Business Administration (SBA) regulations allow a single SBIC to obtain leverage in the form of debentures guaranteed by the SBA up to a maximum of $175.0million, subject to required capitalization of the SBIC subsidiary, SBA approval, and other requirements. The maximum leverage available to a family of two or more SBIC funds under common control is $350.0 million, subject to SBA approval. SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S.
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Treasury Notesplus a market spread and have a maturity of tenyears, with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity but may be pre-paid at any time with no prepayment penalty. We believe that the SBA-guaranteed debentures are an attractive source of debt capital.
We have obtained exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of the SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act. The exemptive relief provides us with increased flexibility under the asset coverage requirement by permitting us to borrow up to $325.0million more than we would otherwise be able to absent the receipt of this exemptive relief.
Summary Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the information in Item1A. Risk Factors, including, but not limited to, the following risks:
| | The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business and operations. | |
| | We are dependent upon key personnel of Stellus Capital Management for our future success. If Stellus Capital Management were to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed. | |
| | Our business model depends to a significant extent upon strong referral relationships. Any inability of Stellus Capital Management to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. | |
| | Our incentive fee may induce Stellus Capital Management to make speculative investments. | |
| | We may be obligated to pay Stellus Capital Management incentive compensation even if we incur a loss and may pay more than 20.0% of our net capital gains because we cannot recover payments made in previousyears. | |
| | We will be subject to U.S. federal income tax imposed at corporate rates if we are unable to maintain our tax treatment as a RIC under subchapter M of the Code. | |
| | We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income. | |
| | Because we finance our investments with borrowed money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us. | |
| | Substantially all of our assets are subject to security interests under our amended and restated revolving credit agreement with certain lenders party thereto and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the Credit Facility), or claims of the SBA with respect to SBA-guaranteed debentures we may issue. If we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets. | |
| | Most of our portfolio investments are recorded at fair value as determined in good faith by our board of directors (the Board) and, as a result, there may be uncertainty as to the value of our portfolio investments. | |
| | If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our | |
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| financial and other public reporting, which would harm our business and the trading price of our common stock. | |
| | Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries operations. | |
| | Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired. | |
| | The time and resources that the investment professionals of Stellus Capital Management devote to us may be diverted, and we may face additional competition due to the fact that Stellus Capital Management and its affiliates are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target. | |
| | If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs or be precluded from investing according to our current business strategy. | |
| | The failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively. | |
| | Our investments in private and lower middle-market portfolio companies are risky, and we could lose all or part of our investment. | |
| | Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation. | |
| | Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments. | |
| | The interest rates of our floating-rate loans to our portfolio companies might be subject to change, and such fluctuations could negatively impact our financial condition and results of operations. | |
Portfolio Composition
Our investments generally range in size from $5million to $30million, and we may also selectively invest in larger positions. We generally expect that the size of our positions will increase in proportion to the size of our capital base. Pending such investments, we may reduce our outstanding indebtedness or invest in cash, cash equivalents, U.S. government securities and other high-quality debt investments with a maturity of oneyear or less. In the future, we may adjust opportunistically thepercentage of our assets held in various types of loans, our principal loan sources and the industries to which we have greatest exposure based on market conditions, the credit cycle, available financing and our desired risk/return profile.
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The following table provides a summary of our portfolio investments as of December 31, 2025:
| | | | | | |
| | | Asof | | |
| | | December31,2025 | | |
| | | ($ inmillions) | | |
| Total number of portfolio company investments | | | 115 | | |
| Fair value(a) | | $ | 1,007.6 | | |
| Cost | | $ | 1,026.1 | | |
| % of portfolio at fair valuefirst lien debt(b) | | | 90.2 | % | |
| % of portfolio at fair valuesecond lien debt | | | 1.2 | % | |
| % of portfolio at fair valueunsecured debt | | | | % | |
| % of portfolio at fair valueequity | | | 8.6 | % | |
| Weighted-average annual yield(c) | | | 8.7 | % | |
| (a) | As of December 31, 2025, $843.1million of our debt investments at fair value were at floating interest rates, which represented approximately 91.6% of our total portfolio of debt investments at fair value. As of December 31, 2025, $77.7million of our debt investments at fair value were at fixed interest rates, which represented approximately 8.4% of our total portfolio of debt investments at fair value. | |
| (b) | Includes unitranche investments, which accounted for 4.0% of our portfolio at fair value. | |
| (c) | As of December 31, 2025, the weighted average yield on all of our debt investments, including those on non-accrual status, was approximately 9.3%, of which approximately 8.5% was current cash interest. 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, 2025 was approximately 8.7%. 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 and our subsidiaries fees and expenses. The weighted average yield was computed using the effective interest rates for all of our debt investments, which represents the interest rate on our debt investments restated as an interest rate payable annually in arrears and is computed including cash and payment-in-kind (PIK) interest, as well as accretion of original issue discount (OID). There can be no assurance that the weighted average yield will remain at its current level. | |
Stellus Capital Management
Stellus Capital Management manages our investment activities and is responsible for analyzing investment opportunities, conducting research and performing due diligence on potential investments, negotiating and structuring our investments, originating prospective investments and monitoring our investments and portfolio companies on an ongoing basis.
The senior investment professionals of Stellus Capital Management have an average of over 37years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies. The Stellus Capital Management senior investment professionals have a wide range of experience in lower middle-market investing, including originating, structuring and managing loans and debt securities through market cycles. The Stellus Capital Management senior investment professionals continue to provide investment sub-advisory services to D.E. Shaw& Co.,L.P. and its associated investment funds (the D.E. Shaw group).
In addition to serving as our investment adviser and the sub-advisor to the D. E. Shaw group as noted above, Stellus Capital Management currently manages private credit funds, some of which have an investment strategy that is similar or identical to our investment strategy. We received the Order from the SEC, which permits us to co-invest with investment funds managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management where doing so is consistent with our investment strategy as well as applicable law (including the terms and conditions of the Order). We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification. We will not co-invest with any D.E. Shaw group funds.
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Stellus Capital Management also serves as our Administrator, pursuant to an administration agreement, and is responsible for furnishing us with office facilities and equipment and providing us with clerical, bookkeeping, recordkeeping and other administrative services at such facilities. Stellus Capital Management is headquartered in Houston, Texas, and also maintains offices in the Washington, D.C. area and Charlotte, North Carolina.
Market Opportunity
We originate and invest primarily in private lower middle-market companies through first lien (including unitranche), second lien and unsecured debt financing, often with corresponding equity co-investments. We believe the environment for investing in lower middle-market companies is attractive for several reasons, including:
Robust Demand for Debt Capital
We believe that private equity firms have significant committed but uncalled capital, a large portion of which is still available for investment in the United States. We expect the large amount of uninvested capital commitments will drive buyout activity over the next severalyears, which should, in turn, create lending opportunities for us.
Attractive Environment to Lend To Lower Middle-Market Companies
The current state of the U.S. economy provides an attractive environment to lend to lower middle-market companies. The U.S. services, healthcare, technology and consumer products sectors continue to show strong growth and profitability, allowing lower middle-market companies to continue to service their debt and prudently borrow to support growth initiatives and mergers and acquisitions activity. This dynamism, coupled with ample capital from private equity firms to support lower middle-market companies, is creating a large population of creditworthy companies looking for debt capital.
Attractive Deal Pricing and Structures
We believe that the pricing of lower middle-market debt investments is higher, and the terms of such investments are more conservative, compared to larger liquid, public debt financings, due to the more limited universe of lenders as well as the highly negotiated nature of these financings. These transactions tend to offer stronger covenant packages, higher interest rates, lower leverage levels and better call protection compared to larger financings. In addition, lower middle-market loans typically offer other investor protections such as default penalties, lien protection, change of control provisions and information rights for lenders.
Specialized Lending Requirements
Lending to lower middle-market companies requires in-depth diligence, credit expertise, restructuring experience and active portfolio management. We believe that several factors render many U.S. financial institutions ill-suited to lend to lower middle-market companies. For example, based on the experience of Stellus Capital Managements senior investment professionals, lending to lower middle-market companies in the United States (a)is generally more labor intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of the information available with respect to such companies, (b)requires specialized due diligence and underwriting capabilities, and (c)may also require more extensive ongoing monitoring by the lender. We believe that, through Stellus Capital Management, we have the experience and expertise to meet these specialized lending requirements.
Competitive Strengths
We believe that the following competitive strengths will allow us to achieve positive returns for our investors:
Experienced Investment Team
Through our investment adviser, Stellus Capital Management, we have access to the experience and expertise of the Stellus Capital Management senior investment professionals, including its senior investment professionals who have an
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average of over 37years of investing, corporate finance, restructuring, consulting and accounting experience and have worked together at several companies. The Stellus Capital Management investment professionals have a wide range of experience in lower middle-market investing, including originating, structuring and managing loans and debt securities through market cycles. We believe the members of Stellus Capital Managements senior investment professionals are proven and experienced, with extensive capabilities in leveraged credit investing, having participated in these markets for the predominant portion of their careers. We believe that these characteristics enhance the quantity and quality of investment opportunities available to us.
Established, Rigorous Investment and Monitoring Process
The Stellus Capital Management investment professionals have developed an extensive review and credit analysis process. Each investment that is reviewed by Stellus Capital Management is brought through a structured, multi-stage approval process. In addition, Stellus Capital Management takes an active approach in monitoring all investments, including reviews of financial performance on at least a quarterly basis and regular discussions with management. We believe Stellus Capital Managements investment and monitoring process and the depth and experience of its investment professionals allow it to conduct the type of due diligence and monitoring that enables it to identify and evaluate risks and opportunities.
Demonstrated Ability to Structure Investments Creatively
Stellus Capital Management has the expertise and ability to structure investments across all levels of a companys capital structure. Furthermore, we believe that current market conditions will allow us to structure attractively priced debt investments and may allow us to incorporate other return-enhancing mechanisms such as commitment fees, OID, early redemption premiums, PIK interest and various forms of equity securities.
Resources of Stellus Capital Management Platform
We have access to the resources and capabilities of Stellus Capital Management, which has 17 investment professionals, including Robert T. Ladd, Dean DAngelo, and Joshua T. Davis, who are supported by seven managing directors, four vice presidents and three analysts. These individuals have developed long-term relationships with lower middle-market companies, management teams, financial sponsors, lending institutions and deal intermediaries by providing flexible financing throughout the capital structure. We believe that these relationships provide us with a competitive advantage in identifying investment opportunities in our target market. We also expect to benefit from Stellus Capital Managements due diligence, credit analysis, origination and transaction execution experience and capabilities, including the support provided with respect to those functions by W. ToddHuskinson, who serves as our Chief Financial Officer and Chief Compliance Officer, and his staff of sixteen finance and operations professionals.
Investment Strategy
The Stellus Capital Management senior investment professionals employ an opportunistic and flexible investing approach, combined with strong risk management processes, which we believe yields a highly diversified portfolio across companies, geographies, industries, and investment types. We seek direct origination opportunities of first lien (including unitranche), second lien, and unsecured debt financing, often with corresponding equity co-investments, in lower middle-market companies. We believe that businesses in this size range often have limited access to public financial markets, and will benefit from Stellus Capital Managements reliable lending approach. Many financing providers have chosen to focus on large corporate clients and managing capital markets transactions rather than lending to lower middle-market businesses. Further, many financial institutions and traditional lenders are faced with constrained balance sheets and are requiring existing borrowers to reduce leverage.
With an average of over 37years of investing, corporate finance, restructuring, consulting and accounting experience, the senior investment professionals of Stellus Capital Management have demonstrated investment expertise throughout the balance sheet and in a variety of situations, including financial sponsor buyouts, growth capital, debt refinancing, balance sheet recapitalizations, rescue financings, distressed opportunities, and acquisition financings. Our investment philosophy emphasizes capital preservation through superior credit selection and risk mitigation. We expect
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our portfolio to provide downside protection through conservative cash flow and asset coverage requirements, priority in the capital structure and information requirements. We also anticipate benefiting from equity participation through equity co-investments. This flexible approach enables us to respond to market conditions and offer customized lending solutions.
Stellus Capital Management invests across a wide range of industries with deep expertise in select verticals including, but not limited to, business services, retail, general industrial, government services, healthcare, software and specialty finance. Our typical transactions include providing financing for leveraged buyouts, acquisitions, recapitalizations and growth opportunities. We seek to maintain a diversified portfolio of investments as a method to manage risk and capitalize on specific sector trends. In addition, we co-invest with private credit funds and a private BDC managed by Stellus Capital Management or its affiliates that have a similar, overlapping or identical investment strategy as us where doing so is consistent with conditions of the Order, and we may co-invest with other BDCs, registered investment companies, and private credit funds managed by Stellus Capital Management or an adviser that is controlled, controlling, or under common control with Stellus Capital Management in the future.
Our objective is to act as the lead or largest investor in transactions, generally investing between $5million and $30million per transaction. We expect the average investment holding period to be between two and fouryears, depending upon portfolio company objectives and conditions in the capital markets.
We focus on lower middle-market companies with between $5million and $50million of EBITDA in a variety of industry sectors with positive long-term dynamics and dependable cash flows. We seek businesses with management teams with demonstrated track records and economic incentives in strong franchises and sustainable competitive advantages with dependable and predictable cash flows.
We employ leverage prudently and within the limitations of the applicable laws and regulations for BDCs. Any decision on our part to use leverage will depend upon our assessment of the attractiveness of available investment opportunities in relation to the costs and perceived risks of such leverage.
Transaction Sourcing
As access to investment opportunities is highly relationship-driven, the senior investment team and other investment professionals of Stellus Capital Management spend considerable time developing and maintaining contacts with key deal sources, including private equity firms, investment banks and senior lenders. The senior investment team and other investment professionals of Stellus Capital Management have been actively investing in the lower middle-market for more than a decade and have focused on extensive calling and marketing efforts via speaking engagements, sponsorships, industry events and referrals to broaden their relationship network. Existing relationships are constantly cultivated through transactional work and other personal contacts.
In addition to financial sponsors, Stellus Capital Management has developed a network of other deal sources, including:
| | management teams and entrepreneurs; | |
| | portfolio companies of private equity firms; | |
| | other investment firms that have similar strategies to Stellus Capital Management and are seeking co-investors; | |
| | placement agents and investment banks representing financial sponsors and issuers; | |
| | corporate operating advisers and other financial advisers; and | |
| | consultants, attorneys and other service providers to lower middle-market companies and financial sponsors. | |
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We believe that Stellus Capital Managements broad network of deal origination contacts will provide us with a continuous source of investment opportunities.
These origination relationships provide access not only to potential investment opportunities but also to market intelligence on trends across the credit markets. Since inception, Stellus Capital Management has completed financing transactions with more than 195 equity sponsors and completed multiple financing transactions with more than 35 of those equity sponsors.
We believe that over the past decade, the senior investment team and other investment professionals of Stellus Capital Management have built a reputation as a thoughtful and disciplined provider of capital to lower middle-market companies and a preferred financing source for private equity sponsors and management teams. We believe these factors give Stellus Capital Management a competitive advantage in sourcing investment opportunities, which are put to use for our benefit.
Investment Structuring
Stellus Capital Management believes that each investment has unique characteristics that must be considered, understood and analyzed. Stellus Capital Management structures investment terms based on the business, the credit profile, the outlook for the industry in which a potential portfolio company operates, the competitive landscape, the products or services which the company sells and the management team and ownership of the company, among other factors. Stellus Capital Management relies upon the analysis conducted and information gathered through the investment process to evaluate the appropriate structure for our investments.
We invest primarily in the debt securities of lower middle-market companies. Our investments typically carry a high level of cash pay interest and may incorporate other return-enhancing mechanisms such as commitment fees, OID, early redemption premiums, PIK interest and some form of equity participation, including preferred stock, common stock, warrants and other forms of equity participation. We expect that a typical debt investment in which we invest will have a term at origination of between five and sevenyears. We expect to hold most of our investments to maturity or repayment, but we may sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization, or upon the worsening of the credit quality of the portfolio company.
Stellus Capital Management negotiates covenants in connection with debt investments that provide protection for us but allow appropriate flexibility for the portfolio company. Such covenants may include affirmative and negative covenants, default penalties, lien protection and change of control provisions. Stellus Capital Management requires comprehensive information rights including access to management, financial statements and budgets and, in some cases, membership on the portfolio companys board of directors or board observation rights. Additionally, Stellus Capital Management generally requires financial covenants and terms that restrict an issuers use of leverage and limit asset sales and capital expenditures.
Secured Debt
Secured debt, including first lien (including unitranche) and second lien financing, has liens on the assets of the borrower that serve as collateral in support of the repayment of such loans.
*First Lien Debt*First lien debt is structured with first-priority liens on the assets of the borrower that serve as collateral in support of the repayment of such loans. First lien loans may provide for moderate loan amortization in the earlyyears of the loan, with the majority of the amortization deferred until loan maturity.
*Unitranche Debt*Unitranche debt typically is structured as first lien loans that combine both senior and junior debt, with lenders agreeing separately to an order of priority among them. To the extent that we invest in the last out tranche of a unitranche facility, our unitranche investments will have certain risk characteristics of second lien debt. Unitranche debt typically provides for moderate loan amortization in the initialyears of the debt, with the majority of the principal payment deferred until loan maturity. Since unitranche debt generally allows the borrower to make a large lump sum payment of principal at the end of the loan term, there is a risk of loss if the borrower is unable to pay the
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lump sum or refinance the amount owed at maturity. In some cases, we will be the sole lender, or we, together with our affiliates, will be the sole lender, of unitranche debt, which can provide us with more influence interacting with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.
*Second Lien Debt*Second lien debt is structured as junior, secured loans with second priority liens on an issuers assets. These loans typically provide for moderate loan amortization in the initialyears of the loan, with the majority of the amortization deferred until loan maturity.
Unsecured Debt
Unsecured debt, including senior unsecured and subordinated loans, is not secured by any collateral and is effectively subordinated to the borrowers secured indebtedness (to the extent of the collateral securing such indebtedness), including pursuant to one or more intercreditor agreements that we enter into with holders of a borrowers senior debt.
*Senior Unsecured Loans*Senior unsecured loans are structured as loans that rank senior in right of payment to any of the borrowers unsecured indebtedness that is contractually subordinated to such loans. These loans generally provide for fixed interest rates and amortize evenly over the term of the loan. Senior unsecured loans are generally less volatile than subordinated loans due to their priority over subordinated loans.
*Subordinated Loans*Subordinated loans are structured as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest income. These loans typically have interest-only payments (often representing a combination of cash pay and PIK interest) in the earlyyears, with amortization of principal deferred to maturity. Subordinated loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. Subordinated loans are generally more volatile than secured loans and senior unsecured loans and may involve a greater risk of loss of principal as compared to other types of loans. Subordinated loans often include a PIK feature, which effectively operates as negative amortization of loan principal, thereby increasing credit risk exposure over the life of the loan.
Equity Securities
In connection with some of our debt investments, we may also invest in preferred or common stock or receive nominally priced warrants or options to buy an equity interest in the portfolio company. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure such equity investments and warrants to include provisions protecting our rights as a minority-interest holder, as well as a put, or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and piggyback registration rights.
Investment Process
Through the resources of Stellus Capital Management, we have access to significant research resources, experienced investment professionals, internal information systems and a credit analysis framework and investment process. Stellus Capital Management has designed a highly involved and interactive investment management process, which is the core of its culture and the basis for what we believe is a strong track record of investment returns. The investment process seeks to select only those investments that the Advisor believes have the most attractive risk/reward characteristics. The process involves several levels of review and is coordinated in an effort to identify risks in potential investments. Stellus Capital Management applies its expertise to screen our investment opportunities as described below. This rigorous process, combined with its broad origination capabilities, has allowed the Stellus Capital Management team to be prudent in selecting opportunities in which to make an investment.
All potential investment opportunities undergo an initial informal review by Stellus Capital Managements investment professionals. Each potential investment opportunity that an investment professional determines merits
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consideration is presented and evaluated at a weekly meeting during which Stellus Capital Managements senior investment professionals discuss the merits and risks of the potential investment opportunity as well as the due diligence process and the pricing and structure. If Stellus Capital Managements senior investment professionals believe an investment opportunity merits further review, the investment opportunity is assigned a deal team and the deal team prepares and presents to the investment committee for initial review a prescreen memorandum that generally describes the potential transaction and includes a description of the risks, due diligence process and proposed structure and pricing for the proposed investment opportunity.
Prior to making an investment, Stellus Capital Management conducts rigorous diligence on each investment opportunity. In connection with its due diligence on a potential investment opportunity, Stellus Capital Management utilizes its internal diligence resources, which include its internally developed credit analytical framework, subscriptions to third party research resources, discussions with industry experts, internal information sharing systems and the analytical expertise of its investment professionals. Stellus Capital Management typically reviews the companys historical financials, industry drivers and outlook, competitive threats, customer concentration, asset coverage, projected financials and credit metrics, management background checks and, if applicable, the track record and funding capabilities of the private equity sponsor.
Upon review of the prescreen memorandum, if the investment committee determines to proceed with the review of an investment opportunity, the deal team continues its diligence and deal structuring plans and prepares a credit approval memorandum for review by the investment committee. The credit approval memorandum updates the prescreen memorandum with more deal-specific detail, including an update to the diligence process and any changes in the structure and pricing of the proposed investment.
Investment Committee
Each new investment opportunity must be unanimously approved by Stellus Capital Managements investment committee. Follow-on investments in existing portfolio companies also require the investment committees unanimous approval. Stellus Capital Managements Chief Investment Officer, Robert T. Ladd, reviews any amendments before finalizing and closing negotiations with the prospective portfolio company. The purpose of Stellus Capital Managements investment committee is to evaluate and approve all of our investments, subject at all times to the oversight of our Board. The investment committee process is intended to bring the diverse experience and perspectives of the committees members to the analysis and consideration of each investment. The investment committee consists of Robert T. Ladd, Dean DAngelo, Joshua T. Davis and W. Todd Huskinson. The investment committee serves to provide investment consistency and adherence to our core investment philosophy and policies. The investment committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.
In addition to reviewing investments, investment committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and deal flow are reviewed on a regular basis. Members of the investment team are encouraged to share information and views on credits with the investment committee early in their analysis. We believe this process improves the quality of the analysis and assists the deal team members to work more efficiently.
Each member of the investment committee performs a similar role for other accounts managed by Stellus Capital Management. In certain instances, including in connection with co-investments under the Order, approval by our Board may also be required prior to the making of an investment.
Monitoring Investments
In most cases, we do not have board influence over our portfolio companies. In some instances, Stellus Capital Managements senior investment professionals may obtain board representation or observation rights in conjunction with our investments. Stellus Capital Management takes an active approach in monitoring all investments, including reviews of financial performance on at least a quarterly basis and regular discussions with management. The monitoring process begins with structuring terms and conditions, which require the timely delivery and access to critical financial and business information on portfolio companies.
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Specifically, Stellus Capital Managements monitoring system consists of the following activities:
*Regular Investment Committee Updates*Key portfolio company developments are discussed each week as part of the standard investment committee meeting agenda.
*Written Reports*The deal teams provide periodic written updates as appropriate for key events that impact portfolio company performance or valuation. In addition, deal teams provide written updates following each portfolio company board meeting.
*Quarterly Full Portfolio Review*Stellus Capital Managements investment committee performs a comprehensive review of every portfolio company with the deal teams. This process includes a written performance and valuation update and credit-specific discussion on each of our portfolio companies. Portfolio investments that are not publicly traded or for which market quotations are not readily available are valued at fair value as determined in good faith by our Board based on the input of Stellus Capital Managements investment professionals and our Boards audit committee. In addition, pursuant to our valuation policy, the valuation of each portfolio investment for which a market quotation is not readily available is reviewed by our independent third-party valuation firm at least twice annually.
As part of the monitoring process, Stellus Capital Management also tracks developments in the broader marketplace. Stellus Capital Managements investment professionals have a wealth of information on the competitive landscape, industry trends, relative valuation metrics, and analyses that assist in the execution of our investment strategy. In addition, Stellus Capital Managements extensive communications with brokers and dealers allows its investment professionals to monitor market and industry trends that could affect portfolio investments. Stellus Capital Management may provide ongoing strategic, financial and operational guidance to some portfolio companies either directly or by recommending its investment professionals or other experienced representatives to participate on the portfolio companys board of directors. Stellus Capital Management maintains an extensive network of strategic and operational advisers to call upon for industry expertise or to supplement existing management teams.
Asset Quality
In addition to various risk management and monitoring tools, Stellus Capital Management uses an investment ranking system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment ranking system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:
Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.
Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.
Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.
Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those for which some loss of contractual return but no loss of principal is expected.
Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5 are those for which some loss of return and principal is expected.
In the event that Stellus Capital Management determines that an investment is underperforming, or circumstances suggest that the risk associated with a particular investment has significantly increased, Stellus Capital Management will
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increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions. While the investment ranking system identifies the relative risk for each investment, the ranking alone does not dictate the scope and/or frequency of any monitoring that is performed. The frequency of Stellus Capital Managements monitoring of an investment is determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.
Determination of Net Asset Value and Portfolio Valuation Process
The net asset value per share of our outstanding shares of common stock is determined quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding.
Rule 2a-5 under the 1940 Act (Rule 2a-5) establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are readily available for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. Rule 31a-4 under the 1940 Act (Rule 31a-4) regulates recordkeeping associated with fair value determinations. While our Board has not elected to designate a valuation designee, we have adopted valuation policies and procedures that comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
As a BDC, we will generally invest in illiquid loans and securities, including debt and equity securities of private lower middle-market companies. Section 2(a)(41) of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for securities for which a market quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith by a BDCs board (or valuation designee, as applicable).
In calculating the value of our total assets, investment transactions will be recorded on the trade date. Realized gains or losses will be computed using the specific identification method.
Under procedures approved by our Board, we intend to value investments for which market quotations are readily available at such market quotations. We will obtain these market values from an independent pricing service or at the midpoint of the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market quotations are not readily available will be valued at fair value as determined in good faith by our Board. Such determinations of fair value may involve subjective judgments and estimates. We also engage independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least twice annually.
Debt and equity investments purchased within approximately 90days of the valuation date will be valued at cost, plus accreted discount or minus amortized premium, which approximates fair value. With respect to unquoted securities, our Board will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board will use the pricing indicated by the external event to corroborate and/or assist in determining the valuation. Because we expect that there will not be a readily available market quotation for many of the investments in our portfolio, we expect to value most of our portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations currently assigned.
We have adopted Financial Accounting Standards Board Accounting Standards Codification 820, *Fair Value Measurements and Disclosures* (ASC 820). ASC 820 requires us to assume that the portfolio investment is assumed to
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be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the market in which we can exit portfolio investments with the greatest volume and level of activity is considered our principal market.
With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation process each quarter, as described below:
| | our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of Stellus Capital Management responsible for the portfolio investment; | |
| | preliminary valuation conclusions are then documented and discussed with Stellus Capital Managements senior investment professionals; | |
| | at least twice annually, the valuation for each portfolio investment is reviewed by an independent valuation firm; | |
| | the audit committee of our Board then reviews these preliminary valuations and any valuation provided by an independent valuation firm; and | |
| | the Board then discusses the valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of Stellus Capital Managements investment professionals, the independent valuation firm and the audit committee of the Board. | |
In following these approaches, the types of factors that are taken into account in determining the fair value of our investments include, as relevant, but are not limited to:
| | available current market data, including relevant and applicable market trading and transaction comparables; | |
| | applicable market yields and multiples; | |
| | financial covenants; | |
| | call protection provisions; | |
| | information rights; | |
| | the nature and realizable value of any collateral; | |
| | the portfolio companys ability to make payments, its earnings and discounted cash flows and the markets in which it does business; | |
| | comparisons to financial ratios of peer companies that are public; | |
| | comparable merger and acquisition transactions; and | |
| | the principal market and enterprise values. | |
Realization of Investments
The potential exit scenarios of a portfolio company play an important role in evaluating investment decisions. Our debt orientation provides for increased potential exit opportunities, including (a)the sale of investments in the private
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markets, (b)the refinancing of investments, often due to maturity or recapitalizations, and (c)other liquidity events, including the sale or merger of the portfolio company. Since we seek to maintain a debt orientation in our investments, we expect to receive interest income over the course of the investment period, resulting in a return on invested capital well in advance of final exit.
Derivatives
We may utilize hedging techniques such as interest rate swaps to mitigate potential interest rate risk on our indebtedness. Such interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both short-term and long-term interest rates. We also may use various hedging and other risk management strategies to seek to manage various risks, including changes in currency exchange rates and market interest rates. Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities held in our portfolio.
Rule 18f-4 under the 1940 Act (Rule 18f-4) requires BDCs that use derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a derivatives risk management program, and implement certain testing and board reporting procedures. Rule 18f-4 exempts BDCs that qualify as limited derivatives users from the aforementioned requirements, provided that these BDCs adopt written policies and procedures that are reasonably designed to manage the BDCs derivatives risks and comply with certain recordkeeping requirements. We currently qualify as a limited derivatives user and expect to continue to do so. We have adopted a derivatives policy in compliance with Rule 18f-4 and comply with the recordkeeping requirements.
Managerial Assistance
As a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Stellus Capital Management or an affiliate of Stellus Capital Management provides such managerial assistance on our behalf to portfolio companies that request this assistance. We may receive fees for these services and will reimburse Stellus Capital Management or an affiliate of Stellus Capital Management, as applicable, for its allocated costs in providing such assistance, subject to the review by our Board, including our independent directors.
Competition
Our primary competitors in providing financing to lower middle-market companies include public and private funds, other BDCs, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to maintain our qualification as a RIC.
We use the expertise of the investment professionals of Stellus Capital Management to which we have access to assess investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we believe that the relationships of the investment professionals of Stellus Capital Management enable us to learn about, and compete effectively for, financing opportunities with attractive lower middle-market companies in the industries in which we invest.
Employees
We do not have any direct employees, and our day-to-day investment operations are managed by Stellus Capital Management. We have a Chief Executive Officer and President and a Chief Financial Officer, Chief Compliance
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Officer, Treasurer and Secretary. To the extent necessary, we may hire additional personnel going forward. Our officers are employees of Stellus Capital Management and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and his staff is paid by us pursuant to the Administration Agreement that we have entered into with Stellus Capital Management (the Administration Agreement).
Management Agreements
Stellus Capital Management serves as our investment adviser and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act). In addition, Stellus Capital Management serves as our administrator.
Investment Advisory Agreement
Subject to the overall supervision of our Board and in accordance with the 1940 Act, Stellus Capital Management manages our day-to-day operations and provides investment advisory services to us. Under the terms of the Investment Advisory Agreement (the Investment Advisory Agreement), Stellus Capital Management:
| | determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; | |
| | identifies, evaluates and negotiates the structure of the investments we make; | |
| | executes, closes, services and monitors the investments we make; | |
| | determines the securities and other assets that we purchase, retain or sell; | |
| | performs due diligence on prospective portfolio companies; and | |
| | provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds. | |
Pursuant to the Investment Advisory Agreement, we have agreed to pay Stellus Capital Management a fee for investment advisory and management services consisting of two componentsa base management fee and an incentive fee. The cost of both the base management fee and the incentive fee is ultimately borne by our stockholders.
*Management Fee*
The base management fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds or other forms of leverage (including preferred stock, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) and excluding cash and cash equivalents. For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters. Base management fees for any partialmonth or quarter are appropriately prorated.
*Incentive Fee*
The incentive fee, which provides Stellus Capital Management with a share of the income that it generates for us, has two components, ordinary income and capital gains, calculated as follows:
The ordinary income component is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a total return requirement and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed
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as a rate of return on the value of our net assets attributable to our common stock, for the immediately preceding calendar quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a catch-up provision, for the benefit of Stellus Capital Management, measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, Stellus Capital Management receives no incentive fee on our ordinary income until our pre-incentive fee net investment income equals the hurdle rate of 2.0%, but then receives, as a catch-up, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%.
The effect of the catch-up provision is that, subject to the total return provision discussed below, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, Stellus Capital Management receives 20.0% of our pre-incentive fee net investment income as if a hurdle rate did not apply. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Companys pre-incentive fee net investment income will be payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive fee that is payable in a calendar quarter will be limited to the lesser of (i) 20.0% of the amount by which our pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the catch-up provision, and (ii) (x) 20.0% of the cumulative net increase in net assets resulting from operations for the then-current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters.
For the foregoing purpose, the cumulative net increase in net assets resulting from operations is the amount, if positive, of the sum of our pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation for the then-current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest (such as PIK interest or OID) will be paid to Stellus Capital Management, without any interest thereon, only if and to the extent we actually receive such interest in cash, and any accrual thereof will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possible elimination of the incentive fees for such quarter. There is no accumulation of amounts on the hurdle rate from quarter to quarter, and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle, and there is no delay of payment if prior quarters are below the quarterly hurdle. Stellus Capital Management has agreed to permanently waive any interest accrued on the portion of the incentive fee attributable to deferred interest (such as PIK interest or OID).
Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss, subject to the total return requirement. For example, if we receive pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses. Our net investment income used to calculate this component of the incentive fee is also included in the amount of our gross assets used to calculate the 1.75% base management fee. These calculations are appropriately prorated for any period of less than threemonths and adjusted for any share issuances or repurchases during the current quarter.
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The following is a graphical representation of the calculation of the income-related portion of the incentive fee:
**Quarterly Incentive Fee Based on Net Investment Income**
**Pre-Incentive Fee Net Investment Income**
**(expressed as apercentage of the value of net assets)**
***Percentage of Pre-incentive Fee Net Investment Income**
**Allocated to Income-Related Portion of Incentive Fee**
The capital gains component of the incentive fee is determined and payable in arrears as of the end of each calendaryear (or upon termination of the Investment Advisory Agreement, as of the termination date), and is equal to 20.0% of our cumulative aggregate realized capital gains from inception through the end of that calendaryear, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of suchyear, less the aggregate amount of any previously paid capital gains incentive fees. If such amount is negative, then no capital gains incentive fee will be payable for suchyear. Additionally, if the Investment Advisory Agreement is terminated as of a date that is not a calendaryear end, the termination date will be treated as though it were a calendaryear end for purposes of calculating and paying the capital gains incentive fee.
Examples of Quarterly Incentive Fee Calculation*
**Example 1: Income Related Portion of Incentive Fee Before Total Return Requirement Calculation:**
Alternative 1
Assumptions
Investment income (including interest, dividends, fees, etc.) = 1.25%
Hurdle rate(1)= 2.0%
Management fee(2)= 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income(management fee + other expenses)) = 0.6125%
Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no income-related incentive fee.
Alternative 2
Assumptions
Investment income (including interest, dividends, fees, etc.) = 2.9%
Hurdle rate(1)= 2.0%
Management fee(2)= 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
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Pre-incentive fee net investment income
(investment income(management fee + other expenses)) = 2.2625%
| Incentive fee | = 100% Pre-incentive fee net investment income (subject to catch-up)(3)= 100% (2.2625%2.0%)= 0.2625% | |
Pre-incentive fee net investment income exceeds the hurdle rate, but does not fully satisfy the catch-up provision, therefore the income related portion of the incentive fee is 0.2625%.
Alternative 3
Assumptions
Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1)= 2.0%
Management fee(2)= 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income(management fee + other expenses)) = 2.8625%
Incentive fee = 100% Pre-incentive fee net investment income (subject to catch-up)(3)
Incentive fee = 100% catch-up + (20.0% (pre-incentive fee net investment income2.5%))
| Catch-up | = 2.5%2.0%= 0.5% | |
| Incentive fee | = (100% 0.5%) + (20.0% (2.8625%2.5%))= 0.5% + (20.0% 0.3625%)= 0.5% + 0.0725%= 0.5725% | |
Pre-incentive fee net investment income exceeds the hurdle rate, and fully satisfies the catch-up provision, therefore the income related portion of the incentive fee is 0.5725%.
| (1) | Represents 8.0% annualized hurdle rate. | |
| (2) | Represents 1.75% annualized base management fee. | |
| (3) | The catch-up provision is intended to provide Stellus Capital Management with an incentive fee of 20.0% on all pre-incentive fee net investment income as if a hurdle rate did not apply when our net investment income exceeds 2.5% in any fiscal quarter. | |
Example 2: Income Portion of Incentive Fee with Total Return Requirement Calculation:
Alternative 1:
Assumptions
Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1)= 2.0%
Management fee(2)= 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income(management fee + other expenses) = 2.8625%
Cumulative incentive compensation accrued and/or paid for preceding 11 calendar quarters = $9,000,000
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20.0% of cumulative net increase in net assets resulting from operations over current and preceding 11 calendar quarters = $8,000,000
Although our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% (as shown in Alternative 3 of Example 1 above), no incentive fee is payable because 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding calendar quarters did not exceed the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters.
Alternative 2:
Assumptions
Investment income (including interest, dividends, fees, etc.) = 3.5%
Hurdle rate(1)= 2.0%
Management fee(2)= 0.4375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.2%
Pre-incentive fee net investment income
(investment income(management fee + other expenses) = 2.8625%
Cumulative incentive compensation accrued and/or paid for preceding 11 calendar quarters = $9,000,000
20.0% of cumulative net increase in net assets resulting from operations over current and preceding
11 calendar quarters = $10,000,000
Because our pre-incentive fee net investment income exceeds the hurdle rate of 2.0% and because 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding calendar quarters exceeds the cumulative income and capital gains incentive fees accrued and/or paid for the preceding 11 calendar quarters, an incentive fee would be payable, as shown in Alternative 3 of Example 1 above.
| (1) | Represents 8.0% annualized hurdle rate. | |
| (2) | Represents 1.75% annualized base management fee. | |
Example 3: Capital Gains Portion of Incentive Fee(*):
Alternative 1:
Assumptions
Year 1: $2.0million investment made in Company A (Investment A), and $3.0million investment made in Company B (Investment B)
Year 2: Investment A sold for $5.0million and fair market value (FMV) of Investment B determined to be $3.5million
Year 3: FMV of Investment B determined to be $2.0million
Year 4: Investment B sold for $3.25million
The capital gains portion of the incentive fee would be:
Year 1: None
Year 2: Capital gains incentive fee of $0.6million($3.0million realized capital gains on sale of Investment A multiplied by 20.0%)
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Year 3: None$0.4million (20.0% multiplied by ($3.0million cumulative capital gains less $1.0million cumulative capital depreciation)) less $0.6million (previous capital gains fee paid inYear 2)
Year 4: Capital gains incentive fee of $50,000$0.65million ($3.25million cumulative realized capital gains multiplied by 20.0%) less $0.6million (capital gains incentive fee taken inYear 2)
Alternative 2
Assumptions
Year 1: $2.0million investment made in Company A (Investment A), $5.25million investment made in Company B (Investment B) and $4.5million investment made in Company C (Investment C)
Year 2: Investment A sold for $4.5million, FMV of Investment B determined to be $4.75million and FMV of Investment C determined to be $4.5million
Year 3: FMV of Investment B determined to be $5.0million and Investment C sold for $5.5million
Year 4: FMV of Investment B determined to be $6.0million
Year 5: Investment B sold for $4.0million
The capital gains incentive fee, if any, would be:
Year 1: None
Year 2: $0.4million capital gains incentive fee20.0% multiplied by $2.0million ($2.5million realized capital gains on Investment A less $0.5million unrealized capital depreciation on InvestmentB)
Year 3: $0.25million capital gains incentive fee(1)$0.65million (20.0% multiplied by $3.25million ($3.5million cumulative realized capital gains less $0.25million unrealized capital depreciation)) less $0.4million capital gains incentive fee received inYear 2
Year 4: $0.05million capital gains incentive fee$0.7million ($3.50million cumulative realized capital gains multiplied by 20.0%) less $0.65million cumulative capital gains incentive fee paid inYear 2 andYear 3
Year 5: None$0.45million (20.0% multiplied by $2.25million (cumulative realized capital gains of $3.5million less realized capital losses of $1.25million)) less $0.7million cumulative capital gains incentive fee paid inYear 2,Year 3 andYear 4(2)
| * | The hypothetical amounts of returns shown are based on apercentage of our total net assets and assume no leverage. There is no guarantee that positive returns will be realized and actual returns may vary from those shown in this example. | |
| (1) | As illustrated inYear 3 of Alternative 1 above, if a portfolio company were to be wound up on a date other than its fiscalyear-end of anyyear, it may have paid aggregate capital gains incentive fees that are more than the amount of such fees that would be payable if such portfolio company had been wound up on its fiscalyear end of suchyear. | |
| (2) | As noted above, it is possible that the cumulative aggregate capital gains fee received by Stellus Capital Management ($0.70million) is effectively greater than $0.45million (20.0% of cumulative aggregate realized capital gains less net realized capital losses or net unrealized depreciation ($2.25million)). | |
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*Payment of Our Expenses*
All investment professionals of Stellus Capital Management, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of personnel allocable to these services to us, are provided and paid for by Stellus Capital Management and not by us. We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to:
| | our organization and offering; | |
| | calculating our net asset value (including the cost and expenses of any independent valuation firm); | |
| | fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; | |
| | interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; | |
| | offerings of our common stock and other securities; | |
| | base management and incentive fees; | |
| | administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of Stellus Capital Managements overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his staff); | |
| | transfer agent, dividend agent and custodial fees and expenses; | |
| | U.S. federal and state registration fees; | |
| | all costs of registration and listing our shares on any securities exchange; | |
| | U.S. federal, state and local taxes; | |
| | independent directors fees and expenses; | |
| | costs of preparing and filing reports or other documents required by the SEC or other regulators; | |
| | costs of any reports, proxy statements or other notices to stockholders, including printing costs; | |
| | costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; | |
| | direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; | |
| | proxy voting expenses; and | |
| | all other expenses incurred by us or Stellus Capital Management in connection with administering our business. | |
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*Duration and Termination*
Unless terminated earlier as described below, the Investment Advisory Agreement will continue in effect fromyear toyear if approved annually by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, and, in either case, if also approved by a majority of the independent directors. See *Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Subsequent Events*. The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by Stellus Capital Management and may be terminated by either party without penalty upon 60days written notice to the other. The holders of a majority of our outstanding voting securities may also terminate the Investment Advisory Agreement without penalty upon 60days written notice. See *Item1A. Risk FactorsRisks Related to our Operation*s in this Annual Report on Form10-K. We are dependent upon key personnel of Stellus Capital Management for our future success. If Stellus Capital Management were to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed.
*Indemnification*
The Investment Advisory Agreement provides that Stellus Capital Management and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Stellus Capital Managements services under the Investment Advisory Agreement or otherwise as our investment adviser. Our obligation to provide indemnification under the Investment Advisory Agreement, however, is limited by the 1940 Act and Investment Company Act Release No.11330, which, among other things, prohibit us from indemnifying any director, officer or other individual from any liability resulting directly from the willful misconduct, bad faith, gross negligence in the performance of duties or reckless disregard of applicable obligations and duties of the directors, officers or other individuals and require us to set forth reasonable and fair means for determining whether indemnification shall be made.
*Board Approval of the Investment Advisory Agreement*
Our Board, including a majority of our independent directors, approved the Investment Advisory Agreement at its first meeting, held on September24, 2012, and approved the annual continuation of the Investment Advisory Agreement most recently on January7, 2026 by virtual means in reliance on relief provided by the SEC in response to the COVID-19 pandemic. As a condition of the SECs in-person meeting relief, our Board will be required to ratify the re-approval of the Investment Advisory Agreement at its next in-person meeting. In its consideration of the Investment Advisory Agreement, the Board focused on information it had received relating to, among other things: (a)the nature, quality and extent of the advisory and other services to be provided to us by our investment adviser; (b)comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; (c)our projected operating expenses and expense ratio compared to BDCs with similar investment objectives; (d)any existing and potential sources of indirect income to our investment adviser from its relationships with us and the profitability of those relationships; (e)information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement; (f)the organizational capability and financial condition of our investment adviser; and (g)various other factors.
In voting to approve the Investment Advisory Agreement, our Board, including all of the directors who are not interested persons of the Company, made the following conclusions:
| | Nature, Extent and Quality of Services. Our Board considered the nature, extent and quality of the advisory and other services to be provided by Stellus Capital Management, including the investment performance of Stellus Capital Managements investment team. Our Board also considered the investment selection process expected to be employed by Stellus Capital Management, including the flow of transaction opportunities resulting from its investment teams significant experience in originating, structuring and managing loans and debt securities through market cycles, and the employment of Stellus Capital Managements investment strategy, rigorous due diligence process, investment structuring, and ongoing relationships with and monitoring of portfolio companies, in light of our investment objective. Our Board also considered Stellus Capital Managements | |
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| personnel and their prior experience in connection with the types of investments made by us, including such personnels corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law firms, boutique advisory firms and distressed/specialty lenders. In addition, our Board considered the other terms and conditions of the Investment Advisory Agreement, including the fact that we have the ability to terminate the Investment Advisory Agreement without penalty upon 60days notice to Stellus Capital Management. As a result, our Board determined that the substantive terms of the Investment Advisory Agreement (other than the fees payable thereunder, which our Board reviewed separately), including the services to be provided, are similar to those of comparable externally managed BDCs described in the available market data and are in the best interests of our stockholders. Moreover, our Board concluded that although the substantive terms of the Investment Advisory Agreement, including the services to be provided, are generally the same as those of comparable externally managed BDCs described in the market data then available, it would be difficult to obtain similar services from other third-party service providers in light of the nature, quality and extent of the advisory and other services provided to us by Stellus Capital Management. | |
| | Projected Costs of the Services Provided to the Company. Our Board considered (i)comparative data based on publicly available information with respect to services rendered and the advisory fees (including the base management fee and incentive fees) of other externally managed BDCs that invest in similar securities, our total expenses, and expense ratios compared to other externally managed BDCs of similar size and with similar investment objectives and (ii)the administrative services that Stellus Capital Management will provide to us at cost pursuant to the Administration Agreement. Based upon its review, our Board concluded that the fees to be paid under the Investment Advisory Agreement are generally comparable to or more favorable than those payable under agreements of comparable externally managed BDCs and reasonable in relation to the services expected to be provided by Stellus Capital Management. | |
| | Projected Profitability of Stellus Capital Management. Our Board considered information about Stellus Capital Management, including the anticipated costs of the services to be provided by Stellus Capital Management and the anticipated profits to be realized by it, including as a result of our investment performance, which would generally be equal or similar to the profitability of investment advisers managing comparable BDCs. Our Board reviewed our investment performance, as well as comparative data with respect to the investment performance of other externally managed BDCs, as it relates to the management and incentive fees we pay Stellus Capital Management. As a result of this review, our Board determined that our investment performance supported the renewal of the Investment Advisory Agreement. | |
| | Economies of Scale. Our Board considered the extent to which economies of scale would be realized as we grow, and whether the fees payable under the Investment Advisory Agreement reflect these economies of scale for the benefit of our stockholders. Taking into account such information, our Board determined that the advisory fee structure under the Investment Advisory Agreement was reasonable with respect to any economies of scale that may be realized as we grow. | |
| | Limited Potential for Additional Benefits Derived by Stellus Capital Management. Our Board considered existing and potential sources of indirect income Stellus Capital Management would receive as a result of the relationship with us, and whether there would be potential for additional benefits to be derived by Stellus Capital Management as a result of our relationship, and was advised any such potential would be limited. | |
| | Conclusions. In view of the wide variety of factors that our Board considered in connection with its evaluation of the Investment Advisory Agreement, our Board concluded that it is not practical to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. The Board did not rank or otherwise assign relative weights to the specific factors it considered in connection with its evaluation of the Investment Advisory Agreement, nor did it undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate decision made by our Board. Rather, the Board based its approval of the Investment Advisory Agreement on the totality of information presented to it. In considering the factors discussed above, individual directors may have given different weights to different factors. | |
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Based on the information reviewed and the discussions, the Board, including a majority of the independent directors, concluded that the investment management fee rates and terms are reasonable in relation to the services to be provided and approved the Investment Advisory Agreement as being in the best interests of our stockholders.
Administration Agreement
Under the Administration Agreement, Stellus Capital Management furnishes us with office facilities and equipment and provides us with clerical, bookkeeping, recordkeeping and other administrative services at such facilities. Stellus Capital Management also performs, or oversees the performance of, our required administrative services, which include being responsible for the financial and other records that we are required to maintain and preparing reports to our stockholders and reports and other materials filed with the SEC. In addition, Stellus Capital Management assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports and other materials to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Stellus Capital Management also provides managerial assistance on our behalf to those portfolio companies that have accepted our offer to provide such assistance.
Payments under the Administration Agreement are equal to an amount based upon our allocable portion (subject to the review of our Board) of Stellus Capital Managements overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and his staff. In addition, if requested to provide significant managerial assistance to our portfolio companies, Stellus Capital Management will be paid an additional amount based on the services provided, which shall not exceed the amount we receive from such portfolio companies for providing this assistance. The Administration Agreement had an initial term of twoyears and may be renewed with the approval of our Board on an annual basis. The Board most recently approved the annual continuation of the Administration Agreement on January 7, 2026. The Administration Agreement may be terminated by either party without penalty upon 60days written notice to the other party. To the extent that Stellus Capital Management outsources any of its functions under the Administration Agreement, we will pay the fees associated with such functions on a direct basis without any incremental profit to Stellus Capital Management. Stockholder approval is not required to amend the Administration Agreement.
*Indemnification*
The Administration Agreement provides that Stellus Capital Management, its affiliates and their respective officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Stellus Capital Managements services under the Administration Agreement or otherwise as our administrator. Our obligation to provide indemnification under the Administration Agreement, however, is limited by the 1940 Act and Investment Company Act Release No.11330, which, among other things, prohibit us from indemnifying any director, officer or other individual from any liability resulting directly from the willful misconduct, bad faith, gross negligence in the performance of duties or reckless disregard of applicable obligations and duties of the directors, officers or other individuals and require us to set forth reasonable and fair means for determining whether indemnification shall be made.
License Agreement
We have entered into a license agreement with Stellus Capital Management under which Stellus Capital Management has agreed to grant us a non-exclusive, royalty-free license to use the name Stellus Capital. Under this agreement, we have a right to use the Stellus Capital name for so long as Stellus Capital Management or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the Stellus Capital name. This license agreement will remain in effect for so long as Stellus Capital Management or an affiliate thereof remains our investment advise.
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Exchange Act Reports
We maintain a website at *www.stelluscapital.com* (under the Public Investors section)*.* The information on our website is not incorporated by reference in this Annual Report on Form10-K.
We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended (the Exchange Act). These include our annual reports on Form10-K, our quarterly reports on Form10-Q and our current reports on Form8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
Regulation as a Business Development Company
We are a BDC under the 1940 Act that has elected to be treated as a RIC under the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than interested persons, as that term is defined in Section 2(a)(19) of the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by the holders of a majority of our outstanding voting securities.
We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an underwriter, as that term is defined in the Securities Act of 1933, as amended (the Securities Act). Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of these are policies fundamental and any of them may be changed without stockholder approval upon 60days prior written notice to stockholders.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section55(a)of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. The principal categories of qualifying assets relevant to our business are the following:
| (1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rulesas may be prescribed by the SEC. Under the 1940 Act and the rulesthereunder, eligible portfolio companies include any issuer that: | |
| a. | is organized under the laws of, and has its principal place of business in, the United States; | |
| b. | is not an investment company (other than an SBIC wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and | |
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| c. | satisfies any of the following: | |
| i. | has an equity capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; | |
| ii. | 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 eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company; or | |
| iii. | 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. | |
| (2) | Securities of any eligible portfolio company which we control. | |
| (3) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident to such a private transaction, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. | |
| (4) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. | |
| (5) | Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities. | |
| (6) | Cash, cash equivalents, U.S. government securities or high-quality debt securities that mature in oneyear or less from the date of investment. | |
The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.
Managerial Assistance to Portfolio Companies
In order to count portfolio securities as qualifying assets for the purpose of the 70% test, a BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance. However, when the BDC purchases securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means any arrangement whereby the BDC, through its directors, officers, employees or agents, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. With respect to an SBIC, making available managerial assistance means the making of loans to a portfolio company. Stellus Capital Management will provide such managerial assistance on our behalf to portfolio companies that request this assistance.
Temporary Investments
Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt investments that mature in oneyear or less from the date of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets or temporary investments. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, so long as the agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is
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greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is nopercentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to maintain our qualification as a RIC for U.S. federal income tax purposes. Accordingly, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Stellus Capital Management will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Warrants and Options
Under the 1940 Act, a BDC is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchase shares of capital stock that it may have outstanding at any time. Under the 1940 Act, we may generally only offer warrants provided that (i)the warrants expire by their terms within tenyears, (ii)the exercise or conversion price is not less than the current market value at the date of issuance, (iii)our stockholders authorize the proposal to issue such warrants, and our Board approves such issuance on the basis that the issuance is in the best interests of us and our stockholders and (iv)if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them have been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities. In particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase capital stock cannot exceed 25% of the BDCs total outstanding shares of capital stock.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see Item1A. Risk FactorsRisks Relating to our Business and Structure Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage in this Annual Report on Form10-K.
Common Stock
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock at a price below the then-current net asset value of the common stock if our Board determines that such sale is in our and our stockholders best interests, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board, closely approximates the market value of such securities (less any distributing commission or discount). We would need 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. We may also make rights offerings to our stockholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act.
Codes of Ethics
We and Stellus Capital Management have each adopted a code of ethics pursuant to Rule17j-1 under the 1940 Act and Rule 206(4)-7 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each such code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with such codes requirements. In addition, each code of ethics is available on the EDGAR database on the SECs website at *www.sec.gov*. You may also obtain copies of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
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Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to Stellus Capital Management. The proxy voting policies and procedures of Stellus Capital Management are set out below. The guidelines will be reviewed periodically by Stellus Capital Management and our independent directors and, accordingly, are subject to change.
*Introduction*.As an investment adviser registered under the Advisers Act, Stellus Capital Management has a fiduciary duty to act solely in our best interests. As part of this duty, Stellus Capital Management recognizes that it must vote our securities in a timely manner free of conflicts of interest and in our best interests. Stellus Capital Managements policies and procedures for voting proxies for its investment advisory clients are intended to comply with Section206 of, and Rule206(4)-6 under, the Advisers Act.
*Proxy Policies*.Stellus Capital Management votes proxies relating to our portfolio securities in what it perceives to be the best interest of our stockholders. Stellus Capital Management reviews on a case-by-case basis each proposal submitted to a stockholder vote to determine its effect on the portfolio securities we hold. In most cases, Stellus Capital Management will vote in favor of proposals that Stellus Capital Management believes are likely to increase the value of the portfolio securities we hold. Although Stellus Capital Management will generally vote against proposals that may have a negative effect on our portfolio securities, Stellus Capital Management may vote for such a proposal if there exist compelling long-term reasons to do so.
To ensure that Stellus Capital Managements vote is not the product of a conflict of interest, Stellus Capital Management requires that anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote. Where conflicts of interest may be present, Stellus Capital Management will disclose such conflicts to us, including our independent directors, and may request guidance from us on how to vote such proxies.
*Proxy Voting Records*.You may obtain information about how Stellus Capital Management voted proxies by making a written request for proxy voting information to: Stellus Capital Investment Corporation, Attention: Investor Relations, 4400 Post Oak Parkway, Suite2200, Houston, TX 77027, or by calling us collect at (713) 292-5414. The SEC also maintains a website at *www.sec.gov* that contains this information.
Privacy Principles
We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as required by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third-party administrator).
We restrict access to non-public personal information about our stockholders to employees of Stellus Capital Management and its affiliates with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards that are designed to protect the non-public personal information of our stockholders.
Other
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such persons office.
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We and Stellus Capital Management are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of relevant federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a Chief Compliance Officer to be responsible for administering the policies and procedures.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) imposes a wide variety of regulatory requirements on publicly held companies and their insiders. Many of these requirements affect us. For example:
| | pursuant to Rule13a-14 under the Exchange Act, our principal executive officer and principal financial officer must certify the accuracy of the financial statements contained in our periodic reports; | |
| | pursuant to Item307 under RegulationS-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; | |
| | pursuant to Rule13a-15 under the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting; and | |
| | pursuant to Item308 of RegulationS-K and Rule13a-15 under the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
Taxation as a RIC
As a BDC, we have elected to be treated and intend to qualify annually to be treated as a RIC under subchapter M of the Code; however, no assurance can be given that we will be able to maintain our RIC tax treatment. As a RIC, we generally will not be subject to U.S. federal income tax on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends.
To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, we generally must timely distribute to our stockholders, for each taxable year, at least 90% of our investment company taxable income, which is our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the Annual Distribution Requirement).
For any taxableyear in which we qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our income we timely distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax imposed at corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.
In addition, we will be subject to a nondeductible 4% U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner each calendar year an amount at least equal to the sum of (a)98% of our net ordinary income for each calendaryear, (b)98.2% of the amount by which our capital gain exceeds our capital loss (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year, and (c) certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the Excise Tax Distribution Requirement). In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
| | continue to qualify as a BDC under the 1940 Act at all times during eachyear; | |
| | derive in each taxableyear at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other taxable disposition of stock or other securities or foreign | |
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| currencies, or other income derived with respect to our business of investing in such stock or securities, and net income from certain qualified publicly traded partnerships (as defined in the Code) (the 90% Income Test); and | |
| | diversify our holdings so that at the end of each quarter of the taxableyear: | |
| o | at least 50% of the value of our assets consists of cash, cash items, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and | |
| o | no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer, (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled by us and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of one or more qualified publicly traded partnerships (the Diversification Tests). | |
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income, franchise or withholding tax liabilities.
For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rulesas having OID (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income eachyear a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxableyear. Because any OID accrued will be included in our investment company taxable income for theyear of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. If we are not able to obtain sufficient cash from other sources to satisfy the Annual Distribution Requirement, we may fail to maintain our tax treatment as a RIC and become subject to U.S. federal income tax on all of our taxable income without the benefit of the dividends-paid deduction.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy (i)the Annual Distribution Requirement and to otherwise eliminate our liability for U.S. federal income and excise taxes and/or (ii)the Diversification Tests. However, under the 1940 Act, we are not permitted in certain circumstances to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. See Item1. Business Regulation as a Business Development CompanySenior Securities in this Annual Report on Form10-K. Moreover, our ability to dispose of assets to meet the Annual Distribution Requirement, the Excise Tax Distribution Requirement or the Diversification Tests may be limited by (a)the illiquid nature of our portfolio and/or (b)other requirements relating to our qualifications as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement, the Excise Tax Distribution Requirement or the Diversification Tests, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
In addition, we have formed and operate two SBIC subsidiaries, and are partially dependent on the SBIC subsidiaries for cash distributions to enable us to meet the Annual Distribution Requirement. The SBIC subsidiaries may be limited by the Small Business Investment Act of 1958, as amended (the Small Business Investment Act), and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC. We may have to request a waiver of the SBAs restrictions for the SBIC subsidiaries to make certain distributions to maintain our RIC tax treatment. We cannot assure you that the SBA will grant such waiver. If the SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to maintain our tax treatment as a RIC, which would result in us becoming subject to U.S. federal income tax.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (a)treat dividends that would otherwise constitute qualified dividend income as non-qualified
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dividend income, (b)treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment, (c)disallow, suspend or otherwise limit the allowance of certain losses or deductions, (d)convert lower-taxed long term capital gain into higher-taxed short-term capital gain or ordinary income, (e)convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (f)cause us to recognize income or gain without a corresponding receipt of cash, (g)adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (h)adversely alter the characterization of certain complex financial transactions and (i)produce income that will not be qualifying income for purposes of the 90% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the effect of these provisions and prevent our disqualification as a RIC.
A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income (which is, generally, ordinary income plus the excess of net short-term capital gains over net long-term capital losses). If our expenses in a given year exceed investment company taxable income, we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RICs investment company taxable income, but may carry forward such losses indefinitely and use them to offset capital gains. Due to these limits on the deductibility of expenses, over the course of one or more taxable years we may have, for U.S. federal income tax purposes, aggregate taxable income that we are required to distribute and that is taxable to our shareholders, even if such income is greater than the aggregate net income we actually earned during those years. Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, a shareholder may receive a larger capital gain distribution than we would have received in the absence of such transactions.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such capital gain or loss generally will be long term or short term, depending on how long we held a particular warrant. Some of the income and fees that we may recognize will not satisfy the 90% Income Test. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may hold assets that generate such income and provide services that generate such fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay U.S. federal income tax at corporate rates on their earnings, which ultimately will reduce our return on such income and fees.
A publicly offered regulated investment company is a RIC whose shares are either (i) continuously offered pursuant to a public offering within the meaning of Section 4 of the Securities Act, (ii) regularly traded on an established securities market or (iii) held by at least 500 persons at all times during the taxable year. We currently expect to qualify as a publicly offered RIC, but there can be no assurance that we will in fact so qualify for any of our taxable years. If we are not treated as a publicly offered RIC for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from us in the amount of such U.S. stockholders allocable share of the base management fee and incentive fees paid to our investment adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust or estate.
If we are unable to qualify for tax treatment as a RIC, and certain relief provisions are unable to be satisfied, we would be subject to U.S. federal income tax imposed at corporate rates (and also will be subject to any applicable state and local taxes), on all of our taxable income (including our net capital gains) regardless of whether we make any distributions to our stockholders. In any taxable year that we do not qualify as a RIC, distributions would not be required, but if such distributions are paid, including distributions of net long-term capital gain, they would be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain holding period requirements and other limitations under the Code, corporate stockholders would be eligible to claim a dividends received deduction with respect to such dividend and non-corporate stockholders would generally be able to treat such dividend income as qualified dividend income, which is subject to reduced rates of U.S. federal income tax. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return
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of capital to the extent of the stockholders adjusted tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC for a period greater than two taxable years, to requalify as a RIC in a subsequent year we may be subject to U.S. federal income tax imposed at corporate rates on any net built-in gains with respect to certain of our assets (i.e. the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years.
NYSE Corporate Governance Regulations
The New York Stock Exchange (NYSE) has adopted corporate governance regulations that listed companies must comply with. We are in compliance with such corporate governance listing standards applicable to BDCs.
Regulation as a Small Business Investment Company
Our wholly owned SBIC subsidiaries SBIC licenses allow them to incur leverage by issuing SBA-guaranteed debentures, subject to SBA regulations. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over U.S. Treasury Noteswith ten-year maturities.
SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses. Under current SBA regulations, eligible small businesses (together with their affiliates) include businesses that have a tangible net worth not exceeding $24.0million and have average annual net income after U.S federal income taxes not exceeding $8.0million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscalyears. In addition, an SBIC must devote 25% of its investment activity to smaller enterprises, as defined by the SBA. A smaller enterprise is a business (together with its affiliates) that has a net worth not exceeding $6.0million and has average annual net income after U.S. federal income taxes not exceeding $2.0million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscalyears. SBA regulations also provide alternative size standard criteria to determine eligibility of a small business or a smaller enterprise, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales of the business and its affiliates.
The SBA generally prohibits an SBIC from providing financing to small businesses with certain characteristics, such as relenders or businesses with the majority of their employees located outside the United States, and business engaged in certain prohibited industries, such as project finance, real estate, farmland, financial intermediaries or certain passive (i.e. non-operating) businesses. Without prior SBA approval, an SBIC may not provide financing or a commitment to a small business in an amount equal to more than approximately 10.0% of the SBICs private capital in any one company and its affiliates.
SBA regulations currently limit the amount that an SBIC subsidiary may borrow to a maximum of $175.0million with at least $87.5million in regulatory capital (as defined in the SBA regulations), subject to SBA approval. The maximum leverage available to a family of two or more SBIC funds under common control is $350.0million, subject to SBA approval. As of December 31, 2025, our SBIC I subsidiary had $75.0million in regulatory capital and $124.0million in SBA-guaranteed debentures outstanding. As of December 31, 2025, our SBIC II subsidiary had $87.5million in regulatory capital and $175.0million in SBA-guaranteed debentures outstanding. As of December 31, 2025, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $290.4 million.
We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act. This allows us increased flexibility under the asset coverage requirement by permitting us to borrow up to $325.0million more (subject to SBA approval) than we would otherwise be able to absent the receipt of this exemptive relief.
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Our SBIC subsidiaries are subject to regulation and oversight by the SBA, including, among other requirements, maintaining certain minimum financial ratios and other covenants, routine examination by the SBA, and the performance of a financial audit by an independent auditor. Additionally, the SBA restricts the ability of an SBIC to provide financing to an associate, as defined in the SBA regulations, without prior written approval from the SBA. SBA regulations also prohibit, without prior SBA approval, a change of control or change in ownership of an SBIC (as such terms are defined in the SBA regulations) and require that SBICs invest idle funds in accordance with SBA regulations. Our SBIC subsidiaries also may be limited in their ability to make distributions to us if they do not have sufficient capital, in accordance with SBA regulations.
Receipt of an SBIC license does not assure that our SBIC subsidiaries will receive SBA-guaranteed debenture funding, which is dependent upon our SBIC subsidiaries continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to our SBIC subsidiaries assets over our stockholders in the event we liquidate one or both of our SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteed debentures issued by our SBIC subsidiaries upon an event of default.
Item1A.****Risk Factors
RISK FACTORS
*Investing in our securities involves a number of significant risks. Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this**Annual Report**on Form10-K, before you decide whether to make an investment in our securities. The risks set out below are the principal risks with respect to an investment in our securities generally and with respect to a BDC with investment objectives, investment policies, capital structures or trading markets similar to ours. However, they may not be the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, our net asset value and the trading price of our securities could decline, and you may lose all or part of your investment.*
Risks Relating to our Business and Structure
The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business and operations.
From time to time, capital markets may experience periods of disruption and instability, including during portions of the past several fiscal years. There can be no assurance these market conditions will not continue or worsen in the future, including as a result of inflation and fluctuating interest rates, the wars in Ukraine and Russia and the Middle East, and health epidemics and pandemics.
Equity capital may be difficult to raise during such periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors.
Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. The reappearance of market conditions similar to those experienced during portions of the past several fiscal years and from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms, and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we have historically experienced, including being in an elevated interest rate environment. If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
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Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity).
Significant changes in the capital markets may adversely affect the pace of our investment activity and economic activity generally. The illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital, and any required sale of all or a portion of our investments as a result, could have a material adverse effect on our business, financial condition or results of operations.
Any public health emergency, including any outbreak of existing or new pandemics or epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty, could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
The extent of the impact of any public health emergency on our and our portfolio companies operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted. In addition, our and our portfolio companies operations may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the health of any of our or our portfolio companies personnel. This could create widespread business continuity issues for us and our portfolio companies. These factors may also cause the valuation of our investments to differ materially from the values that we may ultimately realize. Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information.
Any public health emergency, pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
We are exposed to risks associated with changes in interest rates.
General interest rate fluctuations may have a negative impact on our investments and our investment returns and, accordingly, may have a material adverse effect on our investment objective and our net investment income.
Because we borrow money to make investments and may in the future issue additional senior securities, including preferred stock and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that fluctuations in interest rates would not have a material adverse effect on our net investment income in the event we use debt to finance our investments. From time to time, we may also enter into certain hedging transactions to mitigate our exposure to changes in interest rates. In the past, we have entered into certain hedging transactions to mitigate our exposure to adverse fluctuations in interest rates, and we may do so again in the future. However, we cannot assure you that such transactions will be successful in mitigating our exposure to interest rate risk. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
Rising interest rates may increase the cost of debt for our underlying portfolio companies, which could adversely impact their financial performance and ability to meet ongoing obligations to us. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to pay dividends at a level that provides a similar return, which could reduce the value of our common stock.
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Fluctuations in interest rates could have a material adverse effect on our business and that of our portfolio companies.
Fluctuations in interest rates could have a dampening effect on overall economic activity, the financial condition of our portfolio companies and the financial condition of the end customers who ultimately create demand for the capital we supply, all of which could negatively affect our business, financial condition or results of operations. The Federal Reserve decreased the federal funds rate three times in 2025. Lower interest rates may increase prepayment risk for our portfolio company investments with higher interest rates. Although the Federal Reserve kept the federal funds rate flat in January 2026, the Federal Reserve has signaled there is potential for federal funds rate cuts later in 2026. Uncertainty surrounding future Federal Reserve actions may have a material effect on our business making it particularly difficult for us to obtain financing at attractive rates, impacting our ability to execute on our growth strategies or future acquisitions.
Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies.
Certain of our portfolio companies are in industries that have been impacted by inflation. Ongoing inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies operations. If such portfolio companies are unable to pass any increases in their costs of operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest and principal on our loans, particularly if interest rates rise in response to inflation. In addition, any projected future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce our net assets resulting from operations.
We are subject to risks related to corporate social responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (ESG) activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the value of our brand and relationships with investors, all of which could adversely affect our business and results of operations. Further, there can be no assurance that investors will determine that any of our ESG initiatives or commitments are sufficiently robust. Additionally, new regulatory initiatives related to ESG could adversely affect us and our portfolio companies.
At the same time, there are various approaches to responsible investing activities and divergent views on the consideration of ESG topics. These differing views increase the risk that any action or lack thereof with respect to our Advisers consideration of responsible investing or ESG-related practices will be perceived negatively. Anti-ESG sentiment has gained momentum across the U.S., with a growing number of states having enacted or proposed anti-ESG policies, legislation or issued related legal opinions. Such scrutiny of ESG-related practices could expose the us and our portfolio companies to the risk of investigations or challenges by federal authorities, result in reputational harm and discourage certain investors from investing in us.
We are dependent upon key personnel of Stellus Capital Management for our future success. If Stellus Capital Management were to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed.
We depend on the diligence, skill and network of business contacts of the senior investment professionals of Stellus Capital Management to achieve our investment objective. Stellus Capital Managements team of investment professionals evaluates, negotiates, structures, closes and monitors our investments in accordance with the terms of our Investment Advisory Agreement. We can offer no assurance, however, that Stellus Capital Managements investment professionals will continue to provide investment advice to us.
Stellus Capital Managements investment committee, which provides oversight over our investment activities, is provided to us by Stellus Capital Management under the Investment Advisory Agreement. Stellus Capital Managements
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investment committee consists of four members, including Messrs. Ladd, and DAngelo, each a member of our Board and a senior investment professional of Stellus Capital Management, Mr. Huskinson, Chief Financial Officer and Chief Compliance Officer for us and Stellus Capital Management, and Mr. Davis, a senior investment professional of Stellus Capital Management. The loss of one or more of the members of Stellus Capital Managements investment committee may limit our ability to achieve our investment objective and operate our business. This could have a material adverse effect on our financial condition, results of operations and cash flows.
Our business model depends to a significant extent upon strong referral relationships. Any inability of Stellus Capital Management to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
We depend upon the investment professionals of Stellus Capital Management to maintain their relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions, and we rely to a significant extent upon these relationships to provide us with potential investment opportunities. If the investment professionals of Stellus Capital Management fail to maintain such relationships, or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom the investment professionals of Stellus Capital Management have relationships are not obligated to provide us with investment opportunities, and we can offer no assurance that these relationships will generate investment opportunities for us in the future.
Our financial condition, results of operations and cash flows will depend on our ability to manage our business effectively.
Our ability to achieve our investment objective will depend on our ability to manage our business and to grow our investments and earnings. This will depend, in turn, on Stellus Capital Managements ability to identify, invest in and monitor portfolio companies that meet our investment criteria. The achievement of our investment objective on a cost-effective basis will depend upon Stellus Capital Managements execution of our investment process, its ability to provide competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms. Stellus Capital Managements senior investment professionals will have substantial responsibilities in connection with the management of other investment funds, accounts and investment vehicles. The personnel of Stellus Capital Management may be called upon to provide managerial assistance to our portfolio companies. These activities may distract them from sourcing new investment opportunities for us or slow our rate of investment. Any failure to manage our business and our future growth effectively could have a material adverse effect on our business, financial condition, results of operations and cash flows.
There are significant potential conflicts of interest that could negatively affect our investment returns.
The members of Stellus Capital Managements investment committee serve, or may serve, as officers, directors, members, or principals of entities that operate in the same or a related line of business as we do, or of investment funds, accounts, or investment vehicles managed by Stellus Capital Management. Similarly, Stellus Capital Management and its affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. For example, Stellus Capital Management and its affiliates currently manage several private credit funds and another BDC that have investment strategies that are similar to, overlapping with and/or identical to our investment strategy, and with which we co-invest. Stellus Capital Management also provides sub-advisory services to the D. E. Shaw group with respect to a private investment fund and a strategy of a private multi-strategy investment fund to which the D. E. Shaw group serves as investment adviser that have an investment strategy similar to our investment strategy.
The senior investment professionals and other investment team members of Stellus Capital Management may, from time to time, possess material non-public information, limiting our investment discretion.
The senior investment professionals and other investment team members of Stellus Capital Management, including members of Stellus Capital Managements investment committee, may serve as directors of, or in a similar capacity
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with, portfolio companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material non-public information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on us.
Our management and incentive fees may induce Stellus Capital Management to incur additional leverage.
Generally, the management and incentive fees payable by us to Stellus Capital Management may create an incentive for Stellus Capital Management to use any additional available leverage. For example, the fact that the base management fee that we pay to Stellus Capital Management is payable based upon our gross assets (which includes any borrowings for investment purposes) may encourage Stellus Capital Management to use leverage to make additional investments. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns. Under certain circumstances, the use of additional leverage may increase the likelihood of our default on our borrowings, which would disfavor holders of our common stock.
In addition, because the incentive fee on net investment income is calculated as a percentage of our net assets subject to a hurdle, having additional leverage available may encourage Stellus Capital Management to use leverage to increase the leveraged return on our investment portfolio. To the extent additional leverage is available at favorable rates, Stellus Capital Management could use leverage to increase the size of our investment portfolio to generate additional income, which may make it easier to meet the incentive fee hurdle. As a result, the incentives for Stellus Capital Management to cause us to use additional leverage may be greater, which could result in our investing in more speculative securities than would otherwise be the case, resulting in higher investment losses, particularly during economic downturns.
Our incentive fee may induce Stellus Capital Management to make speculative investments.
We pay Stellus Capital Management an incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. Additionally, under the incentive fee structure, Stellus Capital Management may benefit when capital gains are recognized and, because Stellus Capital Management will determine when to sell a holding, Stellus Capital Management will control the timing of the recognition of such capital gains. As a result, Stellus Capital Management may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.
We may be obligated to pay Stellus Capital Management incentive compensation even if we incur a loss and may pay more than 20.0% of our net capital gains because we cannot recover payments made in previous years.
Stellus Capital Management is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation) above a threshold return for that quarter and subject to a total return requirement. The general effect of this total return requirement is to prevent payment of the foregoing incentive compensation except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. Consequently, we may pay an incentive fee if we incurred losses more than three years prior to the current calendar quarter even if such losses have not yet been recovered in full. Thus, we may be required to pay Stellus Capital Management incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. If we pay an incentive fee of 20.0% of our realized capital gains (net of all realized capital losses and unrealized capital depreciation on a cumulative basis) and thereafter experience additional realized capital losses or unrealized capital depreciation, we will not be able to recover any portion of the incentive fee previously paid.
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We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
A number of entities compete with us to make the types of investments that we make. We compete with public and private funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some of our competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source-of-income, asset diversification and distribution requirements we must satisfy to maintain our RIC qualification. The competitive pressures we face may have a material adverse effect on our business, financial condition, results of operations and cash flows. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we may not be able to identify and make investments that are consistent with our investment objective.
With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are lower than the rates we offer. With respect to all investments, we may lose some investment opportunities if we do not match our competitors pricing, terms and structure. However, if we match our competitors pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. We may also compete for investment opportunities with investment funds, accounts and investment vehicles managed by Stellus Capital Management. Although Stellus Capital Management will allocate opportunities in accordance with its policies and procedures, allocations to such investment funds, accounts and investment vehicles will reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and our stockholders.
Our investments in the business services industry are subject to unique risks relating to technological developments, regulatory changes and changes in customer preferences.
Our investments in portfolio companies that operate in the business services industry represent 26.48% of our total portfolio as of December 31, 2025. Our investments in portfolio companies in the business services sector include those that provide services related to data and information, building, cleaning and maintenance services, and energy efficiency services. Portfolio companies in the business services sector are subject to many risks, including the negative impact of regulation, changing technology, a competitive marketplace and difficulty in obtaining financing. Portfolio companies in the business services industry must respond quickly to technological changes and understand the impact of these changes on customers preferences. Adverse economic, business, or regulatory developments affecting the business services sector could have a negative impact on the value of our investments in portfolio companies operating in this industry, and therefore could negatively impact our business and results of operations.
Our investments in companies in the high-tech industry are subject to unique risks relating to technological developments, regulatory changes and changes in customer preference.
As of December 31, 2025, our investments in portfolio companies operating in the high-tech sector represented 10.61% of our total portfolio. There are risks in investing in companies that operate in this market, including the impact of new or changing regulations and the burden and expense associated with efforts to comply therewith, changing consumer preferences, a highly competitive marketplace and difficulty in obtaining financing. Any of these factors could materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us.
We will be subject to U.S. federal income tax imposed at corporate rates if we are unable to maintain our tax treatment as a RIC under subchapter M of the Code.
To maintain our tax treatment as a RIC under subchapter M of the Code, we must meet certain source-of-income, asset diversification and distribution requirements. The Annual Distribution Requirement for a RIC generally is satisfied
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if we distribute at least 90% of our investment company taxable income, which is generally our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders on an annual basis. Because we incur debt, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to maintain our tax treatment as a RIC. If we are unable to obtain cash from other sources, we may fail to maintain our tax treatment as a RIC and, thus, may be subject to U.S. federal income.
The source-of-income requirement will be satisfied if we obtain at least 90% of our annual income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain qualified publicly traded partnerships, or other income derived from the business of investing in stock or securities.
To maintain our tax treatment as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Specifically, (1) at least 50% of the value of our assets must consist of cash, cash equivalents (including receivables), U.S. government securities, securities of other RICs, and other securities if such securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and (2) no more than 25% of the value of our assets can be invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer, (ii) the securities, other than the securities of other RICs, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of certain qualified publicly traded partnerships as defined by the Code. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of our tax treatment as a RIC. Because most of our investments are in private or thinly-traded public companies, any such dispositions may be made at disadvantageous prices and may result in substantial losses.
No certainty can be provided, that we will satisfy the asset diversification requirements or the other requirements necessary to maintain our tax treatment as a RIC. If we fail to maintain our tax treatment as a RIC for any reason and become subject to U.S. federal income tax, the resulting taxes could substantially reduce our net assets, the amount of income available for distributions to our stockholders and the amount of funds available for new investments.
Legislative or regulatory tax changes could have an adverse impact on us and our stockholders.
Legislative or other actions relating to taxes could have a negative effect on us. Matters pertaining to U.S. federal income taxation are constantly under review by persons involved in the legislative process, and by the Internal Revenue Service, and the U.S. Treasury Department. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could have adverse consequences, including affecting our ability to qualify as a RIC or otherwise impacting the U.S. federal income tax consequences applicable to us and our investors. For example, on July 4, 2025, the United States enacted An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, also known as the One Big Beautiful Bill, which includes significant amendments to the Code. Investors are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as the accrual of OID. This may arise if we receive warrants in connection with the making of a loan and in other circumstances, or through contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to our overall investment activities, and increases in loan balances as a result of contracted PIK arrangements are included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash.
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Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the Annual Distribution Requirement to maintain our tax treatment as a RIC. In such a case, we may have to sell some of our investments at times we would not consider advantageous or raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain such cash from other sources, we may fail to maintain our tax treatment as a RIC and thus be subject to U.S. federal income tax.
We may in the future choose to pay dividends in our own common stock, in which case you may be required to pay tax in excess of the cash you receive.
We currently expect to be treated as a publicly offered RIC, although there can be no assurance that we will in fact so qualify for any of our taxable years, and we may distribute taxable dividends that are payable in part in our common stock. In accordance with certain applicable Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat a distribution of its own stock as fulfilling the Annual Distribution Requirement if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than the lesser of (a) the portion of the distribution such stockholder has elected to receive in cash or (b) an amount equal to his or her entire distribution times the percentage limitation on cash available for distribution. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. Taxable stockholders receiving such dividends will be required to include the amount of the dividends as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
PIK interest payments we receive will increase our assets under management and, as a result, will increase the amount of base management fees and incentive fees payable by us to Stellus Capital Management.
Certain of our debt investments may contain provisions providing for the payment of PIK interest. Because PIK interest results in an increase in the size of the loan balance of the underlying loan, the receipt by us of PIK interest will have the effect of increasing our assets under management. As a result, because the base management fee that we pay to Stellus Capital Management is based on the value of our gross assets, the receipt by us of PIK interest will result in an increase in the amount of the base management fee payable by us. In addition, any such increase in a loan balance due to the receipt of PIK interest will cause such loan to accrue interest on the higher loan balance, which will result in an increase in our pre-incentive fee net investment income and, as a result, an increase in incentive fees that are payable by us to Stellus Capital Management.
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities, up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted as a BDC that has satisfied certain requirements to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of our gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of
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our assets declines, we may be unable to satisfy this test. If that happens, we would not be able to borrow additional funds until we were able to comply with the 150% asset coverage ratio applicable to us under the 1940 Act. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. If we issue senior securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss.
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below then-current net asset value per share of our common stock if our Board determines that such sale is in our best interests, and if our stockholders approve such sale. A proposal approved by our stockholders at our 2025 annual stockholders meeting authorizes us to sell shares equal to up to 25% of our outstanding common stock below the then-current net asset value per share of our common stock in one or more offerings. This approval will expire on the earlier of our 2026 annual stockholder meeting or June 17, 2026, the one-year anniversary of our 2025 annual stockholders meeting. The proposal approved by our stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock, although the number of shares sold in each offering may not exceed 25% of our outstanding common stock immediately prior to such sale. 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. In addition, we cannot issue shares of our common stock below net asset value unless our Board determines that it would be in our and our stockholders best interests to do so. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. In addition, continuous sales of common stock below net asset value may have a negative impact on total returns and could have a negative impact on the market price of our shares of common stock. If we raise additional funds by issuing common stock, then the percentage ownership of our stockholders at that time will decrease, and you may experience dilution.
Because we finance our investments with borrowed money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.
The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities. If we continue to use leverage to partially finance our investments through banks, insurance companies and other lenders, you will experience increased risks of investing in our common stock. Lenders of these funds have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. We, through our SBIC subsidiaries, intend to issue debt securities guaranteed by the SBA and sold in the capital markets. Upon any such issuance of debt securities and as a result of its guarantee of the debt securities, if any, the SBA would also have fixed dollar claims on the assets of our SBIC subsidiaries that are superior to the claims of our common stockholders.
If we are unable to meet the financial obligations under our 7.250% Notes due 2030 (the 2030 Notes Payable), as issued on April 1, 2025 and September 25, 2025, or the Credit Facility, the SBA, as a creditor, has a superior claim to the assets of our SBIC subsidiaries over our stockholders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us. In addition, under the terms of the Credit Facility and any borrowing facility or other debt instrument we may enter into, we are likely to be required to use the net proceeds of any investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our stake in a leveraged investment. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make distributions with respect to our common stock. Our ability to service any debt depends largely on our financial
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performance and is subject to prevailing economic conditions and competitive pressures. Moreover, as the base management fee payable to Stellus Capital Management is payable based on the value of our gross assets, including those assets acquired through the use of leverage, Stellus Capital Management will have a financial incentive to incur leverage, which may not be consistent with our stockholders interests. In addition, our common stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to Stellus Capital Management.
As a BDC that has satisfied certain requirements under the 1940 Act, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, of at least 150%. If this ratio declines below 150%, we will not be able to incur additional debt until we are able to comply with the 150% asset coverage ratio applicable to us under the 1940 Act. This could have a material adverse effect on our operations, and we may not be able to make distributions. The amount of leverage that we employ will depend on Stellus Capital Managements and our Boards assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act. This relief allows us increased flexibility under the asset coverage requirement by allowing us to borrow up to $325.0 million more through our SBIC subsidiaries than we would otherwise be able to borrow absent the receipt of this exemptive relief.
In addition, our debt facilities may impose financial and operating covenants that restrict our business activities, including limitations that hinder our ability to finance additional loans and investments or to make the distributions required to maintain our qualification as a RIC under the Code.
The following table illustrates the effect of leverage on returns from an investment in our shares assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.
| | | | | | | | | | | | | |
| | | Assumed Return on Portfolio (Net of Expenses) | |
| | | (10)% | | (5)% | | 0% | | 5% | | 10% | | |
| Corresponding Return to Common Stockholders(1) | | (37.8) | % | (23.8) | % | (9.8) | % | 4.2 | % | 18.3 | % | |
| (1) | Based on (i) $1,041.3 million in total assets as of December 31, 2025, (ii) $660.6 million in outstanding indebtedness at par, as of December 31, 2025, (iii) $371.2 million in net assets as of December 31, 2025 and (iv) a weighted average interest rate, including fees (such as fees on undrawn amounts and amortization of financing costs), on our indebtedness, as of December 31, 2025, of 5.50%. | |
Substantially all of our assets are subject to security interests under the Credit Facility or claims of the SBA with respect to SBA-guaranteed debentures we issue and, if we default on our obligations thereunder, we may suffer adverse consequences, including foreclosure on our assets.
As of December 31, 2025, substantially all of our assets were pledged as collateral under the Credit Facility or are subject to a superior claim over the holders of our common stock by the SBA pursuant to the SBA-guaranteed debentures. If we default on our obligations under the Credit Facility or the SBA-guaranteed debentures, the lenders and/or the SBA may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure, and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid to our stockholders.
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In addition, if the lenders exercise their right to sell the assets pledged under the Credit Facility, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the Credit Facility.
Provisions in the Credit Facility or any other future borrowing facility may limit our discretion in operating our business.
The Credit Facility is, and any future borrowing facility may be, backed by all or a portion of our loans and securities on which the lenders will or, in the case of a future facility, may have a security interest. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instrument we enter into with lenders. We expect that any security interests we grant will be set forth in a guarantee and security agreement and evidenced by the filing of financing statements by the agent for the lenders. In addition, we expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. If we were to default under the terms of any debt instrument, the agent for the applicable lenders would be able to assume control of the timing of disposition of any or all of our assets securing such debt, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, any security interests as well as negative covenants under the Credit Facility or any other borrowing facility may limit our ability to incur additional liens or debt and may make it difficult for us to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing. For example, under the terms of the Credit Facility, we have generally agreed to not incur any additional secured indebtedness, other than certain indebtedness that we may incur, in accordance with the Credit Facility, to allow us to purchase investments in U.S. Treasury Bills. In addition, we have agreed not to incur any additional indebtedness that has a maturity date prior to the maturity date of the Credit Facility. Further, if our borrowing base under the Credit Facility or any other borrowing facility were to decrease, we would be required to secure additional assets in an amount equal to any borrowing base deficiency. In the event that all of our assets are secured at the time of such a borrowing base deficiency, we could be required to repay advances under the Credit Facility or any other borrowing facility or make deposits to a collection account, either of which could have a material adverse impact on our ability to fund future investments and to make stockholder distributions.
In addition, under the Credit Facility or any other borrowing facility, we may be subject to limitations as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases, result in an event of default. Furthermore, we expect that the terms of the Credit Facility will contain a covenant requiring us to maintain compliance with RIC provisions at all times, subject to certain remedial provisions. Thus, a failure to maintain compliance with RIC provisions could result in an event of default under the Credit Facility. An event of default under the Credit Facility or any other borrowing facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on our business and financial condition. This could reduce our revenues and, by delaying any cash payment allowed to us under the Credit Facility or any other borrowing facility until the lenders have been paid in full, reduce our liquidity and cash flow and impair our ability to grow our business and maintain our qualification as a RIC.
Because we use debt to finance our investments and have issued, and may in the future issue, senior securities including preferred stock and debt securities, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment income.
Because we borrow money to make investments and have issued, and may in the future issue additional senior securities including preferred stock and debt securities, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invests those funds. As a result, we can
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offer no assurance that a significant change in market interest rates would not have a material adverse effect on our net investment income in the event we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates to the extent permitted by the 1940 Act.
Adverse developments in the credit markets may impair our ability to enter into any other future borrowing facility.
In past economic downturns and during other times of extreme market volatility, many commercial banks and other financial institutions stopped lending or significantly curtailed their lending activity. In addition, in an effort to stem losses and reduce their exposure to segments of the economy deemed to be high risk, some financial institutions limited routine refinancing and loan modification transactions and even reviewed the terms of existing facilities to identify bases for accelerating the maturity of existing lending facilities. If these conditions recur, it may be difficult for us to obtain desired financing to finance the growth of our investments on acceptable economic terms, or at all.
If we are unable to consummate credit facilities on commercially reasonable terms, our liquidity may be reduced significantly. If we are unable to repay amounts outstanding under any facility we may enter into and are declared in default or are unable to renew or refinance any such facility, it would limit our ability to initiate significant originations or to operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as inaccessibility of the credit markets, a severe decline in the value of the U.S. dollar, a further economic downturn or an operational problem that affects third parties or us, and could materially damage our business. Moreover, we are unable to predict when economic and market conditions may become more favorable. Even if such conditions improve broadly and significantly over the long term, adverse conditions in particular sectors of the financial markets could adversely impact our business.
Most of our portfolio investments are recorded at fair value as determined in good faith by our Board and, as a result, there may be uncertainty as to the value of our portfolio investments.
Most of our portfolio investments will take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable, and we value these investments at fair value as determined in good faith by our Board, including to reflect significant events affecting the value of our investments. Most, if not all, of our investments (other than cash and cash equivalents) are classified as Level 3 under ASC 820. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. Even if observable market data is available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We have retained the services of independent service providers to review the valuation of these loans and securities. The types of factors that Board may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities.
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We may expose ourselves to risks if we engage in hedging transactions.
We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may expose us to counter-party credit risk. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is generally anticipated at an acceptable price.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We incur significant costs as a result of being a publicly traded company.
As a publicly traded company, we incur legal, accounting, investor relations and other expenses, including costs associated with corporate governance requirements, such as those under the Sarbanes-Oxley Act, other rules implemented by the SEC and the listing standards of the NYSE. These costs may be significant, and thus may reduce the amount of funds we have available to deploy as investments, reducing our efficiency and potentially hampering our business, financial condition, and results of operations.
We are obligated to maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or our internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our securities.
Complying with Section 404 of the Sarbanes-Oxley Act requires a rigorous compliance program as well as adequate time and resources. We may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion. Additionally, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our securities.
We are required to disclose changes made in our internal control and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
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We and our portfolio companies may be subjected to potential adverse effects of new or modified laws or regulations.
We and our portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of the our or our portfolio companies business practices, negatively impact our or our portfolio companies operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving.
A single political party currently controls both the executive and legislative branches of government, which increases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Regulatory changes could result in greater competition from banks and other lenders with which we compete for lending and other investment opportunities. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States. In addition, in June 2024, the U.S. Supreme Court reversed its longstanding approach under the *Chevron* doctrine, which provided for judicial deference to regulatory agencies. As a result of this decision, there may be increased challenges to existing agency regulations and it is unclear how lower courts will apply the decision in the context of other regulatory schemes without more specific guidance from the U.S. Supreme Court. For example, the decision could significantly impact consumer protection, advertising, privacy, artificial intelligence, anti-corruption and anti-money laundering practices and other regulatory regimes with which we are required to comply. Any such regulatory developments could result in uncertainty about and changes in the ways such regulations apply to us and our portfolio companies, and may require additional resources to ensure our continued compliance. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Such actions could have a significant adverse effect on our business, financial condition and results of operations.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact the our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.
Any failure to comply with SBA regulations could have an adverse effect on our SBIC subsidiaries operations.
On June 20, 2014 and August 14, 2019, our wholly owned subsidiaries, SBIC I subsidiary and SBIC II subsidiary, respectively, received licenses from the SBA to operate as SBICs. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBIC requirements may cause our SBIC subsidiaries to forgo attractive investment opportunities that are not permitted under SBA regulations.
Further, SBA regulations require that an SBIC be examined by the SBA to determine its compliance with the relevant SBA regulations at least every two years. The SBA prohibits, without prior SBA approval, a change of control of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of an SBIC. If either of our SBIC subsidiaries fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments. In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the Small Business Investment Act, or any rule or regulation
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promulgated thereunder. These actions by the SBA would, in turn, negatively affect us because our SBIC subsidiaries are our wholly owned subsidiaries.
Risks Related to Our Operations
Because we intend to distribute substantially all of our income to our stockholders to obtain and maintain our status as a RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired.
We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders to maintain our qualification as a RIC. As a result, these earnings will not be available to fund new investments. An inability on our part to access the capital markets successfully could limit our ability to grow our business and execute our business strategy fully and could decrease our earnings, if any, which would have an adverse effect on the value of our shares of common stock.
Our wholly owned SBIC subsidiaries may be unable to make distributions to us that will enable us to maintain RIC tax treatment, which could result in the imposition of U.S. federal income tax.
In order for us to qualify as a RIC and to minimize the imposition of U.S. federal income tax, we are required to distribute substantially all of our net ordinary income and net capital gain income, including income from certain of our subsidiaries that are classified as partnerships or disregarded entities for U.S. federal income tax purposes, which includes the income from our SBIC subsidiaries. We are partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC subsidiaries may be limited by the Small Business Investment Act and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our tax treatment as a RIC. We may have to request a waiver of the SBAs restrictions for our SBIC subsidiaries to make certain distributions to maintain our RIC tax treatment. We cannot assure you that the SBA will grant such waiver and if our SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC tax treatment and a consequent imposition of U.S. federal income on our income.
Our ability to enter into certain transactions with our affiliates is restricted, which may limit the scope of investments available to us.
We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate without the prior approval of our independent directors. The 1940 Act also prohibits certain joint transactions with certain of our affiliates, which could include concurrent investments in the same portfolio company, without prior approval of our independent directors and, in some cases, the SEC. We are prohibited from buying or selling any security from or to any person that controls us or who owns more than 25% of our voting securities or certain of that persons affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private fund managed by Stellus Capital Management or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
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The involvement of our interested directors in the valuation process may create conflicts of interest.
We make many of our portfolio investments in the form of loans and securities that are not publicly traded and for which no market quotation is readily available. As a result, our Board determines the fair value of these loans and securities in good faith as described elsewhere in this Annual Report on Form 10-K. In connection with that determination, investment professionals from Stellus Capital Management provide our Board with valuations based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company. While the valuation for each portfolio investment is reviewed by an independent valuation firm at least twice annually, the ultimate determination of fair value is made by our Board, including our interested directors, and not by such third-party valuation firm. In addition, Messrs. Ladd and DAngelo, each an interested member of our Board, have a direct pecuniary interest in Stellus Capital Management. The participation of Stellus Capital Managements investment professionals in our valuation process, and the pecuniary interest in Stellus Capital Management by certain members of our Board, could result in a conflict of interest as Stellus Capital Managements management fee is based, in part, on the value of our gross assets, and incentive fees are based, in part, on realized gains and realized and unrealized losses.
There are potential conflicts related to other arrangements we have with Stellus Capital Management.
We have entered into a license agreement with Stellus Capital Management under which Stellus Capital Management has agreed to grant us a non-exclusive, royalty-free license to use the name Stellus Capital. In addition, we have entered into an Administration Agreement with Stellus Capital Management, pursuant to which we are required to pay to Stellus Capital Management our allocable portion of overhead and other expenses incurred by Stellus Capital Management in performing its obligations under such Administration Agreement, such as rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and his staff. This will create conflicts of interest that our Board will monitor. For example, under the terms of the license agreement, we will be unable to preclude Stellus Capital Management from licensing or transferring the ownership of the Stellus Capital name to third parties, some of whom may compete against us. Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of Stellus Capital Management or others. Furthermore, in the event the license agreement is terminated, we will be required to change our name and cease using Stellus Capital as part of our name. Any of these events could disrupt our recognition in the marketplace, damage any goodwill we may have generated and otherwise harm our business.
The Investment Advisory Agreement and the Administration Agreement with Stellus Capital Management were not negotiated on an arms-length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
The Investment Advisory Agreement and the Administration Agreement were negotiated between related parties. Consequently, their terms, including fees payable to Stellus Capital Management, may not be as favorable to us as if they had been negotiated with an unaffiliated third party. In addition, we may choose not to enforce, or to enforce less vigorously, our rights and remedies under these agreements because of our desire to maintain our ongoing relationship with Stellus Capital Management and its affiliates. Any such decision, however, would breach our fiduciary obligations to our stockholders.
The time and resources that Stellus Capital Management devote to us may be diverted, and we may face additional competition due to the fact that Stellus Capital Management and its affiliates are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target.
Stellus Capital Management and some of its affiliates, including our officers and our interested directors, are not prohibited from raising money for, or managing, another investment entity that makes the same types of investments as those we target. For example, Stellus Capital Management and/or its affiliates currently manage a private BDC and other private credit funds that have investment strategies that are similar, overlapping or identical to our investment strategy and with which we co-invest. In addition, pursuant to sub-advisory arrangements, Stellus Capital Management provides non-discretionary advisory services to the D. E. Shaw group related to a private investment fund and a strategy of a private multi-strategy investment fund to which the D. E. Shaw group
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serves as investment adviser. As a result, the time and resources they could devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities.
Our incentive fee arrangements with Stellus Capital Management may vary from those of other investment funds, account or investment vehicles managed by Stellus Capital Management, which may create an incentive for Stellus Capital Management to devote time and resources to a higher fee-paying fund.
If Stellus Capital Management is paid a higher performance-based fee from any of its other funds, it may have an incentive to devote more research and development or other activities, and/or recommend the allocation of investment opportunities, to such higher fee-paying fund. For example, to the extent Stellus Capital Managements incentive compensation is not subject to a hurdle or total return requirement with respect to another fund, it may have an incentive to devote time and resources to such other fund. Any such diversion of Stellus Capital Management's time and resources could negatively impact our business, financial condition, or results.
Stellus Capital Managements liability is limited under the Investment Advisory Agreement and we have agreed to indemnify Stellus Capital Management against certain liabilities, which may lead Stellus Capital Management to act in a riskier manner on our behalf than it would when acting for its own account.
Under the Investment Advisory Agreement, Stellus Capital Management has not assumed any responsibility to us other than to render the services called for under that agreement. It will not be responsible for any action of our Board in following or declining to follow Stellus Capital Managements advice or recommendations. Under the Investment Advisory Agreement, Stellus Capital Management, its officers, members and personnel, and any person controlling or controlled by Stellus Capital Management will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiarys stockholders or partners for acts or omissions performed in accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting gross negligence, willful misfeasance, bad faith or reckless disregard of the duties that Stellus Capital Management owes to us under the Investment Advisory Agreement. In addition, as part of the Investment Advisory Agreement, we have agreed to indemnify Stellus Capital Management and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except where attributable to gross negligence, willful misfeasance, bad faith or reckless disregard of such persons duties under the Investment Advisory Agreement. These protections may lead Stellus Capital Management to act in a riskier manner when acting on our behalf than it would when acting for its own account.
Stellus Capital Management can resign as our investment adviser or administrator upon 60 days notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
Stellus Capital Management has the right under the Investment Advisory Agreement to resign as our investment adviser at any time upon 60 days written notice, whether we have found a replacement or not. Similarly, Stellus Capital Management has the right under the Administration Agreement to resign at any time upon 60 days written notice, whether we have found a replacement or not. If Stellus Capital Management was to resign, we may not be able to find a new investment adviser or administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions to our stockholders are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment or administrative activities, as applicable, is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by Stellus Capital Management. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.
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If we fail to comply with the regulatory requirements applicable to BDCs, our business could be affected and our operating flexibility could be significantly reduced.
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their total assets in specified types of securities, primarily in private companies or thinly traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw their respective election as a BDC. If we decide to withdraw our election, we may be required to register as an investment company under the 1940 Act and be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with those regulations would significantly decrease our operating flexibility and could significantly increase our cost of doing business.
If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs or be precluded from investing according to our current business strategy.
As a BDC, we may not acquire any assets other than qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets.
We believe that most of the investments that we acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe to be attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Act could prevent us, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our position).
If we do not maintain our election to be regulated as a BDC, we would be subject to regulation as a registered closed-end investment company under the 1940 Act. As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions under the 1940 Act which would significantly decrease our operating flexibility.
We may experience fluctuations in our annual and quarterly operating results.
We could experience fluctuations in our annual and quarterly operating results due to a number of factors, including the interest rate payable on the loans and debt securities we acquire, the default rate on such loans and securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. In light of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval.
Our Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and the market price of our common stock. Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions to our stockholders.
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Our Board is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.
Under Maryland General Corporation Law and our charter, our Board is authorized to classify and reclassify any authorized but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series, the Board will be required by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to stockholder distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or that otherwise might be in their best interest. The cost of any such reclassification would be borne by our common stockholders. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, the 1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. The issuance of preferred stock convertible into shares of common stock may also reduce the net income and net asset value per share of our common stock upon conversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 of the 1940 Act, including obtaining common stockholder approval. These effects, among others, could have an adverse effect on your investment in our common stock.
Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Stellus Capital Investment Corporation or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable preempting requirements of the 1940 Act. Our Board has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our Board, including approval by a majority of our independent directors. If the resolution exempting business combinations is repealed or our Board does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board in three classes serving staggered three-year terms, and authorizing our Board to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.
We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
Our business is highly dependent on the communications and information systems of Stellus Capital Management. In addition, certain of these systems are provided to Stellus Capital Management by third party service providers. Any failure or interruption of such systems, including as a result of the termination of an agreement with any such third-party service provider, could cause delays or other problems in our activities. This, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to make distributions to our stockholders.
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The failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively.
Cybersecurity has become a priority for regulators in the U.S. and around the world. Cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level, and will likely continue to increase in frequency in the future. Cyber-attacks and other security threats could originate from a wide variety of sources, including cyber criminals, nation state hackers, hacktivists and other outside parties. Additionally, cyber-attacks and other security threats have become increasingly complex as a result of new technologies, such as artificial intelligence, which are able to identify and target new vulnerabilities in information technology systems.
The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data.
We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering, malware and computer virus attacks, or system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation.
Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. Cybersecurity failures or breaches by Stellus Capital Management and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. We cannot guarantee that third parties and infrastructure in our networks or our partners networks have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information technology systems that support our services. Our ability to monitor these third parties information security practices is limited, and they may not have adequate information security measures in place. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.
Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully insured.
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We, Stellus Capital Management and our portfolio companies are subject to risks associated with phishing and other cyber-attacks.
Our business and the business of our portfolio companies relies upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, our and our portfolio companies information technology systems could become subject to cyber-attacks. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through hacking, malicious software coding, social engineering or phishing attempts) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Stellus Capital Managements employees have been and expect to continue to be the target of fraudulent calls, emails and other forms of activities. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen information, misappropriation of assets, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, regulatory fines or penalties, or other adverse effects on our business, financial condition or results of operations. In addition, we may be required to expend significant additional resources to modify its protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks related to cyber-attacks.
Stellus Capital Managements and other service providers increased use of mobile and cloud technologies could heighten the risk of a cyber-attack as well as other operational risks, as certain aspects of the security of such technologies may be complex, unpredictable or beyond their control. These service providers reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt their operations and result in misappropriation, corruption or loss of personal, confidential or proprietary information. In addition, there is a risk that encryption and other protective measures against cyber-attacks may be circumvented, particularly to the extent that new computing technologies increase the speed and computing power available.
We are subject to risks associated with artificial intelligence and machine learning technology.
Recent technological advances in artificial intelligence and machine learning technology may pose risks to us and our portfolio companies. We and our portfolio companies could be exposed to the risks of artificial intelligence and machine learning technology if third-party service providers or any counterparties, whether or not known to us, also use artificial intelligence and machine learning technology in their business activities. We and our portfolio companies may not be in a position to control the use of artificial intelligence and machine learning technology in third-party products or services.
Use of artificial intelligence and machine learning technology could include the input of confidential information in contravention of applicable policies, contractual or other obligations or restrictions, resulting in such confidential information becoming partly accessible by other third-party artificial intelligence and machine learning technology applications and users.
Independent of its context of use, artificial intelligence and machine learning technology is generally highly reliant on the collection and analysis of large amounts of data, and it is not possible or practicable to incorporate all relevant data into the model that artificial intelligence and machine learning technology utilizes to operate. Certain data in such models will inevitably contain a degree of inaccuracy and error, which may be material, and could otherwise be inadequate or flawed, which would be likely to degrade the effectiveness of artificial intelligence and machine learning technology. To the extent that we or our portfolio companies are exposed to the risks of artificial intelligence and machine learning technology use, any such inaccuracies or errors could have adverse impacts on our Company or our investments.
Artificial intelligence and machine learning technology and its applications, including in the private investment and financial sectors, continue to develop rapidly, and it is impossible to predict the future risks that may arise from such developments.
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Risks Related to Economic Conditions
Global economic, political and market conditions may adversely affect our business, financial condition and results of operations, including our revenue growth and profitability.
Our business, financial conditions and results of operations may be affected by conditions and trends in the global financial markets and the global economic and political climate relating to, among other things, fluctuations in interest rates, the availability and cost of credit, future increases in inflation, economic uncertainty, changes in laws (including laws and regulations relating to our taxation, taxation of our clients and applicable to alternative asset managers), trade policies, commodity prices, tariffs (including retaliatory tariffs), currency exchange rates and controls, political elections and administration transitions, and national and international political events (including contract terminations or funding pauses, government agency closures, prolonged government shutdowns, wars and other forms of conflict, terrorist acts, and security operations), work stoppages, labor shortages and labor disputes, supply chain disruptions and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health pandemics.
Changes in trade policies, including the imposition of new tariffs or increases in existing tariffs between the United States, Mexico, Canada, China or other countries, or reactionary measures in response thereto including retaliatory tariffs, legal challenges, or currency manipulation, could adversely affect the market conditions in which we operate. Although the Supreme Court recently invalidated the tariffs imposed under the International Emergency Economic Powers Act (IEEPA), certain tariff rates and obligations established through trade agreements that were negotiated during active IEEPA tariffs remain in effect, and the current administration has announced widely applicable tariffs pursuant to the Trade Act of 1974, effective February 24, 2026. The administration has indicated that it will continue seeking to implement tariffs through other statutory authorities as well. The scope of the Supreme Courts decision may create market uncertainty as it relates to the availability of refunds for prior tariffs and the imposition of new tariffs to replace those imposed under IEEPA. These factors are outside of our control and may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.
Global financial markets have experienced heightened volatility in recent periods, including as a result of economic and political events in or affecting the worlds major economies, such as the ongoing wars and conflicts between Russia and Ukraine, as well as continued political and social unrest in Venezuela, the Middle East and regions of North Africa. Concerns over economic recession, future increases in inflation, interest rate volatility, fluctuations in oil and gas prices resulting from global production and demand levels and geopolitical tension, have exacerbated market volatility. Market volatility has been further exacerbated by social unrest, changes regarding immigration and work permit policies and other political and security concerns both in the United States and across various international regions. Due to interrelationships within the global financial markets, if these issues do not abate or worsen or spread, our business may be adversely affected both within and outside of the directly affected regions.
During periods of difficult market conditions or slowdowns, which may be across one or more industries, sectors or geographies, the companies in which we invest may experience decreased revenues, financial losses, credit rating downgrades, difficulty in obtaining access to financing and increased funding costs. During such periods, those companies may also have difficulty in pursuing growth strategies, expanding their businesses and operations and be unable to meet their debt service obligations or other expenses as they become due, including obligations and expenses payable us. Negative financial results in our portfolio companies could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. Additionally, the Federal Reserve announced its decision to keep the federal funds rate flat in January 2026, however, the Federal Reserve may further decrease, or may announce its intention to further decrease, the federal funds rate in 2026. These developments, along with the United States governments credit and deficit concerns, global economic uncertainties and market volatility, could cause interest rates to be volatile, which may negatively impact our ability to access the debt markets and capital markets on favorable terms.
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Increased geopolitical unrest, terrorist attacks, or acts of war may impact the businesses in which we invests, and harm our business, operating results, and financial conditions.
Terrorist activity and the continued threat of terrorism and acts of civil or international hostility, both within the United States and abroad, as well as ongoing military and other actions and heightened security measures in response to these types of threats, may cause significant volatility and declines in the global markets, loss of life, property damage, disruptions to commerce and reduced economic activity, which may negatively impact the businesses in which we invests directly or indirectly and, in turn, could have a material adverse impact on the our business, operating results, and financial condition. Losses from terrorist attacks are generally uninsurable.
Risks Related to our Investments
Our business and our portfolio companies may be susceptible to economic slowdowns or recessions which would harm our operating results.
Many of the portfolio companies in which we have invested or expect to make investments are likely to be susceptible to economic slowdowns or recessions and may be unable to repay our loans during such periods. Therefore, the number of our non-performing assets is likely to increase, and the value of our portfolio is likely to decrease during such periods. Adverse economic conditions may decrease the value of collateral securing some of our loans and debt securities and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio companys ability to meet its obligations under the loans and debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrowers business or exercise control over a borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken if we render significant managerial assistance to the borrower.
Furthermore, if one of our portfolio companies were to file for bankruptcy protection, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to claims of other creditors, even though we may have structured our investment as senior secured debt. The likelihood of such a re-characterization would depend on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company.
Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm business, financial condition, operating results and prospects.
We may be subject to risks related to bank impairments or failures either directly or through our portfolio companies, which, in turn, could indirectly impact our performance and results of operations.
The impairment or failure of one or more banks with whom we or any of our portfolio companies transact may inhibit our ability or the ability of our portfolio companies to access depository accounts, including cash and cash equivalents, as well as investment accounts, which, in turn, may directly or indirectly impact our performance and results of operations. In the event of a bank impairment or failure we may be forced to delay or forgo investments, and affected portfolio companies may default on their debt obligations to us, either of which would impact our performance. In the event of such a failure of a banking institution where one or more of our portfolio companies holds depository accounts, access to such accounts could be restricted and FDIC protection may not be available for balances in excess of amounts insured by the FDIC. In such instances, we or our affected portfolio companies would not recover such excess, uninsured amounts, and they may not be able to cure any defaults. Additionally, unfavorable economic conditions also could
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increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm business, financial condition, operating results and prospects. We closely monitor activity in the banking sector as it relates to any of our borrowers and continually assess any potential direct or indirect impact to us as a result of the same.
Our investments in leveraged portfolio companies may be risky, and we could lose all or part of our investment.
Investment in leveraged companies involves a number of significant risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold. Such developments may be accompanied by a deterioration in the value of any collateral securing the investment and/or equity co-investments we hold and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position.
We may hold the loans and debt securities of leveraged companies that may, due to the significant operating volatility typical of such companies, enter into bankruptcy proceedings.
Leveraged companies may experience bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by a portfolio company may adversely and permanently affect that company. If the proceeding is converted to a liquidation, the value of the portfolio company may not equal the liquidation value that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a creditors return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the debtors estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by increases in the number and amount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial.
Our investments in private and lower middle-market portfolio companies are risky, and we could lose all or part of our investment.
Investment in private and lower middle-market companies involves a number of significant risks. Generally, little public information exists about these companies, and we rely on the ability of Stellus Capital Managements investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Lower middle-market companies may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns. Additionally, lower middle-market companies are more likely to depend on the management talents and efforts of a small group of persons. Therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on one or more of the portfolio companies we invest in and, in turn, on us. Lower middle-market companies also may be parties to litigation and may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence. In addition, our executive officers, directors and Stellus Capital Management may, in the ordinary course of business, be named as defendants in litigation arising from our investments in portfolio companies, the commencement and duration of which could distract from their roles or service to us and negatively impact our business.
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The lack of liquidity in our investments may adversely affect our business.
Most of our assets are invested in illiquid loans and securities, and a substantial portion of our investments in leveraged companies are subject to legal and other restrictions on resale or are otherwise less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. Also, as noted above, we may be limited or prohibited in our ability to sell or otherwise exit certain positions in our portfolio, as such a transaction could be considered a joint transaction prohibited by the 1940 Act.
Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by our Board. As part of the valuation process, our Board may take into account the following types of factors, if relevant, in determining the fair value of our investments:
| | available current market data, including relevant and applicable market trading and transaction comparables; | |
| | applicable market yields and multiples; | |
| | security covenants; | |
| | call protection provisions; | |
| | information rights; | |
| | the nature and realizable value of any collateral; | |
| | the portfolio companys ability to make payments, its earnings and discounted cash flows and the markets in which it does business; | |
| | comparisons of financial ratios of peer companies that are public; | |
| | comparable merger and acquisition transactions; and | |
| | the principal market and enterprise values. | |
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate the valuation. We record decreases in the market values or fair values of our investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our net asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore, we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. Beyond the asset diversification requirements associated with our qualification as a RIC under the Code, we do not have fixed guidelines for diversification. To the extent that we assume large positions in the securities of a small
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number of issuers or our investments are concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the markets assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as follow-on investments, in seeking to:
| | increase or maintain in whole or in part our position as a creditor or equity ownershippercentage in a portfolio company; | |
| | exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or | |
| | preserve or enhance the value of our investment. | |
We generally have discretion to make follow-on investments, subject to the availability of capital resources. Failure on our part to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements of the 1940 Act or the desire to maintain our qualification as a RIC. Our ability to make follow-on investments may also be limited by our compliance with the conditions under the Order we received from the SEC related to co-investments with investment funds managed by Stellus Capital Management (or an affiliate thereof) or Stellus Capital Managements allocation policy.
Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.
We hold equity controlling equity positions in one of the portfolio companies included in our portfolio and, although we may do so in the future, we do not currently intend to hold additional controlling equity positions in our other portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and equity investments that we hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments.
Defaults by our portfolio companies will harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets. This could trigger cross-defaults under other agreements and jeopardize such portfolio companys ability to meet its obligations under the loans or debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and ability to make stockholder distributions and result in a decline in the market price of our shares.
We are subject to the risk that the debt investments we make in our portfolio companies may be repaid prior to maturity. We expect that our investments will generally allow for repayment at any time subject to certain penalties. When this occurs, we intend to generally reinvest these proceeds in temporary investments, pending their future
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investment in accordance with our investment strategy. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elects to prepay amounts owed to us. Additionally, prepayments could negatively impact our ability to make, or the amount of, stockholder distributions with respect to our common stock, which could result in a decline in the market price of our shares.
The effect of global climate change may impact the operations of our portfolio companies.
Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
We invest a portion of our capital in second lien and subordinated loans issued by our portfolio companies. The portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with, or senior to, the loans in which we invest. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the loans in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying senior creditors, a portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with loans in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio companys obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio companys remaining assets, if any.
We may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on such portfolio companies collateral, if any, will secure the portfolio companys obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other
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factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors claims against the portfolio companys remaining assets, if any.
The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens:
| | the ability to cause the commencement of enforcement proceedings against the collateral; | |
| | the ability to control the conduct of such proceedings; | |
| | the approval of amendments to collateral documents; | |
| | releases of liens on the collateral; and | |
| | waivers of past defaults under collateral documents. | |
We may not have the ability to control or direct such actions, even if our rights are adversely affected.
We may be exposed to special risks associated with bankruptcy cases.
From time to time, one or more of our portfolio companies may be involved in bankruptcy or other reorganization or liquidation proceedings. Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, we cannot assure you that a bankruptcy court would not approve actions that may be contrary to our interests. There also are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.
To the extent that portfolio companies in which we have invested through a unitranche facility are involved in bankruptcy proceedings, the outcome of such proceedings may be uncertain. For example, it is unclear whether a bankruptcy court would enforce an agreement among lenders which sets the priority of payments among unitranche lenders. In such a case, the first out lenders in the unitranche facility may not receive the same degree of protection as they would if the agreement among lenders was enforced.
The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower. Bankruptcy and reorganization proceedings are frequently subject to unpredictable and lengthy delays, and during the process, the debtor companys competitive position may erode, key management may depart and the debtor company may not be able to invest adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuers fundamental value.
In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrowers business or exercise control over the borrower. For example, we could become subject to a lender liability claim (alleging that we misused our influence on the borrower for the benefit of its lenders), if, among other things, the borrower requests significant managerial assistance from us and we provide that assistance. To the extent we and an affiliate both hold investments in the same portfolio company that are of a different character, we may also face restrictions on our ability to become actively involved in the event that portfolio company becomes distressed
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as a result of the restrictions imposed on transactions involving affiliates under the 1940 Act. In such cases, we may be unable to exercise rights we may otherwise have to protect our interests as security holders in such portfolio company.
If we make subordinated investments, the obligors or the portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
We may make subordinated investments that rank below other obligations of the obligor in right of payment. Subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or economic conditions in general. If we make a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.
The disposition of our investments may result in contingent liabilities.
Substantially all of our investments involve loans and private securities. In connection with the disposition of an investment in loans and private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return of distributions previously made to us.
We may not realize gains from our equity investments.
When we invest in loans and debt securities, we may acquire warrants or other equity securities of portfolio companies as well. We may also invest in equity securities directly. To the extent we hold equity investments, we will attempt to dispose of them and realize gains upon our disposition of them. However, the equity interests we receive may not appreciate in value and, may decline in value. As a result, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
Our ability to enter transactions involving derivatives and financial commitment transactions may be limited.
Pursuant to SEC rules, BDCs that use derivatives are subject to a value-at-risk (VaR) leverage limit, certain other derivatives risk management program and testing requirements and requirements related to board reporting. These requirements apply unless the BDC qualified as a limited derivatives user, as defined in the SECs adopted rules. A BDC that enters into reverse repurchase agreements or similar financing transactions may either comply with the asset coverage requirements of Section18 of the 1940 Act when engaging in reverse repurchase agreements or choose to treat such agreements as derivatives transactions under the adopted rule. A BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. If the BDC cannot meet this test, it is required to treat unfunded commitments as a derivatives transaction subject to the requirements of the SEC rules. Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
Risks Relating to Our Common Stock
There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital.
We intend to make distributions on amonthly basis to our stockholders out of assets legally available for distribution (i.e., not subject to any legal restrictions under Maryland law on the distribution thereof). We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions oryear-to-year increases in cash distributions. All distributions will be made at the discretion of our Board and will depend on our
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earnings, financial condition, maintenance of RIC status, compliance with applicable BDC requirements and SBA regulations and such other factors as our Board may deem relative from time to time. We cannot assure you that we will make distributions to our stockholders in the future.
Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this Annual Report on Form 10-K. Due to the asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions. In addition, restrictions and provisions in our Credit Facility, the 2030 Notes Payable and any future credit facilities, as well as in the terms of any future debt securities we may issue, may limit our ability to make distributions in certain circumstances.
When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of an investors basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain.
Stockholders may experience dilution in their ownershippercentage if they do not participate in our dividend reinvestment plan (DRIP).
All distributions declared in cash payable to stockholders that are participants in our DRIP are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the DRIP may experience dilution over time. Stockholders who receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.
Our shares might trade at premiums that are unsustainable or at discounts from net asset value.
Shares of BDCs like us may, during some periods, trade at prices higher than their net asset value per share and, during other periods, as frequently occurs with closed-end investment companies, trade at prices lower than their net asset value per share. The perceived value of our investment portfolio may be affected by a number of factors including perceived prospects for individual companies we invest in, market conditions for common stock generally, for initial public offerings and other exit events for venture capital backed companies, and the mix of companies in our investment portfolio over time. Negative or unforeseen developments affecting the perceived value of companies in our investment portfolio could result in a decline in the trading price of our common stock relative to our net asset value per share.
The possibility that our shares will trade at a discount from net asset value or at premiums that are unsustainable are risks separate and distinct from the risk that our net asset value per share will decrease. The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in net asset value per share.
Investing in our securities may involve an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk, and higher volatility or loss of principal, than alternative investment options. Our investments in portfolio companies may be speculative and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance.
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The market price of our securities may fluctuate significantly.
The market price and liquidity of the market for our securities may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
| | significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which is not necessarily related to the operating performance of these companies; | |
| | changes in regulatory policies or tax guidelines, particularly with respect to RICs, BDCs and SBICs; | |
| | loss of our qualification as a RIC or BDC or the status of either of our SBIC subsidiaries as a SBIC; | |
| | changes in earnings or variations in operating results; | |
| | changes in the value of our portfolio of investments; | |
| | changes in accounting guidelines governing valuation of our investments; | |
| | adverse publicity about the investment management industry generally or individual scandals specifically; | |
| | a breach of our computer systems, software or networks, or misappropriation of our proprietary information; | |
| | any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; | |
| | departure of Stellus Capital Managements key personnel; | |
| | operating performance of companies comparable to us; and | |
| | general economic trends and other external factors. | |
Risks Relating to Our Debt Securities
The 2030 NotesPayable are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future and rank paripassu with, or equal to, all outstanding and future unsecured indebtedness issued by and us and our general liabilities (total liabilities, less debt).
The 2030 Notes Payable are not and will not be secured by any of our assets or any of the assets of any of our subsidiaries. As a result, the 2030 Notes Payable are effectively subordinated to any secured indebtedness we or our subsidiaries have incurred and may incur in the future (or any indebtedness that is initially unsecured as to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the 2030 Notes Payable. In addition, the 2030 Notes Payable rank pari passu with, or equal to, all outstanding and future unsecured, unsubordinated indebtedness issued by us and our general liabilities (total liabilities, less debt). As of December 31, 2025, we had $236.6 million in outstanding indebtedness under our Credit Facility. The indebtedness under the Credit Facility is effectively senior to the 2030 Notes Payable to the extent of the value of the assets securing such indebtedness.
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The 2030 NotesPayable are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The 2030 Notes Payable are obligations exclusively of Stellus Capital Investment Corporation, and not of any of our subsidiaries. None of our subsidiaries are or will be a guarantor of the 2030 Notes Payable, and the 2030 Notes Payable are not required to be guaranteed by any subsidiary we may acquire or create in the future. Any assets of our subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the 2030 Notes Payable. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities (and therefore the claims of our creditors, including holders of the 2030 Notes Payable) with respect to the assets of such entities. Even if we are recognized as a creditor of one or more of these entities, our claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims. Consequently, the 2030 Notes Payable are structurally subordinated to all indebtedness and other liabilities, including trade payables, of any of our existing or future subsidiaries, including the SBIC subsidiaries. As of December 31, 2025, our subsidiaries had total indebtedness outstanding of$299.0 million. Certain of these entities (excluding our SBIC subsidiaries) currently serve as guarantors under our Credit Facility, and in the future our subsidiaries may incur substantial additional indebtedness, all of which is and would be structurally senior to the Notes Payable.
The indenture under which the 2030 Notes Payable are issued contains limited protection for holders of the 2030 Notes Payable.
The indenture under which the 2030 Notes Payable are issued offers limited protection to holders of the 2030 Notes Payable. The terms of the indenture and the 2030 Notes Payable do not restrict our or any of our subsidiaries ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on an investment in the 2030 Notes Payable. In particular, the terms of the indenture and the 2030 Notes Payable do not place any restrictions on our or our subsidiaries ability to:
| | issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the 2030 Notes Payable, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2030 Notes Payable to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the 2030 Notes Payable and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2030 Notes Payable with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such incurrence or issuance; | |
| | pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2030 Notes Payable, including subordinated indebtedness, except that we have agreed that, for the period of time during which the 2030 Notes Payable are outstanding, we will not violate Section 18(a)(1)(B) of the 1940 Act, as modified by (i) Section 61(a)(2) of the 1940 Act, or any successor provisions and after giving effect to any exemptive relief granted to us by the SEC and (ii) the following two exceptions: (A) we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under subchapter M of the Code; and (B) this restriction will not be triggered unless and until such time as our asset coverage has not been in compliance with the minimum asset coverage required by Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions (after giving effect to any exemptive relief granted to us by the SEC) for more than six consecutive months. If Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(2) of the 1940 Act, were currently | |
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| applicable to us in connection with this offering, these provisions would generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, were below 150% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase; | |
| | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); | |
| | enter into transactions with affiliates; | |
| | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; | |
| | make investments; or | |
| | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. | |
Furthermore, the terms of the indenture and the 2030 Notes Payable do not protect holders of the 2030 Notes Payable in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
Our ability to recapitalize, incur additional debt (including additional debt that matures prior to the maturity of the 2030 Notes Payable) and take a number of other actions that are not limited by the terms of the 2030 Notes Payable may have important consequences for holders of the 2030 Notes Payable, including making it more difficult for us to satisfy our obligations with respect to the 2030 Notes Payable or negatively affecting the market value of the 2030 Notes Payable.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2030 Notes Payable, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, trading levels, and prices of the 2030 Notes Payable.
There is no active trading market for the 2030 Notes Payable. If an active trading market does not develop for 2030 the Notes Payable, you may not be able to sell them.
The 2030 Notes Payable are debt securities for which there currently is no trading market. We do not intend to list the 2030 Notes Payable on any securities exchange or for quotation of the 2030 Notes Payable on any automated dealer quotation system. If the 2030 Notes Payable are traded after their initial issuance, they may trade at a discount to their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, our financial condition, performance and prospects, general economic conditions, or other relevant factors. Although the underwriter has informed us that it intends to make a market in the 2030 Notes Payable, it is not obligated to do so, and the underwriter may discontinue any market-making in the 2030 Notes Payable at any time at its sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop or be maintained for the 2030 Notes Payable, that you will be able to sell your 2030 Notes Payable at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the 2030 Notes Payable may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the 2030 Notes Payable for an indefinite period of time.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2030 Notes Payable.
Any default under the agreements governing our indebtedness, including a default under the Credit Facility or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the lenders or holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on
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the 2030 Notes Payable and substantially decrease the market value of the 2030 Notes Payable. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, as applicable, in the instruments governing our indebtedness (including the Credit Facility), we could be in default under the terms of the agreements governing such indebtedness, including the 2030 Notes Payable. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Credit Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to refinance or restructure our debt, including the 2030 Notes Payable, sell assets, reduce or delay capital investments, seek to raise additional capital or seek to obtain waivers from the required lenders under the Credit Facility or other debt that we may incur in the future to avoid being in default. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the 2030 Notes Payable or our other debt. If we breach our covenants under the Credit Facility or our other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders thereof. If this occurs, we would be in default under the Credit Facility or other debt, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under the Credit Facility, could proceed against the collateral securing the debt. Because the Credit Facility has, the indenture governing the 2030 Notes Payable has, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the 2030 Notes Payable, the Credit Facility or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
We may choose to redeem the 2030 Notes Payable when prevailing interest rates are relatively low.
The 2030 Notes Payable are redeemable in whole or in part upon certain conditions at any time or from time to time at our option. We may choose to redeem the 2030 Notes Payable from time to time, especially if prevailing interest rates are lower than the rate borne by the 2030 Notes Payable. If prevailing rates are lower at the time of redemption, and we redeem the 2030 Notes Payable, you likely would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the 2030 Notes Payable being redeemed.
We may not be able to repurchase the 2030 Notes Payable upon a Change of Control Repurchase Event.
We may not be able to repurchase the 2030 Notes Payable upon a Change of Control Repurchase Event (as defined in the supplemental indenture governing the 2030 Notes Payable) because we may not have sufficient funds. We would not be able to borrow under our Credit Facility to finance such a repurchase of the 2030 Notes Payable, and we expect that any future credit facility would have similar limitations. Upon a Change of Control Repurchase Event, holders of the 2030 Notes Payable may require us to repurchase for cash some or all of the 2030 Notes Payable at a repurchase price equal to 100% of the aggregate principal amount of the 2030 Notes Payable being repurchased, plus accrued and unpaid interest to, but not including, the repurchase date. The terms of our Credit Facility provide that certain change of control events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility. In addition, the occurrence of a Change of Control Repurchase Event enabling the holders of the 2030 Notes Payable to require the mandatory purchase of the 2030 Notes Payable will constitute an event of default under our Credit Facility, entitling the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate our Credit Facility. Our and our subsidiaries future financing facilities may contain similar restrictions and provisions. Our failure to purchase such tendered 2030 Notes Payable upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the indenture governing the 2030 Notes Payable and a cross-default under the agreements governing the Credit Facility, which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately. If the holders of the 2030 Notes Payable exercise their right to require us to repurchase 2030 Notes Payable upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our current and future debt instruments, and we may not have sufficient funds to repay any such accelerated indebtedness.
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A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the 2030 Notes Payable or change in the debt markets could cause the liquidity or market value of the 2030 Notes Payable to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the 2030 Notes Payable. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the 2030 Notes Payable. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor the underwriter undertakes any obligation to maintain our credit ratings or to advise holders of 2030 Notes Payable of any changes in our credit ratings. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by the rating agencies if in their judgment future circumstances relating to the basis of the credit ratings, such as adverse changes in our Company, so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the 2030 Notes Payable.
Item1B.Unresolved Staff Comments
Not applicable.
Item1C.Cybersecurity
**Risk Management and Strategy**
We have processes in place for assessing, identifying, and managing material risks from potential unauthorized occurrences on or through our electronic information systems that could negatively impact the confidentiality, integrity, or availability of our information systems or the information held on such systems. These processes include controls, procedures, systems and tools that are designed to prevent, detect, or mitigate data loss, theft, misuse, unauthorized access, or other security incidents or vulnerabilities affecting the data. Such processes are set forth in our joint Cybersecurity Policy, Written Information Security Policy and Incident Response Plan with Stellus Capital Management (collectively, the Cybersecurity Policy). The Cybersecurity Policy also sets forth the role of our Chief Compliance Officer and our Information Security Team in preparing, implementing, and maintaining incident response procedures.
Our Chief Compliance Officer and Information Security Team are responsible for the development and implementation of policies and technical measures to reasonably prevent security incidents. At times we may also engage assessors, consultants, auditors or other third parties to assist with assessing, identifying and managing cybersecurity risk. As part of our risk management process, we conduct assessment and penetration testing, including regular trainings completed by employees of Stellus Capital Management who provide services to us pursuant to the Administration Agreement.
**Material Impact of Cybersecurity Risks**
As of the date of this Annual Report on Form 10-K, we are not aware of any material risks from cybersecurity threats that have materially affected, or are reasonably likely to materially affect, us, including our business strategy, results of operations, or financial condition. However, future incidents could have a material impact on our business. Additional information about the cybersecurity risks that we face is discussed in Item 1A of Part I, Risk Factors, in this Annual Report on Form 10-K under the heading *We, Stellus Capital Management and our portfolio companies are subject to risks associated with phishing and other cyber-attacks.*
**Oversight of Cybersecurity Risks**
Our cybersecurity risks and associated mitigation strategies are evaluated by our management and the Information Security Team as needed, but no less frequently than annually. On at least a quarterly basis, the Information Security Team reports to our Board on developments to cybersecurity risks we face. Such reports include, among other things, an overview of the controls and procedures related to assessing, identifying, and managing risks related to cybersecurity
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threats, oversight of third-party service providers and related cybersecurity threats, and Information Security Team's evaluation of cybersecurity risks that are material to us.
Item2.Properties
We do not own any real estate or other physical properties materially important to our operation. Our headquarters are located at 4400 Post Oak Parkway, Suite2200, Houston, Texas. We also maintain offices in Charlotte, North Carolina and in the Washington, D.C. area. All locations are provided to us by Stellus Capital Management pursuant to the Administration Agreement. We believe that our office facilities are suitable and adequate for our business as we contemplate conducting it.
Item3.Legal Proceedings
We, Stellus Capital Management or our subsidiaries are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, Stellus Capital Management or our subsidiaries. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item4.Mine Safety Disclosures
Not applicable.
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PARTII
**Item5.**Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NYSE under the symbol SCM. As of March 11, 2026, we had eight stockholders of record, which did not include stockholders for whom shares are held in nominee or street name.
We generally intend to pay distributions to our stockholders out of assets legally available for distribution. Our distributions and their frequency, if any, will be determined by our Board. During the period from January 2022 through March 2022, we paid monthly distributions of $0.0933 per share on our common stock. During the period from April 2022 through December 2025, we paid monthly distributions of $0.1333 per share on our common stock. Payment of dividends on our common stock is within the discretion of the Board, and depends on, among other factors, net earnings, capital requirements and our financial condition. However, we intend to continue to pay comparable dividends to stockholders in the future.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Recent Sales of Registered Securities
On November 16, 2021, we entered into an equity distribution agreement (as amended and restated on August 29, 2022, 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, 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.
On August 11, 2023, we entered into an equity distribution agreement with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principals 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 our investment objective and strategies. Upon execution of the 2023 Equity Distribution Agreement, we no longer sold any shares under the 2021 Equity Distribution Agreement.
On September 9, 2025, we entered into an equity distribution agreement (the 2025 Equity Distribution Agreement and together with the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement, the Equity Distribution Agreements) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 2025 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100.0 million 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. Upon execution of the 2025 Equity Distribution Agreement, we no longer sold any shares under the 2023 Equity Distribution Agreement. We refer to our issuance and sale of shares under the Equity Distribution Agreements as the ATM Program.
In January2023, we sold 33,812 shares of common stock through the ATM Program for net proceeds of $459,187, which was used to repay borrowings under the Credit Facility.
In March2023, we sold 547,802 shares of common stock through the ATM Program for net proceeds of $7,832,670, which was used to repay borrowings under the Credit Facility.
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In April2023, we sold 587,363 shares of common stock through the ATM Program for net proceeds of $8,027,626, which was used to repay borrowings under the Credit Facility.
In May2023, we sold 730,424 shares of common stock through the ATM Program for net proceeds of $10,471,012, which was used to repay borrowings under the Credit Facility.
In June2023, we sold 991,734 shares of common stock through the ATM Program for net proceeds of $13,566,642, which was used to repay borrowings under the Credit Facility.
In August2023, we sold 294,993 shares of common stock through the ATM Program for net proceeds of $4,092,986, which was used to repay borrowings under the Credit Facility.
In September2023, we sold 1,272,745 shares of common stock through the ATM Program for net proceeds of $17,477,976, which was used to repay borrowings under the Credit Facility.
In May2024, we sold 1,154,611 shares of common stock through the ATM Program for net proceeds of $15,859,129, which was used to repay borrowings under the Credit Facility.
In June2024, we sold 700,745 shares of common stock through the ATM Program for net proceeds of $9,531,069, which was used to repay borrowings under the Credit Facility.
In July2024, we sold 1,150 shares of common stock through the ATM Program for net proceeds of $15,633, which was used to repay borrowings under the Credit Facility.
In August 2024, we sold 707,610 shares of common stock through the ATM Program for net proceeds of $9,631,798, which was used to repay borrowings under the Credit Facility.
In September2024, we sold 349,606 shares of common stock through the ATM Program for net proceeds of $4,727,126, which was used to repay borrowings under the Credit Facility.
In October2024, we sold 18,374 shares of common stock through the ATM Program for net proceeds of $247,994, which was used to repay borrowings under the Credit Facility.
In November2024, we sold 183,199 shares of common stock through the ATM Program for net proceeds of $2,501,729, which was used to repay borrowings under the Credit Facility.
In December2024, we sold 240,181 shares of common stock through the ATM Program for net proceeds of $3,282,112, which was used to repay borrowings under the Credit Facility.
In January 2025, we sold 38,388 shares of common stock through the ATM Program for net proceeds of $524,560, which was used to repay borrowings under the Credit Facility.
In March 2025, we sold 617,697 shares of common stock through the ATM Program for net proceeds of $8,593,514, which was used to repay borrowings under the Credit Facility.
In April 2025, we sold 278,945 shares of common stock through the ATM Program for net proceeds of $3,837,828, which was used to repay borrowings under the Credit Facility.
In September 2025, we sold 531,106 shares of common stock through the ATM Program for net proceeds of $7,324,060, which was used to repay borrowings under the Credit Facility.
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Purchases of Equity Securities
Dividend Reinvestment Plan
During the year ended December 31, 2025, as a part of our DRIP, we purchased 172,949 shares of our common stock for an average price per share of $13.58 in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines such purchases of our common stock during theyear ended December 31, 2025:
| | | | | | | |
| | | TotalNumber | | AveragePrice | |
| | | ofShares | | PaidPer | |
| Period | | Purchased | | Share | |
| January 1, 2025January 31, 2025 | | 14,267 | | $ | 13.96 | |
| February 1, 2025February 28, 2025 | | 13,721 | | | 15.22 | |
| March 1, 2025March 31, 2025 | | 15,314 | | | 13.92 | |
| April 1, 2025April 30, 2025 | | 16,015 | | | 12.81 | |
| May 1, 2025May 31, 2025 | | 14,687 | | | 13.37 | |
| June 1, 2025June 30, 2025 | | 14,885 | | | 13.80 | |
| July 1, 2025July 31, 2025 | | 11,444 | | | 15.22 | |
| August 1, 2025August 31, 2025 | | 12,684 | | | 14.64 | |
| September 1, 2025September 30, 2025 | | 13,300 | | | 14.11 | |
| October 1, 2025October 31, 2025 | | 16,612 | | | 12.27 | |
| November 1, 2025November 30, 2025 | | 14,162 | | | 12.07 | |
| December 1, 2025December 31, 2025 | | 15,858 | | | 12.47 | |
| Total | | 172,949 | | $ | 13.58 | |
Price Range of Common Stock
Our shares of common stock are traded on the NYSE under the symbol SCM. In connection with our initial public offering, our shares of common stock began trading on November8, 2012, and before that date, there was no established trading market for shares of our common stock.
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The following table sets forth, for each fiscal quarter of the three most recent fiscalyears, the range of high and low closing prices of our common stock as reported on the NYSE and the sales price as apercentage of our net asset value (NAV).
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Premiumor | | Premiumor | | |
| | | | | | | | | | | | Discountof | | Discountof | | |
| | | NAVPer | | ClosingSalesPrice(2) | | HighSales | | LowSales | | |
| Fiscal Year Ended | | Share(1) | | High | | Low | | NAV(3) | | NAV(3) | | |
| December31,2025 | | | | | | | | | | | | | | | |
| Fourth quarter | | $ | 12.82 | | $ | 13.10 | | $ | 11.59 | | 2.18 | % | (9.59) | % | |
| Third quarter | | $ | 13.05 | | $ | 15.29 | | $ | 13.04 | | 17.16 | % | (0.08) | % | |
| Second quarter | | $ | 13.21 | | $ | 14.00 | | $ | 11.69 | | 5.98 | % | (11.51) | % | |
| First quarter | | $ | 13.25 | | $ | 15.50 | | $ | 13.64 | | 16.98 | % | 2.94 | % | |
| December31,2024 | | | | | | | | | | | | | | | |
| Fourth quarter | | $ | 13.46 | | $ | 14.33 | | $ | 13.14 | | 6.46 | % | (2.38) | % | |
| Third quarter | | $ | 13.55 | | $ | 14.41 | | $ | 13.39 | | 6.35 | % | (1.18) | % | |
| Second quarter | | $ | 13.36 | | $ | 14.35 | | $ | 12.97 | | 7.41 | % | (2.92) | % | |
| First quarter | | $ | 13.41 | | $ | 13.48 | | $ | 12.56 | | 0.52 | % | (6.34) | % | |
| December31,2023 | | | | | | | | | | | | | | | |
| Fourth quarter | | $ | 13.26 | | $ | 13.73 | | $ | 12.34 | | 3.54 | % | (6.94) | % | |
| Third quarter | | $ | 13.19 | | $ | 15.27 | | $ | 13.60 | | 15.77 | % | 3.11 | % | |
| Second quarter | | $ | 13.67 | | $ | 15.00 | | $ | 13.64 | | 9.73 | % | (0.22) | % | |
| First quarter | | $ | 13.87 | | $ | 15.97 | | $ | 13.14 | | 15.14 | % | (5.26) | % | |
| (1) | NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. | |
| (2) | Closing sales price is determined as the high or low closing sales price noted within the respective quarter, not adjusted for dividends. | |
| (3) | Calculated as of the respective high or low sales price divided by the quarter-end NAV. | |
On March 10, 2026, the last reported closing sales price of our common stock on the NYSE was $9.58 per share, which represented a discount of approximately 25.27% to the NAV per share reported by us as of December 31, 2025.
Shares of BDCs common stock may trade at a market price that is less than the value of the net assets attributable to those shares of common stock. The possibility that our shares of common stock will trade at a discount from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. Since our shares of common stock began trading on November8, 2012, in connection with our initial public offering, our shares of common stock have traded at times at a discount to the NAV attributable to those shares of common stock.
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Stock Performance Graph
This graph compares the return on our shares of common stock with that of the Standard& Poors 500 Stock Index, the Russell 2000 Financial Services Index, and the Raymond James BDC Index, for the period from inception through December 31, 2025. The graph assumes that, at inception, a person invested $100 in each share of our common stock, the S&P 500 Index, the Russell 2000 Financial Services Index, and the Raymond James BDC Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
*The graph and other information furnished under this PartII, Item5 of this Annual Report on Form10-K shall not be deemed to be soliciting material or to be filed with the SEC or subject to Regulation14A or 14C, or to the liabilities of Section18 of the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance.
Item6. [Reserved]
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**Item7.**Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the statements in this Annual Report on Form10-K constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this Annual Report on Form10-K involve risks and uncertainties, including statements as to:
| | our future operating results; | |
| | our business prospects and the prospects of our portfolio companies; | |
| | the effect of investments that we expect to make; | |
| | our contractual arrangements and relationships with third parties; | |
| | actual and potential conflicts of interest with Stellus Capital Management; | |
| | the dependence of our future success on the general economy and its effect on the industries in which we invest; | |
| | the impact of interest rate volatility on our business and our portfolio companies; | |
| | the ability of our portfolio companies to achieve their objectives; | |
| | the use of borrowed money to finance a portion of our investments; | |
| | the adequacy of our financing sources and working capital; | |
| | the timing of cash flows, if any, from the operations of our portfolio companies; | |
| | the ability of Stellus Capital Management to locate suitable investments for us and to monitor and administer our investments; | |
| | the ability of Stellus Capital Management to attract and retain highly talented professionals; | |
| | our ability to maintain our qualification as a RIC and as a BDC; and | |
| | the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to BDCs or RICs. | |
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words may, might, will, intend, should, could, can, would, expect, believe, estimate, anticipate, predict, potential, plan or similar words.
We have based the forward-looking statements included in this Annual Report on Form10-K on information available to us on the date of this Annual Report on Form10-K. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC ruleor regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form10-K, quarterly reports on Form10-Q and current reports on Form8-K.
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Overview
We were organized as a Maryland corporation on May18, 2012 and formally commenced operations on November7, 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.
We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. Our investment activities are managed by our investment adviser, Stellus Capital Management.
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.
We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under subchapter M of the 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, 2025, we were in compliance with the RIC requirements. As a RIC, we generally will not have to pay corporate level U.S.federal income taxes on any income we distribute to our stockholders.
Under the provisions of the 1940 Act, we are permitted, as a BDC that has satisfied certain requirements, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of our gross assets, less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. As of December 31, 2025, our asset coverage ratio was 203%. 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.
**Economic Developments**
Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe macroeconomic uncertainty as a result of various events and trends, including labor resource shortages, commodity inflation, fluctuating interest rates, economic sanctions in response to international conflicts and instances of geopolitical, economic and financial market instability in the United States and abroad, including as a result of the imposition of tariffs in the United States or against its trading partners and the prolonged shutdown of the government in October and November 2025. 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.
Portfolio Composition and Investment Activity
Portfolio Composition
We originate and invest primarily in privately held lower middle-market companies (typically those with $5.0million to $50.0million of EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, often with a corresponding equity investment.
As of December 31, 2025, we had $1,007.6million (at fair value) invested in 115 companies. As of December 31, 2025, our portfolio included approximately 90% of first lien debt (including unitranche investments), 1% of second lien
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debt, 0% of unsecured debt and 9% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2025 was as follows:
| | | | | | | | |
| | | Cost | | FairValue | |
| Senior SecuredFirst Lien(1) | | $ | 951,615,061 | | $ | 908,669,800 | |
| Senior SecuredSecond Lien | | | 12,111,653 | | | 12,025,000 | |
| Unsecured Debt | | | 318,425 | | | 123,789 | |
| Equity | | | 62,094,547 | | | 86,804,806 | |
| Total Investments at Fair Value | | $ | 1,026,139,686 | | $ | 1,007,623,395 | |
| (1) | Includes unitranche investments, which accounted for 4.0% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured loans, as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the last-out tranche. | |
As of December 31, 2024, we had $953.5million (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:
| | | | | | | | |
| | | Cost | | FairValue | |
| Senior SecuredFirst Lien(1) | | $ | 884,322,462 | | $ | 856,096,255 | |
| Senior SecuredSecond Lien | | | 12,073,732 | | | 11,948,850 | |
| Unsecured Debt | | | 6,755,866 | | | 6,612,493 | |
| Equity | | | 58,636,646 | | | 78,840,090 | |
| Total Investments at Fair Value | | $ | 961,788,706 | | $ | 953,497,688 | |
| (1) | Includes unitranche investments, which accounted for 2.0% of our portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured loans, as well as second lien and/or subordinated loans. Our unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the last-out tranche. | |
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, 2025 and December 31, 2024, we had unfunded commitments of $53.4million and $41.3million, respectively, to provide financing to 77 and 71 portfolio companies, respectively. As of December 31, 2025, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.
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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2025:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments at | | |
| | | Cost | | Fair Value | | Fair Value | |
| California | | $ | 199,175,312 | | $ | 192,583,333 | | 19.12 | % | |
| Texas | | | 149,955,251 | | | 147,396,649 | | 14.63 | % | |
| Florida | | | 102,086,659 | | | 96,730,609 | | 9.60 | % | |
| New York | | | 59,320,592 | | | 59,952,294 | | 5.95 | % | |
| Illinois | | | 69,282,731 | | | 55,796,619 | | 5.54 | % | |
| Pennsylvania | | | 47,721,299 | | | 49,296,019 | | 4.89 | % | |
| Colorado | | | 41,413,399 | | | 39,386,741 | | 3.91 | % | |
| Arizona | | | 34,208,744 | | | 37,526,211 | | 3.72 | % | |
| Ohio | | | 35,249,934 | | | 36,769,186 | | 3.65 | % | |
| Canada | | | 36,116,171 | | | 36,140,789 | | 3.59 | % | |
| North Carolina | | | 31,163,913 | | | 32,456,489 | | 3.22 | % | |
| Massachusetts | | | 24,283,990 | | | 25,043,277 | | 2.49 | % | |
| Iowa | | | 22,351,338 | | | 22,467,248 | | 2.23 | % | |
| New Jersey | | | 19,768,069 | | | 19,924,612 | | 1.98 | % | |
| Tennessee | | | 20,495,678 | | | 18,827,946 | | 1.87 | % | |
| Virginia | | | 17,506,416 | | | 17,764,137 | | 1.76 | % | |
| Georgia | | | 5,876,197 | | | 17,168,351 | | 1.70 | % | |
| District of Columbia | | | 10,685,508 | | | 14,469,710 | | 1.44 | % | |
| Michigan | | | 12,060,200 | | | 12,255,578 | | 1.22 | % | |
| Minnesota | | | 11,769,582 | | | 11,916,373 | | 1.18 | % | |
| Missouri | | | 10,898,062 | | | 11,109,063 | | 1.10 | % | |
| Idaho | | | 9,479,007 | | | 9,517,417 | | 0.94 | % | |
| Louisiana | | | 9,153,384 | | | 9,297,784 | | 0.92 | % | |
| Oregon | | | 8,860,277 | | | 9,202,699 | | 0.91 | % | |
| Maryland | | | 7,530,655 | | | 7,549,733 | | 0.75 | % | |
| Wisconsin | | | 21,458,139 | | | 7,360,720 | | 0.73 | % | |
| South Carolina | | | 4,847,580 | | | 4,966,273 | | 0.49 | % | |
| Washington | | | 1,273,384 | | | 2,605,719 | | 0.26 | % | |
| United Kingdom | | | 2,148,215 | | | 2,141,816 | | 0.21 | % | |
| Total Investments | | $ | 1,026,139,686 | | $ | 1,007,623,395 | | 100.00 | % | |
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The following is a summary of geographical concentration of our investment portfolio as of December 31, 2024:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments | | |
| | | Cost | | Fair Value | | at Fair Value | | |
| Texas | | $ | 159,028,754 | | $ | 154,041,942 | | 16.15 | % | |
| California | | | 160,285,777 | | | 152,583,692 | | 16.00 | % | |
| Florida | | | 108,434,730 | | | 104,718,969 | | 10.98 | % | |
| Illinois | | | 66,486,029 | | | 56,591,435 | | 5.94 | % | |
| Pennsylvania | | | 53,271,774 | | | 54,438,594 | | 5.71 | % | |
| Arizona | | | 43,552,887 | | | 46,839,063 | | 4.91 | % | |
| New York | | | 36,116,358 | | | 36,306,098 | | 3.81 | % | |
| Ohio | | | 33,645,676 | | | 35,847,804 | | 3.76 | % | |
| Canada | | | 32,107,256 | | | 32,375,749 | | 3.40 | % | |
| Colorado | | | 31,283,806 | | | 28,218,186 | | 2.96 | % | |
| Wisconsin | | | 27,935,159 | | | 23,352,084 | | 2.45 | % | |
| District of Columbia | | | 22,711,852 | | | 26,654,283 | | 2.80 | % | |
| Georgia | | | 12,391,680 | | | 23,345,077 | | 2.45 | % | |
| North Carolina | | | 20,946,327 | | | 22,314,018 | | 2.34 | % | |
| Tennessee | | | 20,490,429 | | | 20,703,772 | | 2.17 | % | |
| Massachusetts | | | 19,965,590 | | | 20,559,398 | | 2.16 | % | |
| Missouri | | | 18,590,476 | | | 18,712,569 | | 1.96 | % | |
| Iowa | | | 13,486,486 | | | 13,486,486 | | 1.41 | % | |
| Idaho | | | 11,763,648 | | | 11,830,192 | | 1.24 | % | |
| New Jersey | | | 11,181,815 | | | 11,754,323 | | 1.23 | % | |
| Michigan | | | 11,389,446 | | | 11,510,608 | | 1.21 | % | |
| Louisiana | | | 9,216,389 | | | 9,371,830 | | 0.98 | % | |
| Virginia | | | 9,293,896 | | | 9,373,367 | | 0.98 | % | |
| Washington | | | 8,193,234 | | | 8,216,962 | | 0.86 | % | |
| Maryland | | | 7,529,294 | | | 7,526,300 | | 0.79 | % | |
| Minnesota | | | 6,448,091 | | | 6,452,144 | | 0.68 | % | |
| South Carolina | | | 4,836,178 | | | 4,984,667 | | 0.52 | % | |
| Indiana | | | 743,770 | | | 920,343 | | 0.10 | % | |
| United Kingdom | | | 461,899 | | | 467,733 | | 0.05 | % | |
| Total Investments | | $ | 961,788,706 | | $ | 953,497,688 | | 100.00 | % | |
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The following is a summary of industry concentration of our investment portfolio as of December 31, 2025:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments at | | |
| | | Cost | | Fair Value | | Fair Value | | |
| Services: Business | | $ | 265,116,204 | | $ | 266,803,107 | | 26.48 | % | |
| High Tech Industries | | | 103,212,518 | | | 106,937,496 | | 10.61 | % | |
| Healthcare & Pharmaceuticals | | | 92,736,458 | | | 92,182,392 | | 9.15 | % | |
| Media: Advertising, Printing & Publishing | | | 78,965,841 | | | 79,030,004 | | 7.84 | % | |
| Capital Equipment | | | 61,644,736 | | | 65,191,527 | | 6.47 | % | |
| Beverage & Food | | | 54,323,129 | | | 58,129,551 | | 5.77 | % | |
| Consumer Goods: Non-Durable | | | 61,701,885 | | | 53,502,252 | | 5.31 | % | |
| Services: Consumer | | | 42,793,668 | | | 40,569,003 | | 4.03 | % | |
| Construction & Building | | | 36,950,838 | | | 37,219,214 | | 3.69 | % | |
| Consumer Goods: Durable | | | 35,569,885 | | | 31,655,077 | | 3.14 | % | |
| Aerospace & Defense | | | 28,192,548 | | | 25,968,951 | | 2.58 | % | |
| Environmental Industries | | | 20,190,193 | | | 22,323,773 | | 2.22 | % | |
| Chemicals, Plastics, & Rubber | | | 20,054,202 | | | 19,792,281 | | 1.96 | % | |
| Transportation & Logistics | | | 16,593,938 | | | 16,791,026 | | 1.67 | % | |
| Media: Broadcasting & Subscription | | | 12,057,869 | | | 15,196,592 | | 1.51 | % | |
| Retail | | | 14,715,878 | | | 14,756,518 | | 1.46 | % | |
| Energy: Oil & Gas | | | 11,802,297 | | | 11,077,160 | | 1.10 | % | |
| Hotel, Gaming, & Leisure | | | 9,181,622 | | | 9,331,063 | | 0.93 | % | |
| Wholesale | | | 8,900,149 | | | 8,921,351 | | 0.89 | % | |
| FIRE: Real Estate | | | 18,419,200 | | | 8,379,604 | | 0.83 | % | |
| Media: Diversified & Production | | | 7,495,599 | | | 7,566,694 | | 0.75 | % | |
| Containers, Packaging, & Glass | | | 20,714,369 | | | 6,360,684 | | 0.63 | % | |
| Finance | | | - | | | 6,187,401 | | 0.61 | % | |
| Education | | | 4,806,660 | | | 3,750,674 | | 0.37 | % | |
| Total Investments | | $ | 1,026,139,686 | | $ | 1,007,623,395 | | 100.00 | % | |
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The following is a summary of industry concentration of our investment portfolio as of December 31, 2024:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments | | |
| | | Cost | | Fair Value | | at Fair Value | | |
| Services: Business | | $ | 219,665,133 | | $ | 234,908,112 | | 24.64 | % | |
| High Tech Industries | | | 91,135,577 | | | 93,468,792 | | 9.81 | % | |
| Healthcare & Pharmaceuticals | | | 85,300,317 | | | 85,478,418 | | 8.97 | % | |
| Media: Advertising, Printing & Publishing | | | 71,318,416 | | | 72,291,584 | | 7.58 | % | |
| Beverage & Food | | | 64,052,951 | | | 68,902,142 | | 7.23 | % | |
| Consumer Goods: Non-Durable | | | 67,123,135 | | | 54,473,282 | | 5.71 | % | |
| Services: Consumer | | | 49,388,222 | | | 46,066,301 | | 4.83 | % | |
| Capital Equipment | | | 41,322,214 | | | 43,647,466 | | 4.58 | % | |
| Consumer Goods: Durable | | | 43,393,413 | | | 42,094,390 | | 4.41 | % | |
| Chemicals, Plastics, & Rubber | | | 36,693,101 | | | 36,907,602 | | 3.87 | % | |
| Construction & Building | | | 32,374,992 | | | 32,979,859 | | 3.46 | % | |
| Aerospace & Defense | | | 26,014,106 | | | 21,624,091 | | 2.27 | % | |
| Environmental Industries | | | 18,903,681 | | | 18,282,056 | | 1.92 | % | |
| Transportation & Logistics | | | 17,244,131 | | | 17,532,488 | | 1.84 | % | |
| Retail | | | 14,799,085 | | | 14,723,620 | | 1.54 | % | |
| Media: Broadcasting & Subscription | | | 12,170,577 | | | 14,314,711 | | 1.50 | % | |
| Containers, Packaging, & Glass | | | 18,007,571 | | | 12,911,794 | | 1.35 | % | |
| Energy: Oil & Gas | | | 11,353,959 | | | 10,728,031 | | 1.13 | % | |
| Hotel, Gaming, & Leisure | | | 7,113,661 | | | 8,142,050 | | 0.85 | % | |
| FIRE: Real Estate | | | 17,934,808 | | | 7,652,436 | | 0.80 | % | |
| Media: Diversified & Production | | | 5,822,637 | | | 5,934,853 | | 0.62 | % | |
| Education | | | 10,537,738 | | | 5,341,151 | | 0.56 | % | |
| Finance | | | 119,281 | | | 5,092,459 | | 0.53 | % | |
| Total Investments | | $ | 961,788,706 | | $ | 953,497,688 | | 100.00 | % | |
At December 31, 2025, our average portfolio company investment at amortized cost and fair value was approximately $8.9million and $8.7million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $26.1million and $19.2million, respectively. At December 31, 2024, our average portfolio company investment at amortized cost and fair value was approximately $9.2million and $9.2million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $23.2million and $21.2million, respectively.
At December 31, 2025, 91.6% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as the Secured Overnight Financing Rate (SOFR), and 8.4% bore interest at fixed rates. At December 31, 2024, 94.5% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as SOFR, and 5.5% bore interest at fixed rates.
The weighted average yield on all of our debt investments as of December 31, 2025 and December 31, 2024 was approximately 9.3% and 10.3%, 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, 2025 and December 31, 2024 was approximately 8.7% and 9.7%, respectively. The decrease in weighted average yields from the year ended December 31, 2024 to the year ended December 31, 2025 was due primarily to falling interest rates. 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.
As of December 31, 2025 and December 31, 2024, we had cash and cash equivalents of $25.1million and $20.1million, respectively, the majority of which was held in our SBIC subsidiaries.
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Investment Activity
During theyear ended December 31, 2025, we made $194.1million of investments in 18 new portfolio companies and 28 existing portfolio companies. During theyear ended December 31, 2025, we received an aggregate of $139.7million in proceeds from repayments of our investments.
During theyear ended December 31, 2024, we made $221.2 million of investments in 21 new portfolio companies and 29 existing portfolio companies. During theyear ended December 31, 2024, we received an aggregate of $151.8 million in proceeds from repayments of our investments.
Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to lower middle-market companies, the level of merger and acquisition activity in that sector, the general economic environment and the competitive environment for the types of investments we make.
Asset Quality
In addition to various risk management and monitoring tools, Stellus Capital Management uses an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:
| | Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment. | |
| | Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2. | |
| | Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants. | |
| | Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected. | |
| | Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5 are those for which some loss of return and principal is expected. | |
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The following is a summary of asset quality ratings of our investment portfolio as of December 31, 2025 and December 31, 2024:
| | | | | | | | | | | | | | | | |
| | | AsofDecember31,2025 | | AsofDecember31,2024 | |
| | | (dollars in millions) | | (dollars in millions) | |
| | | | | | | | Number of | | | | | | | Number of | |
| | | | | | % of Total | | Portfolio | | | | | % of Total | | Portfolio | |
| Investment Category | | Fair Value | | Portfolio | | Companies(1) | | Fair Value | | Portfolio | | Companies(1) | |
| 1 | | $ | 227.3 | | 23 | % | 27 | | $ | 227.2 | | 24 | % | 24 | |
| 2 | | | 590.2 | | 59 | % | 63 | | | 564.5 | | 59 | % | 61 | |
| 3 | | | 148.4 | | 14 | % | 17 | | | 112.0 | | 12 | % | 11 | |
| 4 | | | 35.1 | | 3 | % | 3 | | | 41.3 | | 4 | % | 5 | |
| 5 | | | 6.6 | | 1 | % | 7 | | | 8.5 | | 1 | % | 5 | |
| Total | | $ | 1,007.6 | | 100 | % | 117 | | $ | 953.5 | | 100 | % | 106 | |
| (1) | Two portfolio companies appear in two categories as of December 31, 2025 and one portfolio company appears in two categories as of December 31, 2024. | |
Loans and Debt Securities on Non-Accrual Status
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, 2025, we had loans to five portfolio companies that were on non-accrual status, which represented approximately 7.5% of our total investments at cost and 4.1% at fair value. 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, 2025 and December 31, 2024, $11.2million and $6.5million of income from investments on non-accrual had not been accrued, respectively.
Results of Operations
An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses, including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.
Comparison of theYears Ended December 31, 2025, 2024, and 2023
Revenues
We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to sevenyears and bear interest at primarily floating rates. Interest on our debt investments is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for severalyears or due entirely at maturity. In some cases, our debt investments may pay PIK interest. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn will increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.
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The following shows the breakdown of our investment income for theyears ended December 31, 2025, 2024, and 2023 (in millions).
| | | | | | | | | | | |
| | | Fortheyear ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| Interest income(1) | | $ | 91.5 | | $ | 95.4 | | $ | 96.9 | |
| PIK interest | | | 5.7 | | | 3.3 | | | 3.8 | |
| Miscellaneous fees(1) | | | 4.9 | | | 6.0 | | | 5.1 | |
| Total | | $ | 102.1 | | $ | 104.7 | | $ | 105.8 | |
| (1) | For theyears ended December 31, 2025, 2024, and 2023, we recognized $2.5 million, $2.5million and $2.7million of non-recurring income, respectively. Non-recurring income was related to early repayments, the recognition of previously reserved income from a prior period, and amendments to specific loan positions. | |
The decrease in investment income from theyear ended December 31, 2024 to theyear ended December 31, 2025 was due primarily to falling interest rates, offset by growth in the overall investment portfolio. The decrease in investment income from theyear ended December 31, 2023 to theyear 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.
Expenses
Our primary operating expenses include the payment of fees to Stellus Capital Management under the Investment Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include:
| | organization and offering costs; | |
| | valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm); | |
| | fees and expenses payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; | |
| | interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; | |
| | base management and incentive fees; | |
| | offerings of our common stock and other securities; | |
| | administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of Stellus Capital Managements overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and his respective staffs); | |
| | transfer agent, dividend agent and custodial fees and expenses; | |
| | U.S. federal and state registration fees; | |
| | all costs of registration and listing our securities on any securities exchange; | |
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| | U.S. federal, state and local taxes; | |
| | independent directors fees and expenses; | |
| | costs of preparing and filing reports or other documents required by the SEC or other regulators; | |
| | costs of any reports, proxy statements or other notices to stockholders, including printing costs; | |
| | costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; | |
| | direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; | |
| | proxy voting expenses; and | |
| | all other expenses incurred by us or Stellus Capital Management in connection with administering our business. | |
The following shows the breakdown of operating expenses for the years ended December 31, 2025, 2024, and 2023 (in millions).
| | | | | | | | | | | | |
| | | Fortheyear ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Operating Expenses | | | | | | | | | | | |
| Management fees | | $ | 17.2 | | $ | 15.7 | | $ | 15.5 | | |
| Valuation fees | | | 0.4 | | | 0.4 | | | 0.4 | | |
| Administrative services expenses | | | 2.1 | | | 1.9 | | | 1.9 | | |
| Income incentive fees | | | 8.4 | | | 10.0 | | | 10.2 | | |
| Capital gains incentive fee (reversal) | | | | | | | | | (0.6) | | |
| Professional fees | | | 1.9 | | | 1.2 | | | 1.4 | | |
| Directors fees | | | 0.4 | | | 0.4 | | | 0.4 | | |
| Insurance expense | | | 0.4 | | | 0.5 | | | 0.5 | | |
| Interest expense and other fees | | | 34.9 | | | 31.5 | | | 32.0 | | |
| Income tax expense | | | 1.6 | | | 1.8 | | | 1.3 | | |
| Other general and administrative expenses | | | 1.3 | | | 1.2 | | | 0.9 | | |
| Total Operating Expenses | | $ | 68.6 | | $ | 64.6 | | $ | 63.9 | | |
| Income incentive fee waiver | | | (3.3) | | | (1.8) | | | (0.3) | | |
| Total Operating Expenses, net of fee waivers | | $ | 65.3 | | $ | 62.8 | | $ | 63.6 | | |
The increase in operating expenses for theyear ended December 31, 2025 as compared to the year ended December 31, 2024 was due to higher management fee and interest expense due to overall portfolio growth, offset by lower income incentive fees. The decrease in operating expenses for theyear ended December 31, 2024 as compared to the year ended December 31, 2023 was due to higher income incentive fee waivers due to the total return limitation, offset in part byhigher income tax expense due to increased taxable spillover income.
Net Investment Income
For theyear ended December 31, 2025, net investment income was $36.9million, or $1.30 per common share based on 28,364,809 weighted-average common shares outstanding. For theyear ended December 31, 2024, net investment income was $41.9million, or $1.64 per common share based on 25,596,593 weighted-average common shares outstanding. For theyear ended December 31, 2023, net investment income was $42.2million, or $1.92 per common share based on 22,004,648 weighted-average common shares outstanding.
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Net investment income for theyear ended December 31, 2025 decreased compared to theyear ended December 31, 2024 as a result of decreased interest income, as explained in the Revenues section above, and increased operating expenses as explained in the Expenses section above.
Net investment income for theyear 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.
Net Realized Gains (Losses)
We measure net realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized.
Proceeds from repayments of investments and amortization of certain other investments for theyear ended December 31, 2025 totaled $139.7million resulting in net realized gains (losses) on investments totaling $1.5million and net realized losses on foreign currency translations of ($0.1) million, primarily from the realization of certain equity investments, partially offset from the realization of our debt investments in certain portfolio companies.
Proceeds from repayments of investments and amortization of certain other investments for theyear ended December 31, 2024 totaled $151.8million resulting in net realized losses on investments totaling ($15.7)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 theyear ended December 31, 2023 totaled $141.3million resulting in net realized losses on investments totaling ($30.2) 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.
Net Change in Unrealized Appreciation (Depreciation)
Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.
Net change in unrealized (depreciation) appreciation on investments and cash equivalents, including foreign currency translations, for theyears ended December 31, 2025, 2024, and 2023 totaled ($11.1) million, $19.6 million, and $2.8million, respectively.
The change in unrealized appreciation in 2025 was primarily due to company-specific write-downs, partially offset by realizations on investments previously written up. The change in unrealized appreciation in 2024 as primarily due to realizations on investments previously written down. The change in unrealized depreciation in 2023 was primarily due to realizations on investments previously written down and net company-specific write-downs.
Benefit (Provision) for Taxes on Unrealized Depreciation(Appreciation) on Investments
We have direct wholly owned subsidiaries that have elected to be treated 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 indirectly 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.
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federal income tax expense, or benefit, if any, and related tax assets and liabilities of the Taxable Subsidiaries are reflected in our Consolidated Financial Statements.
For the years ended December 31, 2025, 2024 and 2023, 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 $0.0 million, $0.2million, and ($0.1) million, respectively.
For theyears 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 $3.0million, respectively. There was no such tax expense for theyear ended December 31, 2025. As of December 31, 2025 and 2024, a tax receivable related to the tax benefit on realized losses of $1.4 million and $1.3million, respectively, was included on the Consolidated Statements of Assets and Liabilities. As of December 31, 2025 and 2024, there was no such deferred tax liability included in Consolidated Statements of Assets and Liabilities.
Net Increase in Net Assets Resulting from Operations
Net increase in net assets resulting from operations totaled $27.0 million, or $0.95 per common share based on 28,364,809 weighted-average common shares outstanding for theyear ended December 31, 2025.
Net increase in net assets resulting from operations totaled $45.8million, or $1.79 per common share based on 25,596,593 weighted-average common shares outstanding for theyear ended December 31, 2024.
Net increase in net assets resulting from operations totaled $17.5million, or $0.80 per common share based on 22,004,648 weighted-average common shares outstanding for theyear ended December 31, 2023.
The decrease in the net increase in net assets resulting from operations for theyear ended December 31, 2025 as compared to theyear ended December 31, 2024 was primarily due to a decrease in net investment income and increase on unrealized depreciation. The increase in the net increase in net assets resulting from operations for theyear ended December 31, 2024 as compared to theyear ended December 31, 2023 was primarily due to a decrease in realized losses and increase on unrealized appreciation.
Financial Condition, Liquidity and Capital Resources
Cash Flows from Operating and Financing Activities
Our operating activities used net cash of $24.4million for theyear ended December 31, 2025, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for theyear ended December 31, 2025 provided cash of $29.4million, primarily from our ATM Program, net issuances of 2030 Notes Payable and net borrowings on our Credit Facility, offset by repayments 2026 Notes Payable, repayments of SBA-guaranteed debentures and stockholder distributions.
Our operating activities used net cash of $28.6million for theyear 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 theyear ended December 31, 2024 provided cash of $22.6million, primarily from our ATM Program and net borrowings on our Credit Facility, offset by stockholder distributions.
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Our operating activities used net cash of $17.3million for theyear 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 theyear 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.
Liquidity and Capital Resources
Our liquidity and capital resources are derived from the Credit Facility, Notes Payable, the ATM Program, 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 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 2025 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 on the earlier of June17, 2026, the one-year anniversary of our 2025 annual stockholders meeting, or the date of our 2026 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 available to allow us to fund new investments, make additional investments in our portfolio companies, fund our unfunded commitments to portfolio companies or 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.
Under the provisions of the 1940 Act, we are permitted, as a BDC that has satisfied certain requirements, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of our gross assets, less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. As of December 31, 2025 and December 31, 2024, our asset coverage ratio was 203% and 234%, 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, 2025 and December 31, 2024, we had cash and cash equivalents of $25.1 million and $20.1million, respectively.
Credit Facility
We have entered into a senior secured revolving credit agreement, dated as of October10, 2017, with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders thereto (as amended and restated on September 18, 2020 and amended on December 21, 2021, February 28, 2022, May 13, 2022, November 21, 2023, October 30, 2024 and September 11, 2025.
The Credit Facility provides for borrowings up to a maximum of $335.0 million on a committed basis with an accordion feature that allows us to increase the aggregate commitments up to $365.0million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.
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Pursuant to its terms, the Credit Facility will bear interest, subject to our election, on a per annum basis equal to (i) term SOFR plus 2.25% (or 2.50% during certain periods in which our asset coverage ratio is equal to or below 1.90 to 1.00) with a 0.25% SOFR floor, or (ii) 1.25% (or 1.50% 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. The commitment to fund the revolver expires on September 11, 2029, 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 September 11, 2030. 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 stockholders equity, and (iv)maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2025, we were in compliance with these covenants.
As of December 31, 2025 and December 31, 2024, the outstanding balance under the Credit Facility was $236.6million and $175.4million, 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 $8.9million in connection with the Credit Facility, which were capitalized and are being amortized over the life of the facility. Additionally, $0.3million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of December 31, 2025 and 2024, $3.5million and $3.1million 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.
Interest on the Credit Facility is paidmonthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for theyears ended December 31, 2025, 2024, and 2023 (dollars in millions):
| | | | | | | | | | | | |
| | | For the year ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 13.0 | | $ | 13.6 | | $ | 14.7 | | |
| Loan fee amortization | | | 1.2 | | | 1.1 | | | 0.7 | | |
| Total interest and financing expenses | | $ | 14.2 | | $ | 14.7 | | $ | 15.4 | | |
| Weighted average interest rate | | | 7.2 | % | | 8.3 | % | | 7.9 | % | |
| Effective interest rate (including fee amortization) | | | 7.9 | % | | 8.9 | % | | 8.3 | % | |
| Average debt outstanding | | $ | 180.2 | | $ | 164.3 | | $ | 186.1 | | |
| Cash paid for interest and unused fees | | $ | 12.9 | | $ | 13.5 | | $ | 14.5 | | |
SBA-Guaranteed Debentures
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 December 31, 2025 and 2024, the SBIC I subsidiary had $75.0 million in regulatory capital for both periods, as such term is defined by the SBA, and $124.0 million and $150.0 million of SBA-guaranteed debentures outstanding, respectively. During the year ended December 31, 2025, the SBIC I subsidiary repaid $26.0 million of SBA-guaranteed debentures that matured during the period. As of both December 31, 2025 and 2024, the SBIC II subsidiary had $87.5 million in regulatory capital and $175.0 million of SBA-guaranteed debentures outstanding.
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On August 12, 2014, we obtained exemptive relief from the SEC to permit us to exclude debt of the SBIC subsidiaries guaranteed by the SBA for purposes of complying with 150% asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the 150% asset coverage test by permitting us to borrow up to $325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief.
On a stand-alone basis, the SBIC subsidiaries held $492.7million and $510.1million in assets at December 31, 2025 and 2024, respectively, which accounted for approximately 47.3% and 52.0% of our total consolidated assets at December 31, 2025 and 2024, respectively.
SBA-guaranteed debentures have fixed interest rates that equal the prevailing rate for 10-year U.S. Treasury Notesplus a market spread and have a maturity of tenyears with interest payable semi-annually. The principal amount 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 December 31, 2025 and 2024, the SBIC subsidiaries had $299.0 million and $325.0million of the SBA-guaranteed debentures outstanding, respectively.
As of December 31, 2025 and 2024, the carrying amount of the SBA-guaranteed debentures was $296.0 million and $321.3 million, respectively. At the measurement date, the estimated fair value of the SBA-guaranteed debentures as prepared for disclosure purposes was $290.4 million. As of December 31, 2024, the carrying amount of the SBA-guaranteed debentures approximated their fair value. The fair value of the SBA-guaranteed debentures 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 SBA-guaranteed debentures is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. At December 31, 2025 and 2024, the SBA-guaranteed debentures would be deemed to be Level3, as defined in Note6 to our Consolidated Financial Statements.
We have incurred $11.1 million in financing costs related to the SBA-guaranteed debentures since the SBIC subsidiaries received their licenses, which were recorded as prepaid loan fees. As of December 31, 2025 and 2024, $3.0million and $3.7million of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for theyears ended December 31, 2025, 2024, and 2023 (dollars in millions):
| | | | | | | | | | | | |
| | | For the year ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 10.0 | | $ | 10.5 | | $ | 10.0 | | |
| Debenture fee amortization | | | 0.7 | | | 1.0 | | | 1.3 | | |
| Total interest and financing expenses | | $ | 10.7 | | $ | 11.5 | | $ | 11.3 | | |
| Weighted average interest rate | | | 3.2 | % | | 3.2 | % | | 3.2 | % | |
| Effective interest rate (including fee amortization) | | | 3.5 | % | | 3.5 | % | | 3.5 | % | |
| Average debt outstanding | | $ | 308.2 | | $ | 325.0 | | $ | 318.8 | | |
| Cash paid for interest | | $ | 10.2 | | $ | 10.5 | | $ | 9.6 | | |
NotesPayable
The Notes Payable (as defined below) are institutional, non-traded notes. As of December 31, 2025 and 2024, the carrying amount of the NotesPayable was $122.7 million and $99.4 million, respectively. At the measurement date, the estimated fair value of the Notes Payable as prepared for disclosure purposes was $126.0 million.
On January 14, 2021, we issued $100.0 million in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the 2026 Notes Payable). The 2026 Notes Payable were redeemable in whole or in part at any time or from time to time at our option on or after December 31, 2025, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2026 Notes Payable was payable semi-annually beginning September 30,
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2021. We used the net proceeds from the 2026 Notes Payable offering to fully redeem the 5.75% fixed-rate notes due September 15, 2022 and repay a portion of the amount outstanding under the Credit Facility.
On September 30, 2025, we prepaid $50.0 million in aggregate principal of the 2026 Notes Payable. On December 31, 2025, we prepaid the remaining $50.0 million in aggregate principal of the 2026 Notes Payable in full. In connection with the issuance and maintenance of the 2026 Notes Payable, we incurred $2.3 million of fees, which were amortized over the term of the 2026 Notes Payable. For the year ended December 31, 2025, we recorded a make-whole payment of less than $0.1 million and accelerated $0.2 million of unamortized upfront fees, which are recognized as a loss on debt extinguishment in the Consolidated Statemements of Operations.
On April 1, 2025 and September 25, 2025, we issued $75.0 million and $50.0 million, respectively, in aggregate principal amount of the 2030 Notes Payable (together with the 2026 Notes Payable, the Notes Payable). The 2030 Notes Payable are institutional, non-traded notes that will mature on April 1, 2030 and may be redeemed in whole or in part at any time or from time to time at our option on or after October 1, 2029, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2030 Notes Payable is payable semi-annually beginning October 1, 2025. We used the net proceeds from the 2030 Notes Payable offering to fully redeem the 2026 Notes Payable and repay a portion of the amount outstanding under the Credit Facility.
In connection with the issuance and maintenance of the 2030 Notes Payable, we have incurred $2.7 million of fees, which are being amortized over the term of the 2030 Notes Payable. As of December 31, 2025, $2.3 million remained to be amortized. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following table summarizes the interest expense and deferred financing costs on the 2026 Notes Payable for theyears ended December 31, 2025, 2024, and 2023 (dollars in millions):
| | | | | | | | | | | | |
| | | For the years ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 4.2 | | $ | 4.9 | | $ | 4.9 | | |
| Deferred financing costs | | | 0.4 | | | 0.4 | | | 0.4 | | |
| Total interest and financing expenses | | $ | 4.6 | | $ | 5.3 | | $ | 5.3 | | |
| Weighted average interest rate | | | 5.7 | % | | 4.9 | % | | 4.9 | % | |
| Effective interest rate (including fee amortization) | | | 6.2 | % | | 5.3 | % | | 5.3 | % | |
| Average debt outstanding | | $ | 74.7 | | $ | 100.0 | | $ | 100.0 | | |
| Cash paid for interest | | $ | 5.5 | | $ | 4.9 | | $ | 4.9 | | |
The following table summarizes the interest expense and deferred financing costs on the 2030 Notes Payable for theyear ended December 31, 2025 (dollars in millions):
| | | | | | |
| | | For the year ended | |
| | | December31,2025 | | |
| Interest expense | | $ | 5.1 | | |
| Deferred financing costs | | | 0.3 | | |
| Total interest and financing expenses | | $ | 5.4 | | |
| Weighted average interest rate | | | 7.2 | %(1) | |
| Effective interest rate (including fee amortization) | | | 7.8 | %(1) | |
| Average debt outstanding | | $ | 92.8 | (1) | |
| Cash paid for interest | | $ | 2.8 | | |
| (1) | Calculated for the period from April 1, 2025, the date of the first issuance of the 2030 Notes Payable, through December 31, 2025. | |
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ATM Program
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 principal thereunder. Under the 2021 Equity Distribution Agreement, we were permitted to issue and sell, from time to time, up to $50.0 million 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.
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 $100.0 million 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. Upon execution of the 2023 Equity Distribution Agreement, we no longer sold any shares under the 2021 Equity Distribution Agreement.
On September 9, 2025, we entered into the 2025 Equity Distribution Agreement with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 2025 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100.0 million 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. Upon execution of the 2025 Equity Distribution Agreement, we no longer sold any shares under the 2023 Equity Distribution Agreement.
We issued 1,466,136 shares and 3,355,476 shares during the fiscal years ended December 31, 2025 and 2024 under the ATM Program, respectively, for gross proceeds of $20.6 million and $46.5 million and underwriting fees and other expenses of $0.9 million and $1.1 million, respectively. The average per share offering price of shares issued in the ATM Program during the fiscal years ended December 31, 2025 and 2024 was $14.04 and $13.86, 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 both the fiscal years ended December 31, 2025 and 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value.
Contractual Obligations
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | 2031and | |
| | | Total | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | thereafter | |
| |
| | | (inmillions) | |
| Credit Facility payable | | $ | 236.6 | | $ | | | $ | | | $ | | | $ | 59.2 | | $ | 177.5 | | $ | | |
| Notes payable | | | 125.0 | | | | | | | | | | | | | | | 125.0 | | | | |
| SBA-guaranteed debentures | | | 299.0 | | | 39.0 | | | | | | 82.5 | | | 2.5 | | | 11.0 | | | 164.0 | |
| Total | | $ | 660.6 | | $ | 39 | | $ | | | $ | 82.5 | | $ | 61.7 | | $ | 313.5 | | $ | 164.0 | |
Off-Balance Sheet Arrangements
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, 2025, our only off-balance sheet arrangements consisted of $53.0 million of unfunded commitments to provide debt financing to 75 existing portfolio companies and $0.4 million in unfunded equity commitments to two existing portfolio companies. As of December 31, 2024, our only off-balance sheet arrangements consisted of $41.0 million of unfunded commitments to provide debt financing to 70 existing portfolio companies and $0.3 million in unfunded equity commitments to one existing portfolio company. As of December 31, 2025, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.
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RIC Status and Dividends
We have elected to be treated and intend to qualify annually as a RIC under subchapter M of the Code. So long as we maintain our qualification as a RIC, we will not be subject to U.S. federal income tax to the extent that we timely distribute our investment company taxable income and realized net capital gains to stockholders as dividends.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in ayear may differ from taxable income for thatyear as such dividends may include the distribution of currentyear taxable income or the distribution of prioryear taxable income carried forward into and distributed in the currentyear. Distributions also may include returns of capital.
To qualify for RIC tax treatment, we generally must, among other things, distribute to our stockholders, with respect to each taxableyear, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we maintain our qualification as a RIC, we must also satisfy certain distribution requirements each calendaryear to avoid a U.S. federal excise tax on our undistributed earnings of a RIC. As of December 31, 2025, we had $37.0 million of undistributed taxable income that will be carried forward toward distributions paid during theyear ending December 31, 2026. As of December 31, 2024, we had $45.4 million of undistributed taxable income that was carried forward toward distributions paid during theyear ending December 31, 2025.
We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). However, the covenants contained in the Credit Facility may prohibit us from making distributions to our stockholders, and, as a result, could hinder our ability to satisfy the Annual Distribution Requirement. In addition, we may retain for investment some or all our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in shares of our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxableyear fall below the total amount of our dividends for that fiscalyear, a portion of those dividend distributions may be deemed a return of capital to our stockholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in the Credit Facility. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.
In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (the IRS), a publicly offered RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a prorata amount of cash (with the balance of the distribution paid in shares of our common stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash, except as described below.
If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in shares of our common stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our common stock in accordance with these U.S. Treasury regulations or private letter rulings. However, we continue to monitor the Companys liquidity position and the overall economy and will continue to assess whether it would be in our and our stockholders best interest to take advantage of the IRS rulings.
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Recent Accounting Pronouncements
See Note1 to our Consolidated Financial Statements contained herein for a description of recent accounting pronouncements, if any, including the expected dates of adoption and the anticipated impact on the financial statements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
For a description of our critical accounting policies, see Note 1 to our Consolidated Financial Statements included in this report. We consider the most significant accounting policies to be those related to our valuation of portfolio investments and revenue recognition.
Investment Portfolio Valuation
The most significant determination inherent in the preparation of our Consolidated Financial Statements is the valuation of our investment portfolio and the related amounts of unrealized appreciation and depreciation. We consider this determination to be a critical accounting estimate, given the significant judgments and subjective measurements required. As of December 31, 2025 and 2024, our investment portfolio at fair value represented approximately 96.8% and 97.2% of our total assets, respectively. We are required to report our investments for which market quotations are not readily available at fair value. We follow the provisions of ASC820. ASC820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. See Note1 to the Consolidated Financial Statements contained herein for a detailed discussion of our investment portfolio valuation process and procedures.
Due to the inherent uncertainty in the valuation process, our Boards determination of fair value for our investment portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. Our Board determines the fair value of each individual investment for which market quotations are not readily available in accordance with our valuation policy as adopted pursuant to Rule 2a-5 under the 1940 Act, and we record changes in fair value as unrealized appreciation or depreciation.
We believe our investment portfolio as of December 31, 2025 and 2024 approximates fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.
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Subsequent Events
Investment Portfolio
We invested in the following portfolio companies subsequent to December 31, 2025:
| c | | | | | | | | | | | | |
| Activity Type | | Date | | Company Name | | Company Description | | Investment Amount | | Instrument Type | |
| Add-On Investment | | January 2, 2026 | | Bart & Associates, LLC* | | Provider of content, information, tech-enabled services, and hosts competitions for the U.S. equine industry | | $ | 2,000,000 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 43,413 | | Equity | |
| New Investment | | January 9, 2026 | | Silver Parent, LLC | | Senior-care focused placement platform | | $ | 7,130,301 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| | | | | | | | | $ | 498,641 | | Equity | |
| Add-On Investment | | January 15, 2026 | | GRC Java Holdings, LLC* | | Specialty coffee platform | | $ | 42,783 | | Equity | |
| Add-On Investment | | January 20, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 380,186 | | Senior SecuredFirst Lien | |
| Add-On Investment | | January 21, 2026 | | evolv Holdco, LLC* | | Digital transformation consulting firm | | $ | 8,036 | | Equity | |
| Add-On Investment | | February 2, 2026 | | BI Investors, LLC* | | Provider of center-based applied behavioral analysis therapyservices | | $ | 5,743 | | Equity | |
| Add-On Investment | | February 3, 2026 | | Green Topco Holdings, LLC* | | Cyber-security focused value-added reseller and associated service provider | | $ | 16,598 | | Equity | |
| Add-On Investment | | February 3, 2026 | | Venbrook Buyer, LLC* | | An independent insurance services broker | | $ | 628,201 | | Senior SecuredFirst Lien | |
| Add-On Investment | | February 6, 2026 | | SP MWM Holdco LLC* | | Provider of test and measurement services and equipment | | $ | 194,667 | | Equity | |
| Add-On Investment | | February 18, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 190,093 | | Senior SecuredFirst Lien | |
| Add-On Investment | | February 25, 2026 | | Venbrook Buyer, LLC* | | An independent insurance services broker | | $ | 1,256,415 | | Senior SecuredFirst Lien | |
| Add-On Investment | | March 3, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 190,093 | | Senior SecuredFirst Lien | |
| New Investment | | March 3, 2026 | | Precision Strategies, LLC | | Strategic communications and marketing agency | | $ | 6,176,011 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| New Investment | | March 6, 2026 | | Synergy Health Partners | | Provider of orthopedic and musculoskeletal care | | $ | 4,000,000 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 500,000 | | Delayed Draw Term Loan Commitment | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| | | | | | | | | $ | 136,634 | | Equity | |
| * | Existing portfolio company | |
We realized the following portfolio companies subsequent to December 31, 2025:
| c | | | | | | | | | | | | | | | |
| Activity Type | | Date | | Company Name | | Company Description | | Proceeds Received | | Realized Gain | | Instrument Type | |
| Full Repayment | | January 30, 2026 | | Luxium Solutions, LLC | | Manufacturer and distributor of high-performance advanced materials and assemblies | | $ | 8,169,324 | | $ | | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 1,182,247 | | $ | | | Delayed Draw Term Loan | |
| Full Repayment | | January 30, 2026 | | Camp Profiles LLC | | Provider of digital marketing services to small and medium-sized businesses | | $ | 12,041,875 | | $ | | | Senior SecuredFirst Lien | |
| Full Realization | | | | | | | | $ | 969,138 | | $ | 719,138 | | Equity | |
| Full Repayment | | February 3, 2026 | | Arctiq, Inc. | | Cyber-security focused value-added reseller and associated service provider | | $ | 12,202,671 | | $ | | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 399,965 | | $ | | | Delayed Draw Term Loan | |
Credit Facility
The outstanding balance of our the Credit Facility as of March 11, 2026 was $253.9 million.
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SBA-guaranteed Debentures
On February 27, 2026, the SBIC I subsidiary repaid $39.0 million of SBA-guaranteed debentures and related accrued interest related to SBA-guaranteed debentures maturing on March 1, 2026. The outstanding balance under SBA-guaranteed debentures as of March 11, 2026 was $260.0 million.
Dividend Declared
On January16, 2026, our Board declared a regularmonthly distribution for each of January, Februaryand March2026 as follows:
| | | | | | | | | | | |
| | | Ex-Dividend | | Record | | Payment | | Amountper | |
| Declared | | Date | | Date | | Date | | Share | |
| 1/16/2026 | | 1/30/2026 | | 1/30/2026 | | 2/13/2026 | | $ | 0.1133 | |
| 1/16/2026 | | 2/27/2026 | | 2/27/2026 | | 3/13/2026 | | $ | 0.1133 | |
| 1/16/2026 | | 3/31/2026 | | 3/31/2026 | | 4/15/2026 | | $ | 0.1133 | |
Acquisition of Stellus Capital Management
On February 5, 2026, we announced that Stellus Capital Management entered into a definitive agreement with P10 Intermediate Holdings, LLC, an affiliate of Ridgepost Capital, Inc. (formerly known as P10, Inc.) (Ridgepost), pursuant to which Ridgepost will acquire Stellus Capital Management (the Transaction).
Pursuant to the terms of the Transaction, Stellus Capital Management will continue to be managed by its current partners, who will retain control of its day-to-day operations, including investment decisions and investment committee processes, and Stellus Capital Management will continue to serve as our external investment adviser. Consummation of the Transaction will result in a change of control of Stellus Capital Management, which will result in an assignment and corresponding termination of the Investment Advisory Agreement under the 1940 Act. Our Board and stockholders will therefore be asked to approve a new investment advisory agreement with Stellus Capital Management (the New Investment Advisory Agreement), the terms of which are expected to remain the same as the Investment Advisory Agreement, other than the initial term of the New Investment Advisory Agreement. Closing of the Transaction is expected to occur mid-2026 and is subject to customary conditions for a transaction of this nature. If approved, the New Investment Advisory Agreement will take effect following the closing of the Transaction.
Stock Repurchase Program
On March 3, 2026, our Board authorized a program for the purpose of repurchasing up to $20.0 million of our shares of common stock. The shares may be purchased from time to time at prevailing market prices, through open market transactions. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by the Board, the stock repurchase program will terminate on March 2, 2027 and may be modified or terminated at any time for any reason without prior notice. We will retire all such shares of common stock that we purchase in connection with the stock repurchase program immediately.
**Item7A.**Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. In March 2022, the Federal Reserve raised interest rates for the first time since December 2018, and subsequently raised interest rates several times, most recently in July 2023, bringing the target for the federal funds rate to 5.25% - 5.50%, the highest since January 2001. In September 2024, the Federal Reserve began easing its policy, most recently lowering the federal funds rate to a target range of 4.25% - 4.50% in December 2024, 4.00% - 4.25% in September 2025, 3.75% - 4.00% in October 2025 and 3.50% - 3.75% in December 2025. As of December 31, 2025 and December 31, 2024, 91.6% and 94.5% of the loans in our portfolio bore interest at floating rates, respectively. These floating rate loans typically bear interest in reference to SOFR, which is indexed to 30-day or 90-day SOFR rates, subject to an interest rate floor. As of December 31, 2025 and
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December 31, 2024, the weighted average interest rate floor on our floating rate loans was 1.42% and 1.46%, respectively.
Assuming that the Consolidated Statements of Assets and Liabilities as of December 31, 2025 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates:
| | | | | | | | | | | |
| | | ($ inmillions) | |
| | | Interest | | | Interest | | | NetInterest | |
| Change in Basis Points(2) | | Income | | | Expense(3) | | | Income(1) | |
| Up 200 basis points | | $ | 17.0 | | $ | (4.7) | | $ | 12.3 | |
| Up 150 basis points | | | 12.8 | | | (3.5) | | | 9.3 | |
| Up 100 basis points | | | 8.5 | | | (2.4) | | | 6.1 | |
| Up 50 basis points | | | 4.3 | | | (1.2) | | | 3.1 | |
| Down 50 basis points | | | (4.3) | | | 1.2 | | | (3.1) | |
| Down 100 basis points | | | (8.5) | | | 2.4 | | | (6.1) | |
| Down 150 basis points | | | (12.8) | | | 3.5 | | | (9.3) | |
| Down 200 basis points | | | (16.6) | | | 4.7 | | | (11.9) | |
| (1) | Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note2 to the Consolidated Financial Statements contained herein for more information on the incentive fee. | |
| (2) | At December 31, 2025, the three-month SOFR rate was 365 basis points. This table assumes floating rates would not fall below zero. | |
| (3) | Includes the impact of the 25 basis point SOFR floor in place on the Credit Facility. | |
Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For theyears ended December 31, 2025 and 2024, we did not engage in interest rate hedging activities.
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**Item8.**Financial Statements and Supplementary Data
Index to Financial Statements
| | | |
| | Page | |
| Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP, Houston, Texas, PCAOB ID Number 34 and Grant Thornton LLP, Dallas, Texas, PCAOB ID Number 248) | 99 | |
| Statements of Assets and Liabilities as of December 31, 2025 and December 31, 2024 | 104 | |
| Statements of Operations for the years ended December 31, 2025, 2024, and 2023 | 105 | |
| Statements of Changes in Net Assets for the years ended December 31, 2025, 2024, and 2023 | 106 | |
| Statements of Cash Flows for the years ended December 31, 2025, 2024, and 2023 | 107 | |
| Schedule of Investments as of December 31, 2025 and December 31, 2024 | 108 | |
| Notes to Financial Statements | 142 | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Stellus Capital Investment Corporation
Opinion on the financial statements
We have audited the accompanying consolidated statements of assets and liabilities of Stellus Capital Investment Corporation and subsidiaries (the Company), including the consolidated schedules of investments, as of December 31, 2025 and 2024, the related consolidated statements of operations, cash flows, and changes in net assets for each of the two years in the period then ended, financial highlights (in Note 8) for each of the two years in the period then ended, and the related notes (collectively referred to as the financial statements and financial highlights). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations, changes in its net assets, and its cash flows for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control Integrated Framework (2013)*issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for opinion
These financial statements and financial highlights are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements and financial highlights based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of investments owned as of December 31, 2025 and 2024, by correspondence with the custodian, loan agents, and borrowers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair Value Level 3 Investments Refer to Notes 1 and 6 to the financial statements
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*Critical Audit Matter Description*
The Company held investments classified as Level 3 investments under accounting principles generally accepted in the United States of America. These investments included debt and equity securities with unique contract terms and conditions and/or complexity that considers a combination of multiple levels of market and asset specific inputs. The valuation techniques used in estimating the fair value of these investments vary and certain significant inputs used were unobservable.
We identified the valuation of Level 3 investments as a critical audit matter because of the judgments necessary for management to select valuation techniques and to use significant unobservable inputs to estimate their fair value. This required a high degree of auditor judgement and extensive audit effort to audit managements estimate of fair value of Level 3 investments, including the need to involve fair value specialists possessing relevant valuation experience to evaluate the appropriateness of the valuation techniques and the significant unobservable inputs used in the valuation of certain investments.
*How the Critical Audit Matter Was Addressed in the Audit*
Our audit procedures related to the fair value of certain Level 3 investments included the following, among otherss:
| | We tested the effectiveness of controls over managements valuation of Level 3 investments, including those related to selection of valuation methodologies and significant unobservable inputs. | |
| | We assessed evidence of management override of controls by reconciling the fair valuations approved by the Companys Fair Value Committee and Board of Directors to the Companys accounting records. | |
| | With the assistance of our fair value specialists, we compared managements unobservable inputs to external sources, and for a sample of the investments, we developed independent estimates of the fair value and compared our estimates to the Companys estimates. | |
| | We evaluated managements ability to estimate fair value by comparing managements historical estimates to subsequent transactions, taking into account changes in market or investment specific conditions, where applicable. | |
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
March 11, 2026
We have served as the Companys auditor since 2024.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Stellus Capital Investment Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Stellus Capital Investment Corporation and subsidiaries (the Company) as of December 31, 2025, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated schedule of investments, as of December 31, 2025, the related consolidated statements of operations, changes in net assets, and cash flows for the year ended December 31, 2025, the financial highlights (in Note 8) for the year ended December 31, 2025, and the related notes (collectively referred to as the financial statements), of the Company and our report dated March 11, 2026, expressed an unqualified opinion on those financial statements].
Basis for opinion
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and Limitations of Internal Control over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
March 11, 2026
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Stellus Capital Investment Corporation
Opinion on the financial statements
We have audited the consolidated statement of assets and liabilities of Stellus Capital Investment Corporation (a Maryland corporation) and subsidiaries (the Company), including the consolidated schedule of investments, as of December 31, 2023 (not presented herein) the related consolidated statements of operations, changes in net assets and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our procedures included verification by confirmation of securities as of December 31, 2023, by correspondence with portfolio companies or agents, or by other appropriate auditing procedures where replies were not received. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We served as the Companys auditor from 2012 to 2024.
Dallas, Texas
March 4, 2024 (except for Note 14, as to which the date is March 4, 2025)
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| ASSETS | | | | | | | |
| Controlled investments at fair value (amortized cost of $33,603,521 and $17,934,808, respectively) | | $ | 14,953,132 | | $ | 7,652,436 | |
| Non-controlled, affiliated investments, at fair value (amortized cost of $4,806,660) | | | 3,750,674 | | | | |
| Non-controlled, non-affiliated investments, at fair value (amortized cost of $987,729,505 and $943,853,898, respectively) | | | 988,919,589 | | | 945,845,252 | |
| Cash and cash equivalents | | | 25,050,156 | | | 20,058,594 | |
| Receivable for sales and repayments of investments | | | 581,509 | | | 335,689 | |
| Interest receivable | | | 6,375,996 | | | 4,947,765 | |
| Income tax receivable | | | 1,385,387 | | | 1,301,965 | |
| Other receivables | | | 85,000 | | | 87,995 | |
| Related party receivable | | | 20 | | | 3,687 | |
| Prepaid expenses | | | 150,843 | | | 666,866 | |
| Total Assets | | $ | 1,041,252,306 | | $ | 980,900,249 | |
| LIABILITIES | | | | | | | |
| Notes Payable | | $ | 122,671,409 | | $ | 99,444,355 | |
| Credit Facility payable | | | 233,167,360 | | | 172,314,315 | |
| SBA-guaranteed debentures | | | 295,984,063 | | | 321,251,939 | |
| Dividends payable | | | 3,858,669 | | | 3,663,233 | |
| Management fees payable | | | 4,442,705 | | | 4,034,109 | |
| Income incentive fees payable | | | 2,317,429 | | | 3,109,560 | |
| Interest payable | | | 6,138,076 | | | 5,281,343 | |
| Unearned revenue | | | 582,007 | | | 548,626 | |
| Administrative services payable | | | 539,338 | | | 393,513 | |
| Other accrued expenses and liabilities | | | 372,294 | | | 937,316 | |
| Total Liabilities | | $ | 670,073,350 | | $ | 610,978,309 | |
| Commitments and contingencies (Note 7) | | | | | | | |
| Net Assets | | $ | 371,178,956 | | $ | 369,921,940 | |
| NET ASSETS | | | | | | | |
| Common stock, par value $0.001 per share (100,000,000 shares authorized; 28,947,254 and 27,481,118 shares issued and outstanding, respectively) | | $ | 28,947 | | $ | 27,481 | |
| Paid-in capital | | | 397,829,793 | | | 379,549,272 | |
| Total distributable loss | | | (26,679,784) | | | (9,654,813) | |
| Net Assets | | $ | 371,178,956 | | $ | 369,921,940 | |
| Total Liabilities and Net Assets | | $ | 1,041,252,306 | | $ | 980,900,249 | |
| Net Asset Value Per Share | | $ | 12.82 | | $ | 13.46 | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | |
| | | For the years ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| INVESTMENT INCOME | | | | | | | | | | |
| From controlled investments: | | | | | | | | | | |
| Interest income | | $ | | | $ | 81,636 | | $ | 37,897 | |
| From non-controlled, affiliated investments | | | | | | | | | | |
| Interest income | | $ | 8,990 | | $ | | | $ | | |
| Payment-in-kind interest income | | | 217,434 | | | | | | | |
| From non-controlled, non-affiliated investments | | | | | | | | | | |
| Interest income | | $ | 91,999,416 | | $ | 96,494,073 | | $ | 98,177,254 | |
| Payment-in-kind interest income | | | 5,538,838 | | | 3,310,111 | | | 3,801,637 | |
| Other income | | | 4,374,272 | | | 4,850,313 | | | 3,830,780 | |
| Total Investment Income | | $ | 102,138,950 | | $ | 104,736,133 | | $ | 105,847,568 | |
| OPERATING EXPENSES | | | | | | | | | | |
| Management fees | | $ | 17,178,177 | | $ | 15,698,129 | | $ | 15,452,347 | |
| Valuation fees | | | 407,358 | | | 380,239 | | | 373,628 | |
| Administrative services expenses | | | 2,134,816 | | | 1,916,283 | | | 1,908,191 | |
| Income incentive fees | | | 8,393,139 | | | 10,045,966 | | | 10,189,888 | |
| Capital gains incentive fee (reversal) | | | | | | | | | (569,528) | |
| Professional fees | | | 1,940,744 | | | 1,190,232 | | | 1,455,372 | |
| Directors fees | | | 409,000 | | | 412,000 | | | 406,000 | |
| Insurance expense | | | 396,862 | | | 499,913 | | | 492,596 | |
| Interest expense and other fees | | | 34,943,265 | | | 31,506,068 | | | 32,011,317 | |
| Income tax expense | | | 1,580,338 | | | 1,808,838 | | | 1,333,452 | |
| Other general and administrative expenses | | | 1,182,690 | | | 1,175,765 | | | 891,170 | |
| Total Operating Expenses | | $ | 68,566,389 | | $ | 64,633,433 | | $ | 63,944,433 | |
| Income incentive fee waiver | | | (3,310,981) | | | (1,826,893) | | | (307,442) | |
| Total Operating Expenses, net of fee waivers | | $ | 65,255,408 | | $ | 62,806,540 | | $ | 63,636,991 | |
| Net Investment Income | | $ | 36,883,542 | | $ | 41,929,593 | | $ | 42,210,577 | |
| Net realized loss on controlled investments | | $ | (1,132,576) | | $ | | | $ | | |
| Net realized loss on non-controlled, affiliated investments | | | (6,314,327) | | | | | | | |
| Net realized gain (loss) on non-controlled, non-affiliated investments | | | 8,977,487 | | | (15,737,004) | | | (30,211,467) | |
| Net realized loss on foreign currency translations | | | (68,844) | | | (94,730) | | | (112,481) | |
| Loss on debt extinguishment | | | (226,095) | | | | | | | |
| Net change in unrealized appreciation (depreciation) on controlled investments | | | 4,395,102 | | | 826,772 | | | (430,577) | |
| Net change in unrealized appreciation on non-controlled, affiliated investments | | | 4,140,601 | | | | | | | |
| Net change in unrealized (depreciation) appreciation on non-controlled, non-affiliated investments | | | (19,642,634) | | | 18,743,637 | | | 3,222,729 | |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | | | 33,073 | | | (14,755) | | | (6,504) | |
| Benefit (provision) for taxes on net unrealized depreciation (appreciation) on investments | | | | | | 188,893 | | | (126,957) | |
| Benefit for taxes on net realized loss on investments | | | | | | 2,221 | | | 2,987,847 | |
| Net Increase in Net Assets Resulting from Operations | | $ | 27,045,329 | | | 45,844,627 | | | 17,533,167 | |
| Net Investment Income Per Sharebasic and diluted | | $ | 1.30 | | $ | 1.64 | | $ | 1.92 | |
| Net Increase in Net Assets Resulting from Operations Per Sharebasic and diluted | | $ | 0.95 | | $ | 1.79 | | $ | 0.80 | |
| Weighted Average Shares of Common Stock Outstandingbasic and diluted | | | 28,364,809 | | | 25,596,593 | | | 22,004,648 | |
| Distributions Per Sharebasic and diluted | | $ | 1.60 | | $ | 1.61 | | $ | 1.61 | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
| | | | | | | | | | | | | | | | |
| | | CommonStock | | | | | Total | | | | |
| | | Number | | Par | | Paid-in | | distributable | | | | |
| | | ofshares | | value | | capital | | (loss) earnings | | NetAssets | |
| Balances as of December 31, 2022 | | 19,666,769 | | $ | 19,667 | | $ | 275,114,720 | | $ | 642,226 | | $ | 275,776,613 | |
| Net investment income | | | | | | | | | | | 42,210,577 | | | 42,210,577 | |
| Net realized loss on investments | | | | | | | | | | | (30,211,467) | | | (30,211,467) | |
| Net realized loss on foreign currency translation | | | | | | | | | | | (112,481) | | | (112,481) | |
| Net change in unrealized appreciation on investments | | | | | | | | | | | 2,792,152 | | | 2,792,152 | |
| Net change in unrealized depreciation on foreign currency translations | | | | | | | | | | | (6,504) | | | (6,504) | |
| Provision for taxes on unrealized appreciation on investments | | | | | | | | | | | (126,957) | | | (126,957) | |
| Benefit for taxes on realized loss on investments | | | | | | | | | | | 2,987,847 | | | 2,987,847 | |
| Return of capital and other tax related adjustments | | | | | | | | (1,348,766) | | | 1,348,766 | | | | |
| Distributions from net investment income | | | | | | | | | | | (35,080,734) | | | (35,080,734) | |
| Distributions from net realized capital gains | | | | | | | | | | | (446,746) | | | (446,746) | |
| Issuance of common stock, net of offering costs(1) | | 4,458,873 | | | 4,458 | | | 62,153,030 | | | | | | 62,157,488 | |
| Balances at December31,2023 | | 24,125,642 | | $ | 24,125 | | $ | 335,918,984 | | $ | (16,003,321) | | $ | 319,939,788 | |
| Net investment income | | | | | | | | | | | 41,929,593 | | | 41,929,593 | |
| Net realized loss on investments | | | | | | | | | | | (15,737,004) | | | (15,737,004) | |
| Net realized loss on foreign currency translation | | | | | | | | | | | (94,730) | | | (94,730) | |
| Net change in unrealized appreciation on investments | | | | | | | | | | | 19,570,409 | | | 19,570,409 | |
| Net change in unrealized depreciation on foreign currency translations | | | | | | | | | | | (14,755) | | | (14,755) | |
| Provision for taxes on unrealized appreciation on investments | | | | | | | | | | | 188,893 | | | 188,893 | |
| Benefit for taxes on realized loss on investments | | | | | | | | | | | 2,221 | | | 2,221 | |
| Return of capital and other tax related adjustments | | | | | | | | (1,727,556) | | | 1,727,556 | | | | |
| Distributions from net investment income | | | | | | | | | | | (40,679,308) | | | (40,679,308) | |
| Distributions from net realized capital gains | | | | | | | | | | | (544,367) | | | (544,367) | |
| Issuance of common stock, net of offering costs(1) | | 3,355,476 | | | 3,356 | | | 45,357,844 | | | | | | 45,361,200 | |
| Balances at December31,2024 | | 27,481,118 | | $ | 27,481 | | $ | 379,549,272 | | $ | (9,654,813) | | $ | 369,921,940 | |
| Net investment income | | | | | | | | | | | 36,883,542 | | | 36,883,542 | |
| Net realized gain on investments | | | | | | | | | | | 1,530,584 | | | 1,530,584 | |
| Net realized loss on foreign currency translation | | | | | | | | | | | (68,844) | | | (68,844) | |
| Loss on debt extinguishment | | | | | | | | | | | (226,095) | | | (226,095) | |
| Net change in unrealized depreciation on investments | | | | | | | | | | | (11,106,931) | | | (11,106,931) | |
| Net change in unrealized appreciation on foreign currency translations | | | | | | | | | | | 33,073 | | | 33,073 | |
| Return of capital and other tax related adjustments | | | | | | | | (1,391,127) | | | 1,391,127 | | | | |
| Distributions from net investment income | | | | | | | | | | | (45,461,427) | | | (45,461,427) | |
| Issuance of common stock, net of offering costs(1) | | 1,466,136 | | | 1,466 | | | 19,671,648 | | | | | | 19,673,114 | |
| Balances at December31,2025 | | 28,947,254 | | $ | 28,947 | | $ | 397,829,793 | | $ | (26,679,784) | | $ | 371,178,956 | |
| (1) | See Note4 to the Consolidated Financial Statements contained herein for more information on offering costs. | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | For the years ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| Cash Flows from Operating Activities | | | | | | | | | | |
| Net increase in net assets resulting from operations | | $ | 27,045,329 | | $ | 45,844,627 | | $ | 17,533,167 | |
| Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: | | | | | | | | | | |
| Purchases of investments | | | (194,071,248) | | | (221,154,933) | | | (183,858,762) | |
| Proceeds from sales and repayments of investments | | | 139,652,991 | | | 151,834,875 | | | 134,223,224 | |
| Net change in unrealized depreciation (appreciation) on investments | | | 11,106,931 | | | (19,570,409) | | | (2,792,152) | |
| Net change in unrealized (appreciation) depreciation on foreign currency translations | | | (33,073) | | | 14,755 | | | 6,360 | |
| Increase in investments due to payment-in-kind income | | | (5,756,272) | | | (3,310,111) | | | (3,799,843) | |
| Amortization of premium and accretion of discount, net | | | (2,891,683) | | | (2,715,802) | | | (2,749,543) | |
| Deferred tax (benefit) provision | | | | | | (188,893) | | | 126,957 | |
| Amortization of loan structure fees | | | 1,212,581 | | | 1,140,079 | | | 657,323 | |
| Amortization of deferred financing costs | | | 692,393 | | | 447,943 | | | 446,720 | |
| Amortization of discount on Notes Payable | | | 96,093 | | | | | | | |
| Amortization of premium on Notes Payable | | | (29,855) | | | | | | | |
| Amortization of loan fees on SBA-guaranteed debentures | | | 732,124 | | | 978,582 | | | 1,255,753 | |
| Net realized (gain) loss on investments | | | (1,530,584) | | | 15,737,004 | | | 30,211,467 | |
| Loss on debt extinguishment | | | 226,095 | | | | | | | |
| Changes in other assets and liabilities | | | | | | | | | | |
| Increase in interest receivable | | | (1,428,231) | | | (65,427) | | | (897,929) | |
| (Increase) decrease in income tax receivable | | | (83,422) | | | 286,743 | | | (1,588,708) | |
| Decrease (increase) in other receivables | | | 2,995 | | | (45,000) | | | (8,750) | |
| Decrease (increase) in related party receivables | | | 3,667 | | | (3,687) | | | | |
| Decrease (increase) in prepaid expenses | | | 516,023 | | | (60,192) | | | 60,593 | |
| Increase (decrease) in management fees payable | | | 408,596 | | | 1,115,573 | | | (4,231,871) | |
| (Decrease) increase in income incentive fees payable | | | (792,131) | | | 224,380 | | | 420,772 | |
| Decrease in capital gains incentive fees payable | | | | | | | | | (569,528) | |
| Increase (decrease) in administrative services payable | | | 145,825 | | | (8,638) | | | 45,232 | |
| Increase in interest payable | | | 856,733 | | | 40,179 | | | 600,323 | |
| Decrease in related party payable | | | | | | | | | (1,060,321) | |
| Increase in unearned revenue | | | 33,381 | | | 150,901 | | | 77,050 | |
| Decrease in income tax payable | | | | | | | | | (1,175,373) | |
| (Decrease) increase in other accrued expenses and liabilities | | | (565,022) | | | 658,971 | | | (197,248) | |
| Net Cash Used in Operating Activities | | $ | (24,449,764) | | $ | (28,648,480) | | $ | (17,265,087) | |
| Cash Flows from Financing Activities | | | | | | | | | | |
| Proceeds from the issuance of common stock | | $ | 20,588,960 | | $ | 46,494,756 | | $ | 63,348,436 | |
| Sales load for common stock issued | | | (308,998) | | | (698,166) | | | (943,248) | |
| Offering costs paid for common stock issued | | | (606,848) | | | (428,078) | | | (253,913) | |
| Stockholder distributions paid | | | (45,265,991) | | | (37,560,442) | | | (35,527,480) | |
| Proceeds from issuance of Notes Payable | | | 124,877,750 | | | | | | | |
| Repayment of Notes Payable | | | (100,060,870) | | | | | | | |
| Financing costs paid on Notes Payable | | | (2,574,553) | | | | | | | |
| Repayments of SBA-guaranteed debentures | | | (26,000,000) | | | | | | 11,400,000 | |
| Financing costs paid on SBA-guaranteed debentures | | | | | | | | | (277,590) | |
| Financing costs paid on Credit Facility | | | (1,622,524) | | | (691,137) | | | (2,663,106) | |
| Borrowings under Credit Facility | | | 300,550,000 | | | 187,900,000 | | | 108,400,000 | |
| Repayments of Credit Facility | | | (240,135,600) | | | (172,435,600) | | | (148,135,600) | |
| Net Cash Provided (Used) by Financing Activities | | $ | 29,441,326 | | $ | 22,581,333 | | $ | (4,652,501) | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | $ | 4,991,562 | | $ | (6,067,147) | | $ | (21,917,588) | |
| Cash and Cash Equivalents Balance at Beginning of Period | | | 20,058,594 | | | 26,125,741 | | | 48,043,329 | |
| Cash and Cash Equivalents Balance at End of Period | | $ | 25,050,156 | | $ | 20,058,594 | | $ | 26,125,741 | |
| Supplemental and Non-Cash Activities | | | | | | | | | | |
| Cash paid for interest expense | | $ | 31,383,195 | | $ | 28,899,285 | | $ | 29,051,198 | |
| Income and excise tax paid | | | 1,663,760 | | | 1,808,838 | | | 2,508,825 | |
| Exchange of investments | | | 1,663,301 | | | 8,256,411 | | | 3,610,846 | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK(8) | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Control investments | | (22) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EH Real Estate Services, LLC | | | | | | | | | | | | | | | | | | | Skokie, IL | | | | | | | | | | | | | |
| Term Loan A-1 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 9/3/2021 | | 9/3/2026 | | FIRE: Real Estate | | $ | 265,092 | | | 265,092 | | | - | | 0.00 | % | |
| Term Loan A-2 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 4/3/2023 | | 9/3/2026 | | | | | 154,848 | | | 154,848 | | | - | | 0.00 | % | |
| Term Loan A-3 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 6/7/2023 | | 9/3/2026 | | | | | 62,791 | | | 62,791 | | | - | | 0.00 | % | |
| Term Loan A-4 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 7/12/2023 | | 9/3/2026 | | | | | 1,505,537 | | | 1,505,537 | | | 1,159,263 | | 0.31 | % | |
| Term Loan A-5 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 1/8/2024 | | 9/3/2026 | | | | | 5,734,549 | | | 5,734,549 | | | 4,415,603 | | 1.19 | % | |
| Term Loan A-6 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 10/3/2025 | | 9/3/2026 | | | | | 1,096,456 | | | 1,096,456 | | | 1,096,456 | | 0.30 | % | |
| Term Loan A-7 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 11/12/2025 | | 9/30/2026 | | | | | 1,644,685 | | | 1,644,685 | | | 1,644,685 | | 0.44 | % | |
| Revolver | | (16)(21) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 10/3/2023 | | 9/3/2026 | | | | | 63,597 | | | 63,597 | | | 63,597 | | 0.02 | % | |
| EH Holdco, LLC Common Units | | | | Equity | | | | | | | | | | | 10/3/2023 | | | | | | | 15,356 | | | 3 | | | - | | 0.00 | % | |
| EH Holdco, LLC Series A Preferred Units | | | | Equity | | | | | | | | | | | 9/3/2021 | | | | | | | 7,892 | | | 7,891,642 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 18,419,200 | | $ | 8,379,604 | | 2.26 | % | |
| J.R. Watkins, LLC | | | | | | | | | | | | | | | | | | | San Francisco, CA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(19) | | First Lien | | | 4.09 | % | | | - | % | | | 12/22/2017 | | 12/31/2026 | | Consumer Goods: Non-Durable | | $ | 10,082,316 | | | 10,082,316 | | | 2,520,579 | | 0.68 | % | |
| Term Loan (SBIC) | | (4)(19) | | First Lien | | | 5.00 | % | | | - | % | | | 12/22/2017 | | 12/31/2026 | | | | | 3,514,892 | | | 3,514,892 | | | 878,723 | | 0.24 | % | |
| Priority Revolver (SBIC) | | (4)(19) | | First Lien | | | 5.00 | % | - | % | - | % | - | % | 5/3/2024 | | 12/31/2026 | | | | | 1,587,113 | | | 1,587,113 | | | 3,174,226 | | 0.86 | % | |
| J.R. Watkins Ultimate Holdings, LLC Class A Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 4/9/2025 | | | | | | | 500 | | | - | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,184,321 | | $ | 6,573,528 | | 1.78 | % | |
| Total Control investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 33,603,521 | | $ | 14,953,132 | | 4.04 | % | |
| Non-controlled, affiliated investments | | (23) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Simpler Trading, LLC | | | | | | | | | | | | | | | | | | | Austin, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4) | | First Lien | | | 10.00 | % | | | - | % | 10.00 | % | 12/28/2021 | | 3/21/2030 | | Education | | $ | 2,868,074 | | | 2,868,074 | | | 2,868,074 | | 0.77 | % | |
| Simpler Trading, LLC Preferred Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 3/21/2025 | | | | | | | 1,657 | | | 1,656,650 | | | 882,600 | | 0.24 | % | |
| Simpler Ultimate Holdings, LLC Class A Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 3/21/2025 | | | | | | | 281,936 | | | 281,936 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,806,660 | | $ | 3,750,674 | | 1.01 | % | |
| Total Non-controlled, affiliated investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,806,660 | | $ | 3,750,674 | | 1.01 | % | |
| Non-controlled, non-affiliated investments | | (4)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2X LLC | | | | | | | | | | | | | | | | | | | Berwyn, PA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 8.67 | % | | | 6/5/2023 | | 6/5/2028 | | Services: Business | | $ | 5,376,454 | | | 5,299,849 | | | 5,376,454 | | 1.45 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 8.67 | % | | | 10/31/2023 | | 6/5/2028 | | | | | 1,415,799 | | | 1,394,300 | | | 1,415,799 | | 0.38 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 8.67 | % | | | 12/2/2024 | | 6/5/2028 | | | | | 3,813,089 | | | 3,771,087 | | | 3,813,089 | | 1.03 | % | |
| Revolver | | (9)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 8.67 | % | | | 6/5/2023 | | 6/5/2028 | | | | | 62,500 | | | 62,500 | | | 62,500 | | 0.02 | % | |
| 2X Investors LP Class A Units | | | | Equity | | | | | | | | | | | 6/5/2023 | | | | | | | 43,875 | | | 176,915 | | | 1,220,397 | | 0.33 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,704,651 | | $ | 11,888,239 | | 3.21 | % | |
| Ad.Net Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.93 | % | | | 5/7/2021 | | 5/7/2028 | | Services: Business | | $ | 16,778,592 | | | 16,730,161 | | | 16,778,593 | | 4.52 | % | |
| Ad.Net Holdings, Inc. Series A Common Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 5/7/2021 | | | | | | | 8,644 | | | 86,444 | | | 0 | | 0.00 | % | |
| Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 5/7/2021 | | | | | | | 7,780 | | | 777,995 | | | 783,313 | | 0.21 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 17,594,600 | | $ | 17,561,906 | | 4.73 | % | |
| AdCellerant LLC | | (9) | | | | | | | | | | | | | | | | | Denver, CO | | | | | | | | | | | | | |
| Term A Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 9.72 | % | | | 12/12/2023 | | 12/12/2028 | | Media: Advertising, Printing & Publishing | | $ | 9,800,000 | | | 9,670,440 | | | 9,751,000 | | 2.63 | % | |
| AdCellerant Holdings, LLC Series A Units | | | | Equity | | | | | | | | | | | 12/12/2023 | | | | | | | 728,710 | | | 728,710 | | | 567,340 | | 0.15 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,399,150 | | $ | 10,318,340 | | 2.78 | % | |
| ADS Group Opco, LLC | | | | | | | | | | | | | | | | | | | Lakewood, CO | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5) | | First Lien | | | 5.00 | % | - | % | - | % | 5.00 | % | 6/4/2021 | | 12/31/2027 | | Aerospace & Defense | | $ | 13,101,406 | | | 13,071,113 | | | 11,856,773 | | 3.19 | % | |
| Priority Revolver (SBIC II) | | (5)(9) | | First Lien | | | 5.00 | % | - | % | - | % | 5.00 | % | 9/30/2024 | | 12/31/2027 | | | | | 15,698 | | | 15,698 | | | 31,396 | | 0.01 | % | |
| ADS Group Topco, LLC Class A Units | | | | Equity | | | | | | | | | | | 6/4/2021 | | | | | | | 77,626 | | | 288,691 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class B Units | | | | Equity | | | | | | | | | | | 6/4/2021 | | | | | | | 56,819 | | | 211,309 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class D Units | | | | Equity | | | | | | | | | | | 9/30/2024 | | | | | | | 432 | | | - | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class Y Units | | | | Equity | | | | | | | | | | | 4/11/2023 | | | | | | | 48,216 | | | 165,027 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class Z Units | | | | Equity | | | | | | | | | | | 6/15/2022 | | | | | | | 72,043 | | | 267,929 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,019,767 | | $ | 11,888,169 | | 3.20 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
108
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Advanced Barrier Extrusions, LLC | | | | | | | | | | | | | | | | | | | Rhinelander, WI | | | | | | | | | | | | | |
| Term Loan B (SBIC) | | (4)(11)(13) | | First Lien | | 1M SOFR+ | 9.50 | % | 1.00 | % | - | % | - | % | 11/30/2020 | | 11/30/2026 | | Containers, Packaging, & Glass | | $ | 16,843,750 | | | 16,781,420 | | | - | | 0.00 | % | |
| Super Priority Term Loan (SBIC) | | (4)(13) | | First Lien | | | 15.00 | % | | | - | % | - | % | 12/6/2024 | | 11/30/2026 | | | | | 795,882 | | | 970,378 | | | 2,331,934 | | 0.63 | % | |
| Super Priority Term Loan (SBIC) | | (4)(13) | | First Lien | | | 15.00 | % | | | - | % | - | % | 2/5/2025 | | 11/30/2026 | | | | | 875,000 | | | 875,000 | | | 2,563,750 | | 0.69 | % | |
| Super Priority Term Loan (SBIC) | | (4)(13) | | First Lien | | | 15.00 | % | | | - | % | - | % | 3/26/2025 | | 11/30/2026 | | | | | 500,000 | | | 500,000 | | | 1,465,000 | | 0.39 | % | |
| Term Loan A (SBIC) | | (4)(13) | | First Lien | | 1M SOFR+ | 9.50 | % | 1.00 | % | - | % | - | % | 3/26/2025 | | 11/30/2026 | | | | | 2,607,637 | | | 565,204 | | | - | | 0.00 | % | |
| Revolver (SBIC) | | (4)(13) | | First Lien | | 1M SOFR+ | 9.50 | % | 1.00 | % | - | % | - | % | 3/26/2025 | | 11/30/2026 | | | | | 1,558,434 | | | 337,790 | | | - | | 0.00 | % | |
| GP ABX Holdings Partnership, L.P. Partner Interests | | | | Equity | | | | | | | | | | | 8/8/2018 | | | | | | | 644,737 | | | 528,395 | | | - | | 0.00 | % | |
| GP ABX Holdings Partnership, L.P. Series B Preferred Interests | | | | Equity | | | | | | | | | | | 1/5/2023 | | | | | | | 1,562 | | | 156,182 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 20,714,369 | | $ | 6,360,684 | | 1.71 | % | |
| AGT Robotique Inc. | | (7)(27) | | | | | | | | | | | | | | | | | Trois Rivieres, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 7.50 | % | 1.00 | % | 9.17 | % | | | 6/24/2024 | | 6/22/2029 | | Capital Equipment | | $ | 10,566,027 | | | 10,406,341 | | | 10,354,707 | | 2.79 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,406,341 | | $ | 10,354,707 | | 2.79 | % | |
| American Refrigeration, LLC | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 3/31/2023 | | 3/31/2028 | | Capital Equipment | | $ | 8,048,097 | | | 7,942,571 | | | 8,048,097 | | 2.17 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 3/31/2023 | | 3/31/2028 | | | | | 98,250 | | | 97,500 | | | 98,250 | | 0.03 | % | |
| AR-USA Holdings, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 3/31/2023 | | | | | | | 141 | | | 129,350 | | | 224,577 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,169,421 | | $ | 8,370,924 | | 2.26 | % | |
| AMII Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Coral Gables, FL | | | | | | | | | | | | | |
| Term Loan (SBIC II ) | | (5)(11) | | First Lien | | 3M SOFR+ | 4.50 | % | 1.50 | % | 8.17 | % | | | 12/4/2024 | | 12/4/2029 | | Services: Consumer | | $ | 8,731,273 | | | 8,623,147 | | | 8,687,618 | | 2.34 | % | |
| AMII Holdings, LP Class B Units | | | | Equity | | | | | | | | | | | 12/3/2024 | | | | | | | 14,246 | | | 142,460 | | | 176,331 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,765,607 | | $ | 8,863,949 | | 2.39 | % | |
| Amika OpCo LLC | | (9) | | | | | | | | | | | | | | | | | Brooklyn, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 5.25 | % | 0.75 | % | 9.27 | % | | | 7/1/2022 | | 7/1/2029 | | Consumer Goods: Non-Durable | | $ | 94,638 | | | 93,519 | | | 94,638 | | 0.03 | % | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 5.75 | % | 0.75 | % | 9.63 | % | | | 12/5/2023 | | 7/1/2029 | | | | | 9,511,775 | | | 9,377,401 | | | 9,511,775 | | 2.56 | % | |
| Ishtar Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | | | | 7/1/2022 | | | | | | | 77,778 | | | 38,133 | | | 311,230 | | 0.08 | % | |
| Oshun Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | | | | 7/1/2022 | | | | | | | 22,222 | | | 21,141 | | | 88,922 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,530,194 | | $ | 10,006,565 | | 2.69 | % | |
| Anne Lewis Strategies, LLC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SG AL Investment, LLC Common Units | | (6) | | Equity | | | | | | | | | | | 3/5/2021 | | | | Washington, DC | | | 1,000 | | | 327,192 | | | 3,162,656 | | 0.85 | % | |
| SG AL Investment, LLC Common-A Units | | (6) | | Equity | | | | | | | | | | | 12/22/2023 | | | | Services: Business | | | 239 | | | 482,200 | | | 985,826 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 809,392 | | $ | 4,148,482 | | 1.12 | % | |
| APE Holdings, LLC | | | | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 9/5/2014 | | | | Chemicals, Plastics, & Rubber | | | 375,000 | | | 375,000 | | | 40,530 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 375,000 | | $ | 40,530 | | 0.01 | % | |
| ArborWorks, LLC | | | | | | | | | | | | | | | | | | | Oakhurst, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | - | % | 10.34 | % | 11/6/2023 | | 11/6/2028 | | Environmental Industries | | $ | 4,031,455 | | | 4,031,455 | | | 4,031,455 | | 1.09 | % | |
| Revolver | | (9) | | First Lien | | | 15.00 | % | | | - | % | 15.00 | % | 11/6/2023 | | 11/6/2028 | | | | | 1,815,868 | | | 1,815,868 | | | 1,815,868 | | 0.49 | % | |
| ArborWorks Intermediate Holdco, LLC Class A-1 Preferred Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 16,037 | | | 3,610,847 | | | 6,317,213 | | 1.70 | % | |
| ArborWorks Intermediate Holdco, LLC Class B-1 Preferred Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 16,037 | | | - | | | - | | 0.00 | % | |
| ArborWorks Intermediate Holdco, LLC Class A-1 Common Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 1,923 | | | - | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,458,170 | | $ | 12,164,536 | | 3.28 | % | |
| Arctiq, Inc. | | | | | | | | | | | | | | | | | | | Irvine, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.67 | % | | | 8/8/2023 | | 8/8/2028 | | High Tech Industries | | $ | 10,918,921 | | | 10,754,010 | | | 10,918,921 | | 2.94 | % | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 9.72 | % | | | 11/6/2024 | | 8/8/2028 | | | | | 1,283,750 | | | 1,264,755 | | | 1,283,750 | | 0.35 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.67 | % | | | 8/8/2023 | | 8/8/2028 | | | | | 399,965 | | | 396,842 | | | 399,965 | | 0.11 | % | |
| Green Topco Holdings, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 8/8/2023 | | | | | | | 271,401 | | | 202,628 | | | 365,976 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,618,235 | | $ | 12,968,612 | | 3.50 | % | |
| Atmosphere Aggregator Holdings II, L.P. | | | | | | | | | | | | | | | | | | | Atlanta, GA | | | | | | | | | | | | | |
| Common Units | | (6) | | Equity | | | | | | | | | | | 1/26/2016 | | | | Services: Business | | | 254,250 | | | - | | | 2,342,141 | | 0.63 | % | |
| Stratose Aggregator Holdings, L.P. Common Units | | (6) | | Equity | | | | | | | | | | | 6/30/2015 | | | | | | | 750,000 | | | - | | | 8,848,087 | | 2.38 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 11,190,228 | | 3.01 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
109
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Axis Portable Air, LLC | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 3/22/2022 | | 12/31/2030 | | Capital Equipment | | $ | 9,310,000 | | | 9,230,695 | | | 9,310,000 | | 2.51 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 4/17/2023 | | 12/31/2030 | | | | | 1,855,738 | | | 1,836,176 | | | 1,855,738 | | 0.50 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 3/22/2022 | | 12/31/2030 | | | | | 98,000 | | | 97,548 | | | 98,000 | | 0.03 | % | |
| Axis Air Parent, LLC Preferred Units | | | | Equity | | | | | | | | | | | 3/22/2022 | | | | | | | 4,436 | | | 443,636 | | | 2,882,638 | | 0.78 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,608,055 | | $ | 14,146,376 | | 3.82 | % | |
| Baker Manufacturing Company, LLC | | | | | | | | | | | | | | | | | | | Evansville, WI | | | | | | | | | | | | | |
| BSC Blue Water Holdings, LLC Series A Units (SBIC II) | | (5) | | Equity | | | | | | | | | | | 7/5/2022 | | | | Capital Equipment | | | 743,770 | | | 743,770 | | | 1,000,036 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 743,770 | | $ | 1,000,036 | | 0.27 | % | |
| Bart & Associates, LLC | | | | | | | | | | | | | | | | | | | McLean, VA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(10)(12) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 9.09 | % | | | 8/16/2024 | | 8/16/2030 | | High Tech Industries | | $ | 8,830,894 | | | 8,702,680 | | | 8,830,894 | | 2.38 | % | |
| Delayed Draw Term Loan | | (10)(12) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 9.09 | % | | | 8/16/2024 | | 8/16/2030 | | | | $ | 1,724,720 | | | 1,710,769 | | | 1,724,720 | | 0.46 | % | |
| B&A Partners Holding, LLC Series A Preferred Units | | | | Equity | | | | | | | | | | | 8/16/2024 | | | | | | | 722,411 | | | 722,411 | | | 837,967 | | 0.23 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,135,860 | | $ | 11,393,581 | | 3.07 | % | |
| BL Products Parent, L.P. | | | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 2/1/2022 | | | | Capital Equipment | | | 879,060 | | | 983,608 | | | 1,142,767 | | 0.31 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 983,608 | | $ | 1,142,767 | | 0.31 | % | |
| Caf Valley, Inc. | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| CF Topco LLC Units | | | | Equity | | | | | | | | | | | 8/28/2019 | | | | Beverage & Food | | | 9,160 | | | 916,015 | | | 1,736,816 | | 0.47 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 916,015 | | $ | 1,736,816 | | 0.47 | % | |
| Camp Profiles LLC | | (9) | | | | | | | | | | | | | | | | | Boston, MA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.07 | % | | | 9/3/2021 | | 9/3/2026 | | Media: Advertising, Printing & Publishing | | $ | 9,814,375 | | | 9,780,539 | | | 9,814,375 | | 2.64 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.07 | % | | | 12/3/2024 | | 9/3/2026 | | | | | 2,227,500 | | | 2,213,033 | | | 2,227,500 | | 0.60 | % | |
| CIVC VI-A 829 Blocker, LLC Units | | | | Equity | | | | | | | | | | | 9/3/2021 | | | | | | | 250 | | | 250,000 | | | 900,363 | | 0.24 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,243,572 | | $ | 12,942,238 | | 3.48 | % | |
| Carolinas Buyer, Inc. | | (9) | | | | | | | | | | | | | | | | | Charlotte, NC | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 12/20/2024 | | 12/20/2030 | | Beverage & Food | | $ | 6,779,838 | | | 6,676,390 | | | 6,610,342 | | 1.78 | % | |
| Carolinas Holding, L.P. Class A Units | | | | Equity | | | | | | | | | | | 12/20/2024 | | | | | | | 466 | | | 465,637 | | | 367,446 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,142,027 | | $ | 6,977,788 | | 1.88 | % | |
| CEATI International Inc. | | (7)(9) | | | | | | | | | | | | | | | | | Montreal, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.67 | % | | | 2/19/2021 | | 12/31/2027 | | Services: Business | | $ | 8,349,501 | | | 8,342,798 | | | 8,349,501 | | 2.25 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.67 | % | | | 12/20/2024 | | 12/31/2027 | | | | | 3,166,966 | | | 3,147,329 | | | 3,166,966 | | 0.85 | % | |
| CEATI Holdings, LP Class A Units | | | | Equity | | | | | | | | | | | 2/19/2021 | | | | | | | 250,000 | | | 132,919 | | | 268,648 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,623,046 | | $ | 11,785,115 | | 3.17 | % | |
| Cerebro Buyer, LLC | | (9) | | | | | | | | | | | | | | | | | Columbia, SC | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.72 | % | | | 3/15/2023 | | 3/15/2029 | | Healthcare & Pharmaceuticals | | $ | 4,526,683 | | | 4,455,979 | | | 4,526,683 | | 1.22 | % | |
| Cerebro Holdings Partnership, L.P. Series A Partner Interests | | | | Equity | | | | | | | | | | | 3/15/2023 | | | | | | | 62,961 | | | 62,961 | | | 68,499 | | 0.02 | % | |
| Cerebro Holdings Partnership, L.P. Series B Partner Interests | | (6) | | Equity | | | | | | | | | | | 3/15/2023 | | | | | | | 341,091 | | | 328,640 | | | 371,091 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,847,580 | | $ | 4,966,273 | | 1.34 | % | |
| CF Arch Holdings LLC | | | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Class A Units | | (6) | | Equity | | | | | | | | | | | 8/10/2022 | | | | Services: Business | | | 100,000 | | | 88,511 | | | 150,931 | | 0.04 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 88,511 | | $ | 150,931 | | 0.04 | % | |
| CF512, Inc. | | (9) | | | | | | | | | | | | | | | | | Blue Bell, PA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.98 | % | | | 9/1/2021 | | 9/1/2026 | | Media: Advertising, Printing & Publishing | | $ | 13,222,035 | | | 13,176,452 | | | 13,155,926 | | 3.54 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.86 | % | | | 9/1/2021 | | 9/1/2026 | | | | | 2,855,259 | | | 2,850,147 | | | 2,840,983 | | 0.77 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 1.00 | % | 9.74 | % | | | 9/1/2021 | | 9/1/2026 | | | | | 9,000 | | | 9,000 | | | 8,955 | | 0.00 | % | |
| StellPen Holdings, LLC Membership Interests | | | | Equity | | | | | | | | | | | 9/1/2021 | | | | | | | 220,930 | | | 220,930 | | | 177,046 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,256,529 | | $ | 16,182,910 | | 4.36 | % | |
| Champion Services Acquireco LLC | | (9) | | | | | | | | | | | | | | | | | Round Rock, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 9/19/2025 | | 9/19/2030 | | Construction & Building | | $ | 11,970,000 | | | 11,740,066 | | | 11,730,600 | | 3.16 | % | |
| Champion Services Holdings LLC Class A-1 Units | | | | Equity | | | | | | | | | | | 9/19/2025 | | | | | | | 268,889 | | | 268,889 | | | 253,825 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,008,955 | | $ | 11,984,425 | | 3.23 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
110
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Channel Partners Intermediateco, LLC | | (9) | | | | | | | | | | | | | | | | | Tampa Bay, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.84 | % | | | 2/24/2022 | | 2/7/2027 | | Retail | | $ | 12,982,758 | | | 12,947,843 | | | 12,982,758 | | 3.49 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.84 | % | | | 3/27/2023 | | 2/7/2027 | | | | | 1,655,482 | | | 1,649,757 | | | 1,655,482 | | 0.45 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.82 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 54,070 | | | 54,070 | | | 54,070 | | 0.01 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.84 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 20,276 | | | 20,276 | | | 20,276 | | 0.01 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.94 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 10,138 | | | 10,138 | | | 10,138 | | 0.00 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.74 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 6,759 | | | 6,759 | | | 6,759 | | 0.00 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 2.00 | % | 10.86 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 27,035 | | | 27,035 | | | 27,035 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,715,878 | | $ | 14,756,518 | | 3.97 | % | |
| CompleteCase, LLC | | | | | | | | | | | | | | | | | | | Seattle, WA | | | | | | | | | | | | | |
| CompleteCase Holdings, Inc. Class A Common Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 12/21/2020 | | | | Services: Consumer | | | 417 | | | 5 | | | - | | 0.00 | % | |
| CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 12/21/2020 | | | | | | | 522 | | | 521,734 | | | 151,068 | | 0.04 | % | |
| CompleteCase Holdings, Inc. Class A Common Stock | | | | Equity | | | | | | | | | | | 4/27/2023 | | | | | | | 89 | | | 1 | | | - | | 0.00 | % | |
| CompleteCase Holdings, Inc. Series C Preferred Stock | | | | Equity | | | | | | | | | | | 4/27/2023 | | | | | | | 111 | | | 111,408 | | | 111,409 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 633,148 | | $ | 262,477 | | 0.07 | % | |
| Compost 360 Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Tampa, FL | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 8.67 | % | 1.50 | % | 8/2/2023 | | 8/2/2028 | | Environmental Industries | | $ | 9,481,462 | | | 9,339,450 | | | 9,007,390 | | 2.43 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 8.67 | % | 1.50 | % | 8/2/2023 | | 8/2/2028 | | | | | 1,043,816 | | | 1,033,534 | | | 991,625 | | 0.27 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 8.50 | % | 2.00 | % | 12.19 | % | | | 8/2/2023 | | 8/2/2028 | | | | | 20,000 | | | 20,000 | | | 19,000 | | 0.01 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 8.50 | % | 2.00 | % | 12.17 | % | | | 8/2/2023 | | 8/2/2028 | | | | | 11,368 | | | 11,368 | | | 10,800 | | 0.00 | % | |
| Compost 360 Investments, LLC Class A Units | | | | Equity | | | | | | | | | | | 8/2/2023 | | | | | | | 3,124 | | | 300,041 | | | 92,336 | | 0.02 | % | |
| Compost 360 Investments, LLC Preferred Units | | | | Equity | | | | | | | | | | | 8/29/2025 | | | | | | | 614 | | | 27,630 | | | 38,086 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,732,023 | | $ | 10,159,237 | | 2.74 | % | |
| COPILOT Provider Support Services, LLC | | (9) | | | | | | | | | | | | | | | | | Maitland, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 11/22/2022 | | 11/22/2027 | | Healthcare & Pharmaceuticals | | $ | 4,837,500 | | | 4,793,779 | | | 4,837,500 | | 1.30 | % | |
| QHP Project Captivate Blocker, Inc. Common Stock | | | | Equity | | | | | | | | | | | 11/22/2022 | | | | | | | 4 | | | 285,714 | | | 376,673 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,079,493 | | $ | 5,214,173 | | 1.40 | % | |
| Craftable Intermediate II Inc. | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.50 | % | 9.42 | % | | | 6/30/2023 | | 6/30/2028 | | High Tech Industries | | $ | 9,882,041 | | | 9,768,247 | | | 9,882,041 | | 2.66 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.50 | % | 9.45 | % | | | 6/30/2023 | | 6/30/2028 | | | | | 40,000 | | | 40,000 | | | 40,000 | | 0.01 | % | |
| Gauge Craftable LP Partnership Interests | | | | Equity | | | | | | | | | | | 6/30/2023 | | | | | | | 626,690 | | | 626,690 | | | 1,132,360 | | 0.31 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,434,937 | | $ | 11,054,401 | | 2.98 | % | |
| Curion Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Chicago, IL | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 7/29/2022 | | 12/31/2028 | | Services: Business | | $ | 12,656,689 | | | 12,563,484 | | | 12,530,123 | | 3.38 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 7/29/2022 | | 12/31/2028 | | | | | 40,570 | | | 40,570 | | | 40,164 | | 0.01 | % | |
| SP CS Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 7/29/2022 | | | | | | | 867,173 | | | 867,173 | | | 756,722 | | 0.20 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,471,227 | | $ | 13,327,009 | | 3.59 | % | |
| DFO Enterprises, LLC | | (9) | | | | | | | | | | | | | | | | | Rochester, MN | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 8.92 | % | | | 9/22/2025 | | 9/22/2030 | | Capital Equipment | | $ | 11,551,523 | | | 11,357,330 | | | 11,378,251 | | 3.07 | % | |
| DFO Ultimate Holding, LP Class A Units | | | | Equity | | | | | | | | | | | 9/22/2025 | | | | | | | 8,931 | | | 412,252 | | | 538,122 | | 0.14 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,769,582 | | $ | 11,916,373 | | 3.21 | % | |
| DMD Systems Recovery, LLC | | (9) | | | | | | | | | | | | | | | | | Tempe, AZ | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 8/22/2025 | | 8/22/2031 | | High Tech Industries | | $ | 6,100,000 | | | 5,997,713 | | | 6,008,500 | | 1.62 | % | |
| Phoenix Parent LLC Common Units | | | | Equity | | | | | | | | | | | 8/19/2025 | | | | | | | 180,000 | | | 180,000 | | | 169,710 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,177,713 | | $ | 6,178,210 | | 1.67 | % | |
| DTE Holding Company, LLC | | | | | | | | | | | | | | | | | | | Roselle, IL | | | | | | | | | | | | | |
| Class A-2 Units | | | | Equity | | | | | | | | | | | 4/13/2018 | | | | Energy: Oil & Gas | | | 776,316 | | | 466,204 | | | - | | 0.00 | % | |
| Class AA Units | | | | Equity | | | | | | | | | | | 4/13/2018 | | | | | | | 723,684 | | | 723,684 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,189,888 | | $ | - | | 0.00 | % | |
| Elder Care Opco LLC | | (9) | | | | | | | | | | | | | | | | | Scarsdale, NY | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 7/31/2025 | | 7/31/2030 | | Healthcare & Pharmaceuticals | | $ | 7,785,007 | | | 7,660,131 | | | 7,668,232 | | 2.07 | % | |
| Rallyday Elder Care Co-Investors LP Partnership Interests | | | | Equity | | | | | | | | | | | 7/31/2025 | | | | | | | 910,966 | | | 916,719 | | | 1,056,301 | | 0.28 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,576,850 | | $ | 8,724,533 | | 2.35 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
111
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Elliott Aviation, LLC | | | | | | | | | | | | | | | | | | | Moline, IL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 8.00 | % | 2.00 | % | - | % | 11.87 | % | 1/31/2020 | | 1/21/2026 | | Aerospace & Defense | | $ | 9,594,927 | | | 9,594,927 | | | 9,115,182 | | 2.46 | % | |
| SP EA Holdings LLC Term Loan | | | | Unsecured | | | 15.00 | % | - | % | - | % | 15.00 | % | 10/26/2023 | | 1/31/2026 | | | | | 76,245 | | | 76,245 | | | 13,724 | | 0.00 | % | |
| Term Loan | | | | First Lien | | | 4.31 | % | - | % | - | % | 4.31 | % | 4/25/2025 | | 1/21/2026 | | | | | 59,833 | | | 59,833 | | | 56,841 | | 0.02 | % | |
| Revolver A | | (11) | | First Lien | | 1M SOFR+ | 8.00 | % | 2.00 | % | - | % | 11.87 | % | 1/31/2020 | | 1/21/2026 | | | | | 1,585,290 | | | 1,585,290 | | | 1,585,290 | | 0.43 | % | |
| Revolver B | | (11) | | First Lien | | 1M SOFR+ | 8.00 | % | 2.00 | % | - | % | 11.87 | % | 3/1/2023 | | 1/21/2026 | | | | | 746,513 | | | 746,513 | | | 746,513 | | 0.20 | % | |
| Revolver C (Priority) | | (11) | | First Lien | | 1M SOFR+ | 8.00 | % | 2.00 | % | - | % | 11.87 | % | 3/7/2025 | | 1/21/2026 | | | | | 1,019,285 | | | 1,019,285 | | | 1,019,285 | | 0.27 | % | |
| SP EA Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 1/31/2020 | | | | | | | 105,938,486 | | | 901,594 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,983,687 | | $ | 12,536,835 | | 3.38 | % | |
| Environmental Remedies, LLC | | (9) | | | | | | | | | | | | | | | | | Hayward, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 8.92 | % | | | 1/15/2025 | | 1/15/2030 | | Services: Business | | $ | 7,275,781 | | | 7,153,358 | | | 7,166,644 | | 1.93 | % | |
| ERI Parent Holdings, LLC Class A Units | | | | Equity | | | | | | | | | | | 1/15/2025 | | | | | | | 163,109 | | | 163,109 | | | 140,928 | | 0.04 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,316,467 | | $ | 7,307,572 | | 1.97 | % | |
| Equine Network, LLC | | | | | | | | | | | | | | | | | | | Boulder, CO | | | | | | | | | | | | | |
| Term A Loan (SBIC) | | (4)(11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.33 | % | | | 5/22/2023 | | 5/22/2028 | | Hotel, Gaming, & Leisure | | $ | 6,949,183 | | | 6,845,973 | | | 6,949,183 | | 1.87 | % | |
| Term A Loan | | (11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.33 | % | | | 7/28/2025 | | 5/22/2028 | | | | $ | 2,117,063 | | | 2,070,832 | | | 2,117,063 | | 0.57 | % | |
| Revolver | | (9)(11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.33 | % | | | 5/22/2023 | | 5/22/2028 | | | | | 166,667 | | | 166,667 | | | 166,667 | | 0.04 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.33 | % | | | 5/22/2023 | | 5/22/2028 | | | | | 98,150 | | | 98,150 | | | 98,150 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,181,622 | | $ | 9,331,063 | | 2.51 | % | |
| Eskola LLC | | (9) | | | | | | | | | | | | | | | | | Morristown, TN | | | | | | | | | | | | | |
| Term Loan | | (10)(12) | | First Lien | | 3M SOFR+ | 7.50 | % | 1.50 | % | 11.90 | % | | | 12/19/2024 | | 12/19/2029 | | Construction & Building | | $ | 7,482,765 | | | 7,372,876 | | | 6,996,385 | | 1.88 | % | |
| Delayed Draw Term Loan | | (10)(12) | | First Lien | | 3M SOFR+ | 7.50 | % | 1.50 | % | 11.90 | % | | | 12/19/2024 | | 12/19/2029 | | | | | 2,770,797 | | | 2,753,379 | | | 2,590,695 | | 0.70 | % | |
| Eskola Holdings, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 12/19/2024 | | | | | | | 314 | | | 893,747 | | | 58,588 | | 0.02 | % | |
| Eskola Holdings, LLC Class C Units | | | | Equity | | | | | | | | | | | 6/4/2025 | | | | | | | 28 | | | 56,349 | | | 14,041 | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,076,351 | | $ | 9,659,709 | | 2.60 | % | |
| evolv Consulting, LLC | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.49 | % | | | 12/7/2023 | | 12/7/2028 | | Services: Business | | $ | 9,335,314 | | | 9,211,059 | | | 9,335,314 | | 2.52 | % | |
| evolv Holdco, LLC Preferred Units | | | | Equity | | | | | | | | | | | 12/7/2023 | | | | | | | 473,485 | | | 473,485 | | | 498,613 | | 0.13 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,684,544 | | $ | 9,833,927 | | 2.65 | % | |
| Evriholder Acquisition, Inc. | | | | | | | | | | | | | | | | | | | Anaheim, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(9)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.57 | % | | | 1/23/2023 | | 1/24/2028 | | Consumer Goods: Durable | | $ | 12,104,445 | | | 11,956,146 | | | 12,043,924 | | 3.24 | % | |
| KEJ Holdings LP Class A Units | | | | Equity | | | | | | | | | | | 1/23/2023 | | | | | | | 873,333 | | | 873,333 | | | 940,212 | | 0.25 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,829,479 | | $ | 12,984,136 | | 3.49 | % | |
| Exacta Land Surveyors, LLC | | (20) | | | | | | | | | | | | | | | | | Cleveland, OH | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 9.57 | % | 1.00 | % | 2/8/2019 | | 12/31/2027 | | Services: Business | | $ | 16,308,509 | | | 16,308,509 | | | 15,656,170 | | 4.22 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 9.57 | % | 1.00 | % | 7/15/2022 | | 12/31/2027 | | | | | 992,002 | | | 992,002 | | | 952,322 | | 0.26 | % | |
| SP EA Holdings LLC Term Loan | | | | Unsecured | | | 15.00 | | | | | | 15.00 | % | 4/22/2024 | | 6/30/2026 | | | | | 115,243 | | | 115,243 | | | 99,685 | | 0.03 | % | |
| SP ELS Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 2/8/2019 | | | | | | | 1,338,661 | | | 1,124,414 | | | 208,826 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 18,540,168 | | $ | 16,917,003 | | 4.57 | % | |
| Exigo, LLC | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.00 | % | 10.07 | % | | | 3/16/2022 | | 3/16/2027 | | Services: Business | | $ | 8,631,371 | | | 8,594,584 | | | 8,631,371 | | 2.33 | % | |
| Gauge Exigo Coinvest, LLC Common Units | | | | Equity | | | | | | | | | | | 3/16/2022 | | | | | | | 377,535 | | | 377,535 | | | 328,204 | | 0.09 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,972,119 | | $ | 8,959,575 | | 2.42 | % | |
| FairWave Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Kansas City, MO | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 4/1/2024 | | 4/1/2029 | | Beverage & Food | | $ | 7,481,998 | | | 7,360,162 | | | 7,444,588 | | 2.01 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 12/31/2025 | | 4/1/2029 | | | | | 103,720 | | | 101,905 | | | 103,201 | | 0.03 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 4/1/2024 | | 4/1/2029 | | | | | 514,030 | | | 514,030 | | | 511,460 | | 0.14 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 4/1/2024 | | 4/1/2029 | | | | | 2,641,131 | | | 2,617,056 | | | 2,627,925 | | 0.71 | % | |
| GRC Java Holdings, LLC Class A Units | | | | Equity | | | | | | | | | | | 4/1/2024 | | | | | | | 2,985 | | | 304,909 | | | 421,889 | | 0.11 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,898,062 | | $ | 11,109,063 | | 3.00 | % | |
| Fidus Systems Inc. | | (9) | | | | | | | | | | | | | | | | | Ottawa, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.50 | % | 9.17 | % | | | 10/17/2025 | | 10/17/2031 | | High Tech Industries | | $ | 4,759,099 | | | 4,677,532 | | | 4,677,532 | | 1.26 | % | |
| Fidus Investments Holdings, L.P. Common Units | | | | Equity | | | | | | | | | | | 10/17/2025 | | | | | | | 268 | | | 267,728 | | | 267,728 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,945,260 | | $ | 4,945,260 | | 1.33 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
112
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| FiscalNote Boards LLC | | (7)(9) | | | | | | | | | | | | | | | | | Toronto, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 8.97 | % | | | 3/11/2024 | | 3/12/2029 | | Services: Business | | $ | 3,503,162 | | | 3,453,695 | | | 3,468,130 | | 0.93 | % | |
| FCP-Connect Holdings LLC Class A Common Shares | | | | Equity | | | | | | | | | | | 5/28/2024 | | | | | | | 284 | | | - | | | - | | 0.00 | % | |
| FCP-Connect Holdings LLC Series A Preferred Shares | | | | Equity | | | | | | | | | | | 5/28/2024 | | | | | | | 284 | | | 190,382 | | | 176,211 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 3,644,077 | | $ | 3,644,341 | | 0.98 | % | |
| General LED OPCO, LLC | | | | | | | | | | | | | | | | | | | San Antonio, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | Second Lien | | 3M SOFR+ | 9.00 | % | 1.50 | % | 12.77 | % | | | 5/1/2018 | | 4/30/2027 | | Services: Business | | $ | 4,500,000 | | | 4,496,653 | | | 4,410,000 | | 1.19 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,496,653 | | $ | 4,410,000 | | 1.19 | % | |
| GS HVAM Intermediate, LLC | | (9) | | | | | | | | | | | | | | | | | Carlsbad, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.32 | % | | | 10/18/2019 | | 11/30/2026 | | Beverage & Food | | $ | 12,123,673 | | | 12,121,297 | | | 12,123,673 | | 3.27 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.49 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 1,944,444 | | | 1,944,444 | | | 1,944,444 | | 0.52 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.51 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 176,768 | | | 176,768 | | | 176,768 | | 0.05 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.50 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 176,768 | | | 176,768 | | | 176,768 | | 0.05 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.34 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 176,768 | | | 176,768 | | | 176,768 | | 0.05 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.49 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 88,384 | | | 88,384 | | | 88,384 | | 0.02 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.50 | % | | | 10/18/2019 | | 11/30/2026 | | | | | 88,384 | | | 88,384 | | | 88,384 | | 0.02 | % | |
| HV GS Acquisition, LP Class A Interests | | | | Equity | | | | | | | | | | | 10/2/2019 | | | | | | | 2,144 | | | 563,209 | | | 4,468,228 | | 1.20 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,336,022 | | $ | 19,243,417 | | 5.18 | % | |
| GSF Buyer, LLC | | (9) | | | | | | | | | | | | | | | | | North Andover, MA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.84 | % | | | 4/30/2025 | | 4/30/2031 | | Beverage & Food | | $ | 4,249,351 | | | 4,191,024 | | | 4,249,351 | | 1.14 | % | |
| GSF Group Holdings, L.P. Class A2 Units | | | | Equity | | | | | | | | | | | 4/30/2025 | | | | | | | 241 | | | 240,595 | | | 233,513 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,431,619 | | $ | 4,482,864 | | 1.20 | % | |
| Guidant Corp. | | (9) | | | | | | | | | | | | | | | | | Erie, PA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 3/11/2024 | | 3/12/2029 | | Energy: Oil & Gas | | $ | 9,853,707 | | | 9,608,518 | | | 9,853,707 | | 2.65 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 3/11/2024 | | 3/12/2029 | | | | | 422,283 | | | 422,283 | | | 422,283 | | 0.11 | % | |
| Titan Meter Topco LP Class A Units | | | | Equity | | | | | | | | | | | 3/11/2024 | | | | | | | 574,863 | | | 581,608 | | | 801,170 | | 0.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,612,409 | | $ | 11,077,160 | | 2.98 | % | |
| Husk AcquireCo Inc. | | (7) | | | | | | | | | | | | | | | | | Vaughan, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 5.75 | % | 1.50 | % | 9.51 | % | | | 11/14/2024 | | 11/15/2029 | | Beverage & Food | | $ | 5,264,053 | | | 5,199,682 | | | 5,185,092 | | 1.40 | % | |
| SK Spectra Holdings LP Class A Units | | | | Equity | | | | | | | | | | | 11/15/2024 | | | | | | | 298 | | | 297,765 | | | 226,274 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,497,447 | | $ | 5,411,366 | | 1.46 | % | |
| HV Watterson Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Schaumburg, IL | | | | | | | | | | | | | |
| Term Loan | | | | First Lien | | | 12.00 | % | - | % | 12.00 | % | | | 12/17/2021 | | 12/17/2026 | | Services: Business | | $ | 13,568,717 | | | 13,508,378 | | | 9,023,198 | | 2.43 | % | |
| Revolver | | | | First Lien | | | 12.00 | % | - | % | 12.00 | % | | | 12/17/2021 | | 12/17/2026 | | | | | 99,975 | | | 99,975 | | | 66,483 | | 0.02 | % | |
| Delayed Draw Term Loan | | | | First Lien | | | 12.00 | % | - | % | 12.00 | % | | | 12/17/2021 | | 12/17/2026 | | | | | 329,632 | | | 328,777 | | | 219,205 | | 0.06 | % | |
| HV Watterson Parent, LLC Class A Units | | | | Equity | | | | | | | | | | | 12/17/2021 | | | | | | | 1,632 | | | 1,631,591 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,568,721 | | $ | 9,308,886 | | 2.51 | % | |
| I2P Holdings, LLC | | | | | | | | | | | | | | | | | | | Cleveland, OH | | | | | | | | | | | | | |
| Series A Preferred Units | | | | Equity | | | | | | | | | | | 1/31/2018 | | | | Services: Business | | | 750,000 | | | - | | | 1,587,652 | | 0.43 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 1,587,652 | | 0.43 | % | |
| Identity Theft Guard Solutions, Inc. | | (9) | | | | | | | | | | | | | | | | | Portland, OR | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.50 | % | 9.22 | % | | | 2/28/2025 | | 2/28/2030 | | Services: Business | | $ | 8,657,465 | | | 8,507,362 | | | 8,614,178 | | 2.32 | % | |
| IDX Parent, LLC Class A-2 Units | | | | Equity | | | | | | | | | | | 2/28/2025 | | | | | | | 352,915 | | | 352,915 | | | 588,521 | | 0.16 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,860,277 | | $ | 9,202,699 | | 2.48 | % | |
| Impact Home Services LLC | | | | | | | | | | | | | | | | | | | Tampa, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 4/28/2023 | | 4/28/2028 | | Services: Consumer | | $ | 5,805,097 | | | 5,726,630 | | | 5,688,995 | | 1.53 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 10/11/2023 | | 4/28/2028 | | | | | 529,089 | | | 521,434 | | | 518,507 | | 0.14 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 6/30/2023 | | 4/28/2028 | | | | | 263,868 | | | 260,204 | | | 258,591 | | 0.07 | % | |
| Revolver | | (11)(17) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.17 | % | | | 4/28/2023 | | 4/28/2028 | | | | | 82,500 | | | 82,500 | | | 80,850 | | 0.02 | % | |
| Impact Holdings Georgia LLC Class A Units | | | | Equity | | | | | | | | | | | 4/28/2023 | | | | | | | 375 | | | 375,156 | | | - | | 0.00 | % | |
| Impact Holdings Georgia LLC Class A-1 Units | | | | Equity | | | | | | | | | | | 1/31/2024 | | | | | | | 38 | | | 37,962 | | | 35,526 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,003,886 | | $ | 6,582,469 | | 1.77 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
113
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Infolinks Media Buyco, LLC | | | | | | | | | | | | | | | | | | | Ridgewood, NJ | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 11/1/2021 | | 11/1/2026 | | Media: Advertising, Printing & Publishing | | $ | 7,168,033 | | | 7,138,013 | | | 7,132,193 | | 1.92 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 6/6/2024 | | 11/1/2026 | | | | | 2,440,641 | | | 2,425,985 | | | 2,428,438 | | 0.65 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 11/1/2021 | | 11/1/2026 | | | | | 1,447,875 | | | 1,443,421 | | | 1,440,636 | | 0.39 | % | |
| Tower Arch Infolinks Media, LP LP Interests | | (6)(15) | | Equity | | | | | | | | | | | 10/28/2021 | | | | | | | 460,943 | | | 207,385 | | | 475,679 | | 0.13 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,214,804 | | $ | 11,476,946 | | 3.09 | % | |
| Informativ, LLC | | (9) | | | | | | | | | | | | | | | | | Fresno, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.57 | % | | | 7/30/2021 | | 7/30/2027 | | High Tech Industries | | $ | 8,308,013 | | | 8,285,463 | | | 8,308,013 | | 2.24 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.57 | % | | | 3/31/2022 | | 7/30/2027 | | | | | 6,263,548 | | | 6,244,249 | | | 6,263,548 | | 1.69 | % | |
| Credit Connection Holdings, LLC Series A Units | | (6) | | Equity | | | | | | | | | | | 7/30/2021 | | | | | | | 804,384 | | | 300,783 | | | 1,371,768 | | 0.37 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,830,495 | | $ | 15,943,329 | | 4.30 | % | |
| Inoapps Bidco, LLC | | | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Term Loan B | | (11) | | First Lien | | 3M SONIA+ | 5.75 | % | 1.00 | % | 9.88 | % | | | 2/15/2022 | | 2/15/2027 | | High Tech Industries | | | 9,650,000 | | $ | 13,015,616 | | $ | 12,903,217 | | 3.48 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.75 | % | 1.00 | % | 9.58 | % | | | 2/15/2022 | | 2/15/2027 | | | | | 80,000 | | | 80,000 | | | 80,000 | | 0.02 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.85 | % | | | 2/15/2022 | | 2/15/2027 | | | | | 80,625 | | | 80,388 | | | 80,625 | | 0.02 | % | |
| Inoapps Holdings, LLC Series A-1 Preferred Units | | | | Equity | | | | | | | | | | | 2/15/2022 | | | | | | | 739,844 | | | 783,756 | | | 1,088,044 | | 0.29 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,959,760 | | $ | 14,151,886 | | 3.81 | % | |
| iNovex Information Systems Incorporated | | (9) | | | | | | | | | | | | | | | | | Columbia, MD | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 8.92 | % | | | 12/17/2024 | | 12/17/2030 | | Services: Business | | $ | 7,446,962 | | | 7,349,332 | | | 7,372,492 | | 1.99 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 8.98 | % | | | 12/17/2024 | | 12/17/2030 | | | | | 72,000 | | | 72,000 | | | 71,280 | | 0.02 | % | |
| Revolver | | (11) | | First Lien | | PRIME+ | 4.25 | % | 1.00 | % | 11.00 | % | | | 12/17/2024 | | 12/17/2030 | | | | | 5,000 | | | 5,000 | | | 4,950 | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,426,332 | | $ | 7,448,722 | | 2.01 | % | |
| International Cybernetics Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Largo, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 8.92 | % | | | 6/3/2025 | | 6/3/2030 | | Services: Business | | $ | 4,724,263 | | | 4,649,089 | | | 4,677,020 | | 1.26 | % | |
| International Cybernetics Holdings, LP Class B Units | | | | Equity | | | | | | | | | | | 6/2/2025 | | | | | | | 1,051 | | | 105,113 | | | 93,640 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,754,202 | | $ | 4,770,660 | | 1.29 | % | |
| Invincible Boat Company LLC | | | | | | | | | | | | | | | | | | | Opa Locka, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 8.00 | % | 3.37 | % | 8/28/2019 | | 3/31/2028 | | Consumer Goods: Durable | | $ | 5,351,146 | | | 5,351,146 | | | 4,682,253 | | 1.26 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 8.00 | % | 3.37 | % | 8/28/2019 | | 3/31/2028 | | | | | 4,939,520 | | | 4,939,520 | | | 4,322,080 | | 1.16 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 8.00 | % | 3.37 | % | 6/1/2021 | | 3/31/2028 | | | | | 1,099,108 | | | 1,099,108 | | | 961,720 | | 0.26 | % | |
| Revolver | | (9)(11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 11.37 | % | | | 8/28/2019 | | 3/31/2028 | | | | | 1,489,362 | | | 1,489,362 | | | 1,303,192 | | 0.35 | % | |
| Warbird Parent Holdco, LLC Class A Units | | | | Equity | | | | | | | | | | | 8/28/2019 | | | | | | | 1,362,575 | | | 1,299,691 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,178,827 | | $ | 11,269,245 | | 3.03 | % | |
| Ledge Lounger, Inc. | | | | | | | | | | | | | | | | | | | Katy, TX | | | | | | | | | | | | | |
| Term Loan A (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 7.50 | % | 1.00 | % | 0.00 | % | 11.55 | % | 11/9/2021 | | 11/9/2027 | | Consumer Goods: Durable | | $ | 7,893,466 | | | 7,862,441 | | | 7,064,652 | | 1.90 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 7.50 | % | 1.00 | % | 0.00 | % | 11.55 | % | 11/9/2021 | | 11/9/2027 | | | | | 88,989 | | | 88,989 | | | 79,645 | | 0.02 | % | |
| SP L2 Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 11/3/2025 | | | | | | | 398,972 | | | - | | | - | | 0.00 | % | |
| SP L2 Holdings LLC Class A Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 11/9/2021 | | | | | | | 50,596,837 | | | 389,832 | | | - | | 0.00 | % | |
| SP L2 Holdings LLC Class C Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 10/9/2024 | | | | | | | 140,834 | | | 34,504 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,375,766 | | $ | 7,144,297 | | 1.92 | % | |
| Lightning Intermediate II, LLC | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 6M SOFR+ | 6.00 | % | 1.00 | % | 9.60 | % | | | 6/6/2022 | | 6/5/2028 | | Consumer Goods: Non-Durable | | $ | 11,214,012 | | | 11,137,405 | | | 11,214,012 | | 3.02 | % | |
| Gauge Vimergy Coinvest, LLC Units | | | | Equity | | | | | | | | | | | 6/6/2022 | | | | | | | 399 | | | 391,274 | | | 339,006 | | 0.09 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,528,679 | | $ | 11,553,018 | | 3.11 | % | |
| Luxium Solutions, LLC | | | | | | | | | | | | | | | | | | | Deerfield Beach, OH | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 8.92 | % | | | 5/10/2024 | | 12/1/2027 | | High Tech Industries | | $ | 8,169,324 | | | 8,095,857 | | | 8,169,324 | | 2.20 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 8.92 | % | | | 5/10/2024 | | 12/1/2027 | | | | | 1,182,247 | | | 1,176,738 | | | 1,182,247 | | 0.32 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,272,595 | | $ | 9,351,571 | | 2.52 | % | |
| MacKenzie-Childs Acquisition, Inc. | | (9) | | | | | | | | | | | | | | | | | Aurora, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.32 | % | | | 9/2/2022 | | 9/2/2027 | | Consumer Goods: Durable | | $ | 86,331 | | | 85,813 | | | 86,331 | | 0.02 | % | |
| MacKenzie-Childs Investment, LP Partnership Interests | | | | Equity | | | | | | | | | | | 9/2/2022 | | | | | | | 100,000 | | | 100,000 | | | 171,068 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 185,813 | | $ | 257,399 | | 0.07 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
114
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Madison Logic Holdings, Inc. | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.00 | % | 1.00 | % | 10.72 | % | | | 12/30/2022 | | 12/30/2028 | | Media: Advertising, Printing & Publishing | | $ | 3,627,720 | | | 3,577,518 | | | 3,319,364 | | 0.89 | % | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.00 | % | - | % | 11.22 | % | 12/30/2022 | | 12/30/2028 | | | | | 906,930 | | | 894,380 | | | 829,841 | | 0.22 | % | |
| BC Partners Glengarry Co-Investment LP Class 1 Interests | | | | Equity | | | | | | | | | | | 7/7/2023 | | | | | | | 404,964 | | | 404,964 | | | 45,355 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,876,862 | | $ | 4,194,560 | | 1.12 | % | |
| MBH Management LLC | | (9) | | | | | | | | | | | | | | | | | Washington, DC | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.50 | % | 8.72 | % | | | 11/15/2024 | | 11/15/2029 | | Healthcare & Pharmaceuticals | | $ | 9,381,975 | | | 9,229,172 | | | 9,335,066 | | 2.51 | % | |
| MBH Parent, LLC Common Units | | | | Equity | | | | | | | | | | | 11/15/2024 | | | | | | | 646,944 | | | 646,944 | | | 986,162 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,876,116 | | $ | 10,321,228 | | 2.78 | % | |
| MedLearning Group, LLC | | | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 3/26/2024 | | 12/30/2027 | | Healthcare & Pharmaceuticals | | $ | 4,263,337 | | | 4,212,827 | | | 4,220,704 | | 1.14 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 2,498,733 | | | 2,469,128 | | | 2,473,746 | | 0.67 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 2,040,545 | | | 2,016,437 | | | 2,020,140 | | 0.54 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 8/5/2025 | | 12/30/2027 | | | | | 995,000 | | | 982,379 | | | 985,050 | | 0.27 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 9.42 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 2,430,523 | | | 2,410,657 | | | 2,406,218 | | 0.65 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,091,428 | | $ | 12,105,858 | | 3.27 | % | |
| Michelli, LLC | | (9) | | | | | | | | | | | | | | | | | New Orleans, LA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 9.42 | % | | | 12/21/2023 | | 12/21/2028 | | Capital Equipment | | $ | 4,900,000 | | | 4,834,556 | | | 4,900,000 | | 1.32 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 9.42 | % | | | 12/21/2023 | | 12/21/2028 | | | | | 3,837,617 | | | 3,809,613 | | | 3,837,617 | | 1.03 | % | |
| SP MWM Holdco LLC Class A Units | | | | Equity | | | | | | | | | | | 12/21/2023 | | | | | | | 509,215 | | | 509,215 | | | 560,167 | | 0.15 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,153,384 | | $ | 9,297,784 | | 2.50 | % | |
| Microbe Formulas LLC | | (9) | | | | | | | | | | | | | | | | | Meridian, ID | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.00 | % | 9.32 | % | | | 4/4/2022 | | 4/3/2028 | | Consumer Goods: Non-Durable | | $ | 5,305,649 | | | 5,282,425 | | | 5,305,649 | | 1.43 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.00 | % | 9.32 | % | | | 11/20/2024 | | 4/3/2028 | | | | | 4,211,768 | | | 4,196,582 | | | 4,211,768 | | 1.13 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,479,007 | | $ | 9,517,417 | | 2.56 | % | |
| Mobotrex Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Davenport, IA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 2/28/2025 | | 6/6/2031 | | Wholesale | | $ | 5,143,936 | | | 5,079,288 | | | 5,092,497 | | 1.37 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 2/28/2025 | | 6/6/2031 | | | | | 3,587,553 | | | 3,542,465 | | | 3,551,677 | | 0.96 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 2/28/2025 | | 6/6/2031 | | | | | 14,481 | | | 14,481 | | | 14,336 | | 0.00 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.69 | % | | | 2/28/2025 | | 6/6/2031 | | | | | 8,689 | | | 8,689 | | | 8,602 | | 0.00 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 11/6/2025 | | 6/6/2031 | | | | | 256,807 | | | 255,226 | | | 254,239 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,900,149 | | $ | 8,921,351 | | 2.40 | % | |
| MOM Enterprises, LLC | | (9) | | | | | | | | | | | | | | | | | Richmond, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.48 | % | 2.00 | % | 10.15 | % | | | 5/19/2021 | | 5/19/2028 | | Consumer Goods: Non-Durable | | $ | 15,076,148 | | | 15,046,351 | | | 15,000,768 | | 4.04 | % | |
| MBliss SPC Holdings, LLC Units | | | | Equity | | | | | | | | | | | 5/19/2021 | | | | | | | 933,333 | | | 933,333 | | | 850,956 | | 0.23 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,979,684 | | $ | 15,851,724 | | 4.27 | % | |
| Monarch Behavioral Therapy, LLC | | (9) | | | | | | | | | | | | | | | | | Addison, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.72 | % | | | 6/6/2024 | | 6/6/2030 | | Healthcare & Pharmaceuticals | | $ | 6,663,165 | | | 6,556,702 | | | 6,629,849 | | 1.79 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.72 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 289,087 | | | 289,087 | | | 287,642 | | 0.08 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.72 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 216,815 | | | 216,815 | | | 215,731 | | 0.06 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.73 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 72,272 | | | 72,272 | | | 71,911 | | 0.02 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.73 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 36,136 | | | 36,136 | | | 35,955 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 8.72 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 903,847 | | | 895,984 | | | 899,328 | | 0.24 | % | |
| BI Investors, LLC Class A Units | | | | Equity | | | | | | | | | | | 6/6/2024 | | | | | | | 4,286 | | | 424,738 | | | 525,713 | | 0.14 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,491,734 | | $ | 8,666,129 | | 2.34 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
115
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Monitorus Holding, LLC | | (7) | | | | | | | | | | | | | | | | | London, UK | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.18 | % | | | 5/24/2022 | | 5/24/2027 | | Media: Diversified & Production | | $ | 105,248 | | | 104,923 | | | 103,669 | | 0.03 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.18 | % | | | 6/27/2025 | | 5/24/2027 | | | | | 1,462,650 | | | 1,673,913 | | | 1,691,278 | | 0.46 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.18 | % | | | 5/24/2022 | | 5/24/2027 | | | | | 106,498 | | | 115,781 | | | 114,044 | | 0.03 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.18 | % | | | 5/24/2022 | | 5/24/2027 | | | | | 105,248 | | | 106,228 | | | 104,635 | | 0.03 | % | |
| Sapphire Aggregator S.a r.l. Convertible Bonds | | (14) | | Unsecured | | | 8.00 | % | - | % | - | % | 8.00 | % | 1/31/2025 | | 3/31/2026 | | | | | 8,977 | | | 9,454 | | | 10,380 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class A Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,689 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class B Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class C Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class D Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class E Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class F Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class G Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class H Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class I Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 5,431 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class 3 Ordinary Shares | | | | Equity | | | | | | | | | | | 3/31/2025 | | | | | | | 6,458,506 | | | 37,512 | | | 68,931 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 2,148,215 | | $ | 2,141,816 | | 0.57 | % | |
| Morgan Electrical Group Intermediate Holdings, Inc. | | (9) | | | | | | | | | | | | | | | | | Freemont, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.50 | % | 9.97 | % | | | 8/3/2023 | | 8/3/2029 | | Construction & Building | | $ | 4,065,515 | | | 4,002,647 | | | 4,024,860 | | 1.08 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.50 | % | 9.97 | % | | | 8/3/2023 | | 8/3/2029 | | | | | 1,607,266 | | | 1,594,242 | | | 1,591,193 | | 0.43 | % | |
| Morgan Electrical Group Holdings, LLC Series A-2 Preferred Units | | | | Equity | | | | | | | | | | | 8/3/2023 | | | | | | | 380 | | | 380,330 | | | 246,772 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,977,219 | | $ | 5,862,825 | | 1.58 | % | |
| Naumann/Hobbs Material Handling Corporation II, Inc. | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 8/30/2019 | | 12/31/2026 | | Services: Business | | $ | 8,054,946 | | | 8,054,946 | | | 7,934,122 | | 2.14 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 8/30/2019 | | 12/31/2026 | | | | | 5,079,479 | | | 5,079,479 | | | 5,003,287 | | 1.35 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 10.42 | % | | | 8/30/2019 | | 12/31/2026 | | | | | 1,789,578 | | | 1,789,578 | | | 1,762,734 | | 0.47 | % | |
| Naumann Hobbs Holdings, L.P. Class A-1 Units | | | | Equity | | | | | | | | | | | 9/29/2022 | | | | | | | 123 | | | 220,379 | | | - | | 0.00 | % | |
| Naumann Hobbs Holdings, L.P. Class A-2 Units | | | | Equity | | | | | | | | | | | 9/29/2022 | | | | | | | 123 | | | 220,379 | | | - | | 0.00 | % | |
| Naumann Hobbs Holdings, L.P. Class B Units | | | | Equity | | | | | | | | | | | 12/27/2024 | | | | | | | 142 | | | 142,200 | | | 546,782 | | 0.15 | % | |
| Naumann Hobbs Holdings, L.P. Class W-1 Units | | | | Equity | | | | | | | | | | | 5/27/2025 | | | | | | | 57 | | | - | | | - | | 0.00 | % | |
| Naumann Hobbs Holdings, L.P. Class W-2 Units | | | | Equity | | | | | | | | | | | 5/27/2025 | | | | | | | 49 | | | - | | | 217,884 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,506,961 | | $ | 15,464,809 | | 4.17 | % | |
| NINJIO, LLC | | (9) | | | | | | | | | | | | | | | | | Westlake Village, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.67 | % | | | 10/12/2022 | | 10/12/2027 | | Media: Diversified & Production | | $ | 4,962,500 | | | 4,920,208 | | | 4,962,500 | | 1.34 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.67 | % | | | 10/12/2022 | | 10/12/2027 | | | | | 100,000 | | | 99,453 | | | 100,000 | | 0.03 | % | |
| NINJIO Holdings, LLC Units | | | | Equity | | | | | | | | | | | 10/12/2022 | | | | | | | 184 | | | 313,253 | | | 340,673 | | 0.09 | % | |
| Gauge NINJIO Blocker LLC Preferred Units | | | | Equity | | | | | | | | | | | 9/22/2023 | | | | | | | 14 | | | 14,470 | | | 21,705 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,347,384 | | $ | 5,424,878 | | 1.47 | % | |
| Norplex Micarta Acquisition, Inc. | | (9) | | | | | | | | | | | | | | | | | Postville, IA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.09 | % | | | 10/31/2024 | | 10/31/2029 | | Chemicals, Plastics, & Rubber | | $ | 12,870,000 | | | 12,661,385 | | | 12,805,651 | | 3.45 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 8.92 | % | | | 10/31/2024 | | 10/31/2029 | | | | $ | 50,000 | | | 50,000 | | | 49,750 | | 0.01 | % | |
| Norplex Micarta Parent, LP Preferred Units | | | | Equity | | | | | | | | | | | 10/31/2024 | | | | | | | 739,804 | | | 739,804 | | | 690,496 | | 0.19 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,451,189 | | $ | 13,545,897 | | 3.65 | % | |
| NS412, LLC | | | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | Second Lien | | 3M SOFR+ | 8.25 | % | 1.00 | % | 12.02 | % | | | 5/6/2019 | | 5/6/2027 | | Services: Consumer | | $ | 7,615,000 | | | 7,615,000 | | | 7,615,000 | | 2.05 | % | |
| NS Group Holding Company, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/6/2019 | | | | | | | 782 | | | 795,002 | | | 1,036,196 | | 0.28 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,410,002 | | $ | 8,651,196 | | 2.33 | % | |
| Onpoint Industrial Services, LLC | | | | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.75 | % | 9.42 | % | | | 11/16/2022 | | 11/16/2027 | | Services: Business | | $ | 12,256,846 | | | 12,145,661 | | | 12,256,846 | | 3.30 | % | |
| Spearhead TopCo, LLC Class A Units | | | | Equity | | | | | | | | | | | 11/16/2022 | | | | | | | 606,742 | | | 606,742 | | | 1,078,794 | | 0.29 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,752,403 | | $ | 13,335,640 | | 3.59 | % | |
| Pacific Shoring Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Santa Rosa, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 1/10/2025 | | 1/10/2030 | | Capital Equipment | | $ | 8,436,250 | | | 8,312,084 | | | 8,351,888 | | 2.25 | % | |
| PSP Ultimate Holding, LP Class A Units | | | | Equity | | | | | | | | | | | 1/10/2025 | | | | | | | 10,606 | | | 498,491 | | | 610,672 | | 0.16 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,810,575 | | $ | 8,962,560 | | 2.41 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
116
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| PCP MT Aggregator Holdings, L.P. | | (7) | | | | | | | | | | | | | | | | | Oak Brook, IL | | | | | | | | | | | | | |
| Common Units | | (6) | | Equity | | | | | | | | | | | 3/29/2019 | | | | Finance | | | 825,020 | | | - | | | 6,187,401 | | 1.67 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 6,187,401 | | 1.67 | % | |
| PCS Software, Inc. | | (9) | | | | | | | | | | | | | | | | | Shenandoah, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.32 | % | 0.50 | % | 7/1/2019 | | 6/30/2027 | | Transportation & Logistics | | $ | 13,816,136 | | | 13,816,136 | | | 13,747,056 | | 3.70 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.32 | % | 0.50 | % | 7/1/2019 | | 6/30/2027 | | | | | 1,811,952 | | | 1,811,952 | | | 1,802,892 | | 0.49 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.32 | % | 0.50 | % | 7/1/2019 | | 6/30/2027 | | | | | 440 | | | 431 | | | 438 | | 0.00 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 9.32 | % | 0.50 | % | 7/1/2019 | | 6/30/2027 | | | | | 955,424 | | | 955,424 | | | 950,647 | | 0.26 | % | |
| PCS Software Parent, LLC Class A Common Units | | | | Equity | | | | | | | | | | | 9/16/2022 | | | | | | | 471,211 | | | 9,995 | | | 289,993 | | 0.08 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,593,938 | | $ | 16,791,026 | | 4.53 | % | |
| Pearl Media Holdings, LLC | | (24) | | | | | | | | | | | | | | | | | Montclair, NJ | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 8/31/2022 | | 8/31/2027 | | Media: Advertising, Printing & Publishing | | $ | 8,620,067 | | | 8,553,265 | | | 8,447,666 | | 2.28 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,553,265 | | $ | 8,447,666 | | 2.28 | % | |
| Peltram Group Holdings LLC | | | | | | | | | | | | | | | | | | | Auburn, WA | | | | | | | | | | | | | |
| Class A Units | | (6) | | Equity | | | | | | | | | | | 12/30/2021 | | | | Construction & Building | | | 508,516 | | | 451,142 | | | 799,295 | | 0.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 451,142 | | $ | 799,295 | | 0.22 | % | |
| Pilot Power Group Acquisition, Inc. | | | | | | | | | | | | | | | | | | | San Diego, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(10)(12) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.95 | % | | | 12/18/2025 | | 12/18/2030 | | Services: Business | | $ | 12,000,000 | | | 11,790,000 | | | 11,790,000 | | 3.18 | % | |
| BCM Pilot Opportunity Parent, LLC Class A Common Interests | | (28) | | Equity | | | | | | | | | | | 12/18/2025 | | | | | | | 4,423 | | | 366,868 | | | 366,868 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,156,868 | | $ | 12,156,868 | | 3.28 | % | |
| Plus Delta Buyer LLC | | (9) | | | | | | | | | | | | | | | | | Carlsbad, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 8.92 | % | | | 1/16/2025 | | 1/16/2031 | | Services: Business | | $ | 7,344,500 | | | 7,214,782 | | | 7,271,055 | | 1.96 | % | |
| Plus Delta Parent LLC Class A Units | | | | Equity | | | | | | | | | | | 1/16/2025 | | | | | | | 325,765 | | | 325,764 | | | 340,885 | | 0.09 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,540,546 | | $ | 7,611,940 | | 2.05 | % | |
| Premiere Digital Services, Inc. | | (9) | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 8.97 | % | | | 11/3/2021 | | 11/3/2026 | | Media: Broadcasting & Subscription | | $ | 12,070,359 | | | 12,057,869 | | | 12,070,359 | | 3.25 | % | |
| Premiere Digital Holdings, Inc. Common Stock | | | | Equity | | | | | | | | | | | 10/18/2018 | | | | | | | 5,000 | | | - | | | 3,126,233 | | 0.84 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,057,869 | | $ | 15,196,592 | | 4.09 | % | |
| Pure Upper Holdco LLC | | (9) | | | | | | | | | | | | | | | | | Newtown Square, PA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 4.75 | % | 1.00 | % | 8.42 | % | | | 12/3/2025 | | 12/3/2031 | | Healthcare & Pharmaceuticals | | $ | 10,000,000 | | | 9,901,043 | | | 9,901,043 | | 2.67 | % | |
| Xanitos Topco, LLC Class A Units | | | | Equity | | | | | | | | | | | 12/3/2025 | | | | | | | 246,667 | | | 246,667 | | | 246,667 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,147,710 | | $ | 10,147,710 | | 2.74 | % | |
| Recharged Opco, LLC | | | | | | | | | | | | | | | | | | | Bradenton, FL | | | | | | | | | | | | | |
| Term Loan | | (26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 2/7/2022 | | 2/7/2028 | | Services: Consumer | | $ | 5,324,759 | | | 5,283,494 | | | 2,901,994 | | 0.78 | | |
| Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 2/7/2022 | | 2/7/2028 | | | | | 83,115 | | | 83,115 | | | 45,298 | | 0.01 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 7/2/2024 | | 2/7/2028 | | | | | 20,223 | | | 20,223 | | | 40,446 | | 0.01 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 9/13/2024 | | 2/7/2028 | | | | | 20,000 | | | 20,000 | | | 40,000 | | 0.01 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 11/12/2024 | | 2/7/2028 | | | | | 45,000 | | | 45,000 | | | 90,000 | | 0.02 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 1/3/2025 | | 2/7/2028 | | | | | 10,000 | | | 10,000 | | | 20,000 | | 0.01 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 2/7/2025 | | 2/7/2028 | | | | | 31,000 | | | 31,000 | | | 62,000 | | 0.02 | | |
| Priority Revolver | | (18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 10/22/2025 | | 2/7/2028 | | | | | 120,000 | | | 120,000 | | | 240,000 | | 0.06 | | |
| Priority Revolver | | (9)(18)(26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 12/15/2025 | | 2/7/2028 | | | | | 32,500 | | | 32,500 | | | 65,000 | | 0.02 | | |
| Delayed Draw Term Loan | | (26) | | First Lien | | | 12.50 | % | | | - | % | - | % | 2/7/2022 | | 2/7/2028 | | | | | 98,473 | | | 98,030 | | | 53,668 | | 0.01 | | |
| Recharged Holdings, LLC Common Units | | | | Equity | | | | | | | | | | | 11/13/2025 | | | | | | | 61,182 | | | - | | | - | | 0.00 | | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,743,362 | | $ | 3,558,406 | | 0.95 | | |
| Red's All Natural, LLC | | | | | | | | | | | | | | | | | | | Franklin, TN | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(10)(12) | | First Lien | | 3M SOFR+ | 4.50 | % | 1.50 | % | 9.13 | % | | | 1/31/2023 | | 1/31/2029 | | Beverage & Food | | $ | 8,815,327 | | | 8,708,727 | | | 8,815,327 | | 2.37 | % | |
| Centeotl Co-Invest B, LP Common Units | | | | Equity | | | | | | | | | | | 1/31/2023 | | | | | | | 710,600 | | | 710,600 | | | 352,910 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,419,327 | | $ | 9,168,237 | | 2.47 | % | |
| RIA Advisory Borrower, LLC | | (9) | | | | | | | | | | | | | | | | | Coral Gables, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 2.00 | % | 9.50 | % | | | 5/1/2023 | | 8/2/2027 | | High Tech Industries | | $ | 5,835,000 | | | 5,782,654 | | | 5,835,000 | | 1.57 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 2.00 | % | 9.50 | % | | | 5/1/2023 | | 8/2/2027 | | | | | 73,915 | | | 73,915 | | | 73,915 | | 0.02 | % | |
| RIA Advisory Aggregator, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/1/2023 | | | | | | | 104,425 | | | 165,078 | | | 277,592 | | 0.07 | % | |
| RIA Products Aggregator, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/1/2023 | | | | | | | 81,251 | | | 78,390 | | | 39,195 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,100,037 | | $ | 6,225,702 | | 1.67 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
117
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Said Intermediate, LLC | | (9) | | | | | | | | | | | | | | | | | Boston, MA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.00 | % | 9.22 | % | | | 6/13/2024 | | 6/13/2029 | | Media: Advertising, Printing & Publishing | | $ | 7,368,312 | | | 7,258,150 | | | 7,294,629 | | 1.97 | % | |
| FCP-Said Holdings, LLC Class A Common Shares | | | | Equity | | | | | | | | | | | 6/13/2024 | | | | | | | 804 | | | - | | | - | | 0.00 | % | |
| FCP-Said Holdings, LLC Series A Preferred Shares | | | | Equity | | | | | | | | | | | 6/13/2024 | | | | | | | 852 | | | 350,649 | | | 323,546 | | 0.09 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,608,799 | | $ | 7,618,175 | | 2.06 | % | |
| Sales Benchmark Index, LLC | | | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.87 | % | | | 1/7/2020 | | 7/7/2026 | | Services: Business | | $ | 12,004,716 | | | 12,004,716 | | | 12,004,716 | | 3.23 | % | |
| Revolver | | (9)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.87 | % | | | 1/7/2020 | | 7/7/2026 | | | | | 443,820 | | | 443,820 | | | 443,820 | | 0.12 | % | |
| SBI Holdings Investments LLC Class A Units | | | | Equity | | | | | | | | | | | 1/7/2020 | | | | | | | 66,573 | | | 665,730 | | | 458,148 | | 0.12 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,114,266 | | $ | 12,906,684 | | 3.47 | % | |
| Solid Surface Holdco, LLC | | (9) | | | | | | | | | | | | | | | | | Charlotte, NC | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.67 | % | | | 6/6/2025 | | 6/6/2030 | | Services: Business | | $ | 5,665,801 | | | 5,562,303 | | | 5,637,472 | | 1.52 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.69 | % | | | 6/6/2025 | | 6/6/2030 | | | | | 2,220,766 | | | 2,198,813 | | | 2,209,662 | | 0.60 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.67 | % | | | 6/6/2025 | | 6/6/2030 | | | | | 1,736,753 | | | 1,719,585 | | | 1,728,069 | | 0.47 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 9.70 | % | | | 6/6/2025 | | 6/6/2030 | | | | | 313,185 | | | 310,089 | | | 311,619 | | 0.08 | % | |
| Carolina Topco Holdings, LP Class A-1 Units | | | | Equity | | | | | | | | | | | 6/6/2025 | | | | | | | 4,935 | | | 493,470 | | | 866,935 | | 0.23 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,284,260 | | $ | 10,753,757 | | 2.90 | % | |
| Strategus, LLC | | (9) | | | | | | | | | | | | | | | | | Englewood, CO | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 1/27/2025 | | 1/27/2031 | | Media: Advertising, Printing & Publishing | | $ | 7,762,432 | | | 7,642,498 | | | 7,645,996 | | 2.06 | % | |
| CIVC Strategus Blocker, LLC Class A Units | | | | Equity | | | | | | | | | | | 1/27/2025 | | | | | | | 170 | | | 170,362 | | | 203,173 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,812,860 | | $ | 7,849,169 | | 2.11 | % | |
| TAC LifePort Holdings, LLC | | | | | | | | | | | | | | | | | | | Woodland, WA | | | | | | | | | | | | | |
| Common Units | | (6) | | Equity | | | | | | | | | | | 3/1/2021 | | | | Aerospace & Defense | | | 546,543 | | | 189,094 | | | 1,543,947 | | 0.42 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 189,094 | | $ | 1,543,947 | | 0.42 | % | |
| Teckrez, LLC | | | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.75 | % | 2.00 | % | 10.57 | % | | | 5/24/2024 | | 11/30/2028 | | Chemicals, Plastics, & Rubber | | $ | 4,240,129 | | | 4,194,947 | | | 4,218,928 | | 1.14 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 6.75 | % | 2.00 | % | 10.57 | % | | | 5/24/2024 | | 11/30/2028 | | | | | 885,936 | | | 885,936 | | | 881,506 | | 0.24 | % | |
| Revolver | | | | First Lien | | 1M SOFR+ | 6.75 | % | 2.00 | % | 10.57 | % | | | 5/24/2024 | | 11/30/2028 | | | | | 144,222 | | | 144,222 | | | 143,501 | | 0.04 | % | |
| HH-Teckrez Parent, LP Preferred Units | | | | Equity | | | | | | | | | | | 5/24/2024 | | | | | | | 90,139 | | | 90,139 | | | 162,373 | | 0.04 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,315,244 | | $ | 5,406,308 | | 1.46 | % | |
| The Hardenbergh Group, Inc. | | (9) | | | | | | | | | | | | | | | | | Livonia, MI | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.27 | % | | | 8/7/2023 | | 8/7/2028 | | Healthcare & Pharmaceuticals | | $ | 10,265,605 | | | 10,110,799 | | | 10,265,605 | | 2.77 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.27 | % | | | 9/30/2024 | | 8/7/2028 | | | | | 793,981 | | | 782,369 | | | 793,981 | | 0.21 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.27 | % | | | 10/1/2025 | | 8/7/2028 | | | | | 498,750 | | | 489,484 | | | 498,750 | | 0.13 | % | |
| BV HGI Holdings, L.P. Class A Units | | | | Equity | | | | | | | | | | | 8/7/2023 | | | | | | | 677,548 | | | 677,548 | | | 697,242 | | 0.19 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,060,200 | | $ | 12,255,578 | | 3.30 | % | |
| The Millennium Alliance LLC | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 8.67 | % | | | 7/31/2025 | | 7/31/2031 | | Services: Business | | $ | 11,471,250 | | | 11,306,226 | | | 11,356,539 | | 3.06 | % | |
| BV MA Blocker, Inc. Class A-2 Common Stock | | | | Equity | | | | | | | | | | | 7/31/2025 | | | | | | | 52 | | | 515,556 | | | 656,334 | | 0.18 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,821,782 | | $ | 12,012,873 | | 3.24 | % | |
| Tiger 21, LLC | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 4.50 | % | 1.00 | % | 8.17 | % | | | 12/30/2024 | | 12/30/2030 | | Services: Consumer | | $ | 11,880,000 | | | 11,673,028 | | | 11,880,000 | | 3.20 | % | |
| Tiger 21 Blocker, Inc. Class A-3 Common Stock | | | | Equity | | | | | | | | | | | 12/30/2024 | | | | | | | 565 | | | 564,635 | | | 770,506 | | 0.21 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,237,663 | | $ | 12,650,506 | | 3.41 | % | |
| Tilley Distribution, Inc. | | (9) | | | | | | | | | | | | | | | | | Baltimore, MD | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.82 | % | | | 4/1/2022 | | 12/31/2026 | | Chemicals, Plastics, & Rubber | | $ | 82,617 | | | 82,299 | | | 79,725 | | 0.02 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.82 | % | | | 4/1/2022 | | 12/31/2026 | | | | | 9,016 | | | 8,981 | | | 8,700 | | 0.00 | % | |
| Revolver | | | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 9.82 | % | | | 4/1/2022 | | 12/31/2026 | | | | $ | 13,043 | | | 13,043 | | | 12,586 | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 104,323 | | $ | 101,011 | | 0.02 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
118
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| TradePending OpCo Aggregator, LLC | | (9) | | | | | | | | | | | | | | | | | Carrboro, NC | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 3/2/2021 | | 3/2/2026 | | High Tech Industries | | $ | 9,428,788 | | | 9,417,687 | | | 9,428,788 | | 2.54 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 8/4/2023 | | 3/2/2026 | | | | | 2,411,396 | | | 2,406,156 | | | 2,411,396 | | 0.65 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 3/2/2021 | | 3/2/2026 | | | | | 33,333 | | | 33,333 | | | 33,333 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.07 | % | | | 8/4/2023 | | 3/2/2026 | | | | | 673,267 | | | 672,497 | | | 673,267 | | 0.18 | % | |
| TradePending Holdings, LLC Series A Units | | (4) | | Equity | | | | | | | | | | | 3/2/2021 | | | | | | | 908,333 | | | 947,699 | | | 1,812,352 | | 0.49 | % | |
| TradePending Holdings, LLC Series A-1 Units | | | | Equity | | | | | | | | | | | 8/4/2023 | | | | | | | 132,783 | | | 260,254 | | | 365,808 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,737,626 | | $ | 14,724,944 | | 3.97 | % | |
| TriplePoint Acquisition Holdings LLC | | (9) | | | | | | | | | | | | | | | | | Columbus, OH | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 8.92 | % | | | 5/31/2024 | | 5/31/2029 | | Construction & Building | | $ | 5,276,143 | | | 5,197,842 | | | 5,276,143 | | 1.42 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 8.92 | % | | | 4/8/2025 | | 5/31/2029 | | | | | 1,760,506 | | | 1,730,596 | | | 1,760,506 | | 0.47 | % | |
| TriplePoint Holdco LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 5/31/2024 | | | | | | | 557,968 | | | 508,733 | | | 1,876,311 | | 0.51 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,437,171 | | $ | 8,912,960 | | 2.40 | % | |
| Unicat Catalyst Holdings, LLC | | | | | | | | | | | | | | | | | | | Alvin, TX | | | | | | | | | | | | | |
| Unicat Catalyst, LLC Class A Units | | | | Equity | | | | | | | | | | | 4/27/2021 | | | | Chemicals, Plastics, & Rubber | | | 7,500 | | | 750,000 | | | 639,521 | | 0.17 | % | |
| Unicat Catalyst, LLC Class A-1 Units | | | | Equity | | | | | | | | | | | 12/13/2023 | | | | | | | 974 | | | 58,446 | | | 59,014 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 808,446 | | $ | 698,535 | | 0.19 | % | |
| U.S. Expediters, LLC | | (9) | | | | | | | | | | | | | | | | | Stafford, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.12 | % | | | 12/22/2021 | | 12/22/2026 | | Healthcare & Pharmaceuticals | | $ | 14,311,049 | | | 14,244,794 | | | 13,523,942 | | 3.64 | % | |
| Cathay Hypnos LLC Units | | | | Equity | | | | | | | | | | | 12/22/2021 | | | | | | | 1,737,087 | | | 1,353,155 | | | 200,084 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,597,949 | | $ | 13,724,026 | | 3.69 | % | |
| USDTL AcquisitionCo, Inc. | | (9) | | | | | | | | | | | | | | | | | Des Plaines, IL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.67 | % | | | 12/9/2024 | | 12/9/2030 | | Healthcare & Pharmaceuticals | | $ | 5,940,000 | | | 5,837,398 | | | 5,880,600 | | 1.58 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 8.70 | % | | | 12/9/2024 | | 12/9/2030 | | | | | 20,000 | | | 20,000 | | | 19,800 | | 0.01 | % | |
| USDTL Holdings, LLC Preferred Units | | | | Equity | | | | | | | | | | | 12/9/2024 | | | | | | | 110 | | | 110,000 | | | 156,484 | | 0.04 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,967,398 | | $ | 6,056,884 | | 1.63 | % | |
| Valor Buyco, LLC | | (9) | | | | | | | | | | | | | | | | | Leesburg, VA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 4.75 | % | 1.00 | % | 8.44 | % | | | 12/23/2025 | | 12/23/2031 | | Services: Business | | $ | 6,000,000 | | | 5,940,000 | | | 5,940,000 | | 1.60 | % | |
| Valor Holdco LLC Voting Common Units | | | | Equity | | | | | | | | | | | 12/23/2025 | | | | | | | 4,306 | | | 430,556 | | | 430,556 | | 0.12 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,370,556 | | $ | 6,370,556 | | 1.72 | % | |
| Venbrook Buyer, LLC | | | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan B (SBIC) | | (4)(25) | | First Lien | | | 13.50 | % | | | - | % | | | 3/13/2020 | | 5/27/2026 | | Services: Business | | $ | 15,567,454 | | | 15,554,413 | | | 10,352,358 | | 2.79 | % | |
| Term Loan B | | (25) | | First Lien | | | 13.50 | % | | | - | % | | | 3/13/2020 | | 5/27/2026 | | | | | 177,127 | | | 176,979 | | | 117,789 | | 0.03 | % | |
| Term Loan (SBIC) | | (4)(25) | | First Lien | | | 13.50 | % | | | - | % | | | 12/31/2025 | | 5/27/2026 | | | | | 942,301 | | | 942,301 | | | 626,630 | | 0.17 | % | |
| Term Loan | | (25) | | First Lien | | | 13.50 | % | | | - | % | | | 12/5/2025 | | 5/27/2026 | | | | | 471,156 | | | 471,156 | | | 313,319 | | 0.08 | % | |
| Revolver | | (25) | | First Lien | | | 13.50 | % | | | - | % | | | 3/13/2020 | | 5/27/2026 | | | | | 2,750,080 | | | 2,750,080 | | | 1,828,803 | | 0.49 | % | |
| Delayed Draw Term Loan | | (25) | | First Lien | | | 13.50 | % | | | - | % | | | 3/13/2020 | | 5/27/2026 | | | | | 5,308,287 | | | 5,305,704 | | | 3,530,011 | | 0.95 | % | |
| Venbrook Holdings, LLC Convertible Term Loan | | (14)(25) | | Unsecured | | | 10.00 | % | - | % | - | % | | | 3/31/2022 | | 12/20/2028 | | | | | 117,483 | | | 117,483 | | | - | | 0.00 | % | |
| Venbrook Holdings, LLC Common Units | | | | Equity | | | | | | | | | | | 3/13/2020 | | | | | | | 822,758 | | | 819,262 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 26,137,378 | | $ | 16,768,910 | | 4.51 | % | |
| WER Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Sugar Hill, GA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 4/11/2024 | | 4/11/2030 | | Services: Business | | $ | 2,663,602 | | | 2,622,140 | | | 2,650,284 | | 0.71 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 5/30/2025 | | 4/11/2030 | | | | | 424,750 | | | 418,979 | | | 422,626 | | 0.11 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 4/11/2024 | | 4/11/2030 | | | | | 461,483 | | | 461,483 | | | 459,176 | | 0.12 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 4/11/2024 | | 4/11/2030 | | | | | 1,326,339 | | | 1,314,855 | | | 1,319,707 | | 0.36 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.17 | % | | | 5/30/2025 | | 4/11/2030 | | | | | 884,786 | | | 878,440 | | | 880,362 | | 0.24 | % | |
| Blade Landscape Investments, LLC Class A Units | | | | Equity | | | | | | | | | | | 4/11/2024 | | | | | | | 1,803 | | | 180,300 | | | 245,968 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,876,197 | | $ | 5,978,123 | | 1.61 | % | |
| Whisps Holdings LP | | | | | | | | | | | | | | | | | | | Elgin, IL | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 4/18/2019 | | | | Beverage & Food | | | 500,000 | | | 500,000 | | | - | | 0.00 | % | |
| Class A-1 Units | | | | Equity | | | | | | | | | | | 3/6/2023 | | | | | | | 280,939 | | | 182,610 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 682,610 | | $ | - | | 0.00 | % | |
| Total Non-control, non-affiliated investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 987,729,505 | | $ | 988,919,589 | | 266.42 | % | |
| Total Investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,026,139,686 | | $ | 1,007,623,395 | | 271.47 | % | |
| LIABILITIES IN EXCESS OF OTHER ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (636,444,439) | | (171.47) | % | |
| NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 371,178,956 | | 100.00 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
119
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| (1) | See Note1 of the Notesto the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio. | |
| (2) | Debt investments are income producing and equity securities are non-income producing, unless otherwise noted. | |
| (3) | Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars ($) unless otherwise noted, Euro (), or Great British Pound (). | |
| (4) | Investments held by the SBIC subsidiary (as defined in Note 1), which include $24,017,231 of cash and $217,069,206 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note 9). Stellus Capital Investment Corporations (the Companys) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note 1). | |
| (5) | Investments held by the SBIC II subsidiary (as defined in Note 1), which include $720,767 of cash and $294,254,073 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Companys obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries. | |
| (6) | Security is income producing through dividends or distributions. | |
| (7) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended (the 1940 Act). The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Companys total assets. Qualifying assets represent approximately 94.9% of the Companys total assets as of December 31, 2025. | |
| (8) | Represents a payment-in-kind (PIK) interest security. At the option of the issuer, interest can be paid in cash or cash and PIK interest. The percentage of PIK interest shown is the maximum PIK interest that can be elected by the issuer. | |
| (9) | At December 31, 2025, the Company had the following outstanding revolver and delayed draw term loan commitments: | |
*The accompanying notes are an integral part of these consolidated financial statements.*
120
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | |
| | | | | | | | Unused | | | |
| | | | | Unfunded | | Commitment | | | |
| Investments | | Security | | Commitment | | Fee | | Maturity | |
| 2X LLC | | Revolver | | $ | 37,500 | | 0.50% | | June 5, 2028 | |
| Ad.Net Acquisition, LLC | | Revolver | | | 1,299,020 | | 0.50% | | May 7, 2028 | |
| AdCellerant LLC | | Revolver | | | 875,995 | | 0.50% | | December 12, 2028 | |
| ADS Group Opco, LLC | | Revolver | | | 55,198 | | 0.00% | | December 31, 2027 | |
| American Refrigeration, LLC | | Revolver | | | 100,000 | | 0.50% | | March 31, 2028 | |
| AMII Acquisition, LLC | | Revolver | | | 500,000 | | 0.50% | | December 4, 2029 | |
| Amika OpCo LLC * | | Revolver | | | 100,000 | | 0.50% | | July 1, 2028 | |
| ArborWorks, LLC | | Revolver | | | 250,895 | | 0.00% | | November 6, 2028 | |
| Axis Portable Air LLC | | Revolver | | | 100,000 | | 0.50% | | December 31, 2030 | |
| Camp Profiles LLC | | Revolver | | | 100,000 | | 0.50% | | September 3, 2026 | |
| Carolinas Buyer, Inc. | | Delayed Draw Term Loan | | | 2,216,358 | | 1.00% | | December 20, 2030 | |
| Carolinas Buyer, Inc. | | Revolver | | | 100,000 | | 0.50% | | December 20, 2030 | |
| CEATI International Inc. | | Revolver | | | 100,000 | | 0.50% | | December 31, 2027 | |
| Cerebro Buyer, LLC | | Delayed Draw Term Loan | | | 1,130,707 | | 1.00% | | March 15, 2029 | |
| Cerebro Buyer, LLC | | Revolver | | | 100,000 | | 0.50% | | March 15, 2029 | |
| CF512, Inc. | | Revolver | | | 91,000 | | 0.50% | | September 1, 2026 | |
| Champion Services Acquireco LLC | | Revolver | | | 100,000 | | 0.50% | | September 19, 2030 | |
| Channel Partners Intermediateco, LLC | | Revolver | | | 16,897 | | 0.50% | | February 7, 2027 | |
| Compost 360 Acquisition, LLC | | Revolver | | | 52,500 | | 0.50% | | August 2, 2028 | |
| COPILOT Provider Support Services, LLC | | Revolver | | | 100,000 | | 0.50% | | November 22, 2027 | |
| Craftable Intermediate II Inc. | | Revolver | | | 60,000 | | 0.50% | | June 30, 2028 | |
| Curion Holdings, LLC | | Revolver | | | 60,855 | | 0.50% | | December 31, 2028 | |
| DFO Enterprises, LLC | | Revolver | | | 100,000 | | 0.50% | | September 22, 2030 | |
| DMD Systems Recovery, LLC | | Delayed Draw Term Loan | | | 1,000,000 | | 0.50% | | August 22, 2031 | |
| DMD Systems Recovery, LLC | | Revolver | | | 100,000 | | 0.50% | | August 22, 2031 | |
| Elder Care Opco LLC | | Delayed Draw Term Loan | | | 2,500,000 | | 0.75% | | July 31, 2030 | |
| Elder Care Opco LLC | | Revolver | | | 100,000 | | 0.50% | | July 31, 2030 | |
| Environmental Remedies, LLC | | Delayed Draw Term Loan | | | 2,681,986 | | 0.50% | | January 15, 2030 | |
| Environmental Remedies, LLC | | Revolver | | | 100,000 | | 0.50% | | January 15, 2030 | |
| Eskola LLC | | Delayed Draw Term Loan** | | | 3,918,298 | | 1.00% | | December 19, 2029 | |
| evolv Consulting, LLC | | Revolver | | | 1,363,636 | | 0.50% | | December 7, 2028 | |
| Evriholder Acquisition, Inc. | | Revolver | | | 100,000 | | 0.50% | | January 24, 2028 | |
| Exigo, LLC | | Revolver | | | 100,000 | | 0.50% | | March 16, 2027 | |
| FairWave Holdings, LLC | | Revolver | | | 628,259 | | 0.50% | | April 1, 2029 | |
| FairWave Holdings, LLC | | Delayed Draw Term Loan | | | 579,226 | | 0.50% | | April 1, 2029 | |
| Fidus Systems Inc. | | Delayed Draw Term Loan | | | 3,172,733 | | 0.50% | | October 17, 2031 | |
| Fidus Systems Inc. | | Revolver | | | 100,000 | | 0.50% | | October 17, 2031 | |
| FiscalNote Boards LLC | | Revolver | | | 391,962 | | 0.50% | | March 12, 2029 | |
| GSF Buyer, LLC | | Delayed Draw Term Loan | | | 2,847,136 | | 1.00% | | April 30, 2031 | |
| GSF Buyer, LLC | | Revolver | | | 100,000 | | 0.50% | | April 30, 2031 | |
| Guidant Corp. | | Revolver | | | 633,424 | | 0.50% | | March 12, 2029 | |
| HV Watterson Holdings, LLC | | Revolver | | | 25 | | 0.50% | | December 17, 2026 | |
| Identity Theft Guard Solutions, Inc. | | Revolver | | | 100,000 | | 0.50% | | February 28, 2030 | |
| Informativ, LLC | | Revolver | | | 100,000 | | 0.50% | | July 30, 2027 | |
| Inoapps Bidco, LLC | | Revolver | | | 20,000 | | 0.50% | | February 15, 2027 | |
| iNovex Information Systems Incorporated | | Revolver | | | 23,000 | | 0.50% | | December 17, 2030 | |
| International Cybernetics Acquisition, LLC | | Delayed Draw Term Loan | | | 3,561,003 | | 1.00% | | June 3, 2030 | |
*The accompanying notes are an integral part of these consolidated financial statements.*
121
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| | | | | | | | | | | |
| | | | | | | | Unused | | | |
| | | | | Unfunded | | Commitment | | | |
| Investments | | Security | | Commitment | | Fee | | Maturity | |
| International Cybernetics Acquisition, LLC | | Revolver | | $ | 100,000 | | 0.50% | | June 3, 2030 | |
| Invincible Boat Company LLC | | Revolver | | | 106,383 | | 0.50% | | March 31, 2028 | |
| Lightning Intermediate II, LLC | | Revolver | | | 100,000 | | 0.50% | | June 5, 2028 | |
| MacKenzie-Childs Acquisition, Inc. | | Revolver | | | 100,000 | | 0.50% | | September 2, 2027 | |
| Madison Logic Holdings, Inc. | | Revolver | | | 52,632 | | 0.50% | | December 30, 2027 | |
| MBH Management LLC | | Delayed Draw Term Loan | | | 500,000 | | 1.00% | | November 15, 2029 | |
| MBH Management LLC | | Revolver | | | 500,000 | | 0.50% | | November 15, 2029 | |
| Michelli, LLC | | Revolver | | | 1,296,076 | | 0.50% | | December 21, 2028 | |
| Microbe Formulas LLC | | Revolver | | | 100,000 | | 0.50% | | April 3, 2028 | |
| Mobotrex Acquisition, LLC | | Delayed Draw Term Loan | | | 1,292,891 | | 1.00% | | June 7, 2030 | |
| Mobotrex Acquisition, LLC | | Revolver | | | 150,606 | | 0.50% | | June 7, 2030 | |
| MOM Enterprises, LLC | | Revolver | | | 100,000 | | 0.50% | | May 19, 2028 | |
| Monarch Behavioral Therapy, LLC | | Delayed Draw Term Loan | | | 173,452 | | 1.00% | | June 6, 2030 | |
| Monarch Behavioral Therapy, LLC | | Revolver | | | 108,408 | | 0.50% | | June 6, 2030 | |
| Morgan Electrical Group Intermediate Holdings, Inc. | | Revolver | | | 100,000 | | 0.50% | | August 3, 2029 | |
| NINJIO, LLC | | Revolver | | | 100,000 | | 0.50% | | October 12, 2027 | |
| Norplex Micarta Acquisition, Inc. | | Revolver | | | 450,000 | | 0.50% | | October 31, 2029 | |
| Pacific Shoring Holdings, LLC | | Revolver | | | 100,000 | | 0.50% | | January 10, 2030 | |
| PCS Software, Inc. | | Revolver | | | 1,317,703 | | 0.50% | | June 30, 2027 | |
| Plus Delta Buyer LLC | | Delayed Draw Term Loan | | | 3,753,955 | | 1.00% | | January 16, 2031 | |
| Plus Delta Buyer LLC | | Revolver | | | 100,000 | | 0.50% | | January 16, 2031 | |
| Premiere Digital Services, Inc. | | Revolver | | | 576,923 | | 0.50% | | November 3, 2026 | |
| Pure Upper Holdco LLC | | Delayed Draw Term Loan | | | 1,000,000 | | 1.00% | | December 3, 2031 | |
| Pure Upper Holdco LLC | | Revolver | | | 100,000 | | 0.50% | | December 3, 2031 | |
| Recharged Opco, LLC | | Revolver | | | 10,000 | | 0.50% | | February 7, 2028 | |
| RIA Advisory Borrower, LLC | | Revolver | | | 26,085 | | 0.50% | | August 2, 2027 | |
| Said Intermediate, LLC | | Revolver | | | 1,168,831 | | 0.50% | | June 13, 2029 | |
| Sales Benchmark Index, LLC | | Revolver | | | 665,730 | | 0.50% | | July 7, 2026 | |
| Simpler Trading, LLC | | Revolver | | | 20,000 | | 0.50% | | March 21, 2030 | |
| Solid Surface Holdco, LLC | | Revolver | | | 138,000 | | 0.50% | | June 6, 2030 | |
| Strategus, LLC | | Delayed Draw Term Loan | | | 2,524,737 | | 1.00% | | January 27, 2031 | |
| Strategus, LLC | | Revolver | | | 100,000 | | 0.50% | | January 27, 2031 | |
| Teckrez, LLC | | Revolver | | | 412,063 | | 1.00% | | November 30, 2028 | |
| The Hardenbergh Group, Inc. | | Revolver | | | 100,000 | | 0.50% | | August 6, 2028 | |
| The Millennium Alliance LLC | | Revolver | | | 100,000 | | 0.50% | | July 31, 2031 | |
| Tiger 21, LLC | | Revolver | | | 100,000 | | 0.50% | | December 30, 2030 | |
| Tilley Distribution, Inc. | | Revolver | | | 86,957 | | 0.50% | | December 31, 2026 | |
| TradePending OpCo Aggregator, LLC | | Revolver | | | 66,667 | | 0.50% | | March 2, 2026 | |
| TriplePoint Acquisition Holdings LLC | | Revolver | | | 743,957 | | 0.50% | | May 31, 2029 | |
| U.S. Expediters, LLC | | Revolver | | | 30,000 | | 0.50% | | December 22, 2026 | |
| USDTL AcquisitionCo, Inc. | | Delayed Draw Term Loan | | | 500,000 | | 1.00% | | December 9, 2030 | |
| USDTL AcquisitionCo, Inc. | | Revolver | | | 80,000 | | 0.50% | | December 9, 2030 | |
| Valor Buyco LLC | | Delayed Draw Term Loan | | | 100,000 | | 0.50% | | December 23, 2031 | |
| Valor Buyco LLC | | Revolver | | | 100,000 | | 0.50% | | December 23, 2031 | |
| WER Holdings, LLC | | Delayed Draw Term Loan | | | 1,408,896 | | 1.00% | | April 11, 2030 | |
| WER Holdings, LLC*** | | Revolver | | | 362,594 | | 0.50% | | April 11, 2030 | |
| | | Total Unfunded Debt Commitments | | $ | 52,991,159 | | | | | |
*The accompanying notes are an integral part of these consolidated financial statements.*
122
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
* Included in this investment is Line of Credit in the amount of $4,861, with Line of Credit rate of 5.25% and a maturity of July 1, 2028.
** This a last-out delayed draw term loan with contractual rates higher than the applicable rates.
*** Included in this investment is Line of Credit in the amount of $81,144, with Line of Credit rate of 5.50% and a maturity of April 11, 2030.
| (10) | This loan is a unitranche investment. | |
| (11) | These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floors are not in effect. | |
| (12) | These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floors are not in effect. | |
| (13) | Investment has been on non-accrual since November 1, 2024. | |
| (14) | This loan is convertible to common units at maturity or at the majority of holders. | |
| (15) | Excluded from the investment is an uncalled capital commitment in an amount not to exceed $289,057. | |
| (16) | Investment has been on non-accrual since the later of January 1, 2023 or the investment date. | |
| (17) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $17,500 with an unfunded rate of 0.50% and a maturity of April 28, 2028. The Company has full discretion to fund the revolver commitment. | |
| (18) | The Company has full discretion to fund the revolver commitment, with an unfunded rate of 0.00% and a maturity of February 7, 2028. As of December 31, 2025, there was no undrawn revolver commitment. | |
| (19) | Investment has been on non-accrual since January 1, 2024. | |
| (20) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,500,000, with an unfunded rate of 0.00% and a maturity of December 31, 2027. The Company has full discretion to fund the revolver commitment. | |
| (21) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,187,895, with an unfunded rate of 0.00% and a maturity of September 3, 2026. The Company has full discretion to fund the revolver commitment. | |
*The accompanying notes are an integral part of these consolidated financial statements.*
123
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| (22) | Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December31,2024 | | Gross Additions | | Gross Reductions | | Amount of Realized | | Amount of Unrealized | | December31,2025 | | Interest Income | |
| Investments | | Security | | Value | | (a) | | (b) | | Loss | | Appreciation (Depreciation) | | Value | | (c) | |
| EH Real Estate Services, LLC | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loan A-1 | | First Lien | | $ | 254,101 | | $ | - | | $ | (1,617,134) | | $ | - | | $ | 1,363,033 | | $ | - | | $ | - | |
| Term Loan A-2 | | First Lien | | | 87,877 | | | - | | | (496,095) | | | - | | | 408,218 | | | - | | | - | |
| Term Loan A-3 | | First Lien | | | 31,142 | | | - | | | (167,887) | | | - | | | 136,745 | | | - | | | - | |
| Term Loan A-4 | | First Lien | | | 1,505,537 | | | - | | | - | | | - | | | (346,274) | | | 1,159,263 | | | - | |
| Term Loan A-5 | | First Lien | | | 5,710,182 | | | 24,368 | | | - | | | - | | | (1,318,947) | | | 4,415,603 | | | - | |
| Term Loan A-6 | | First Lien | | | - | | | 1,096,456 | | | - | | | - | | | - | | | 1,096,456 | | | - | |
| Term Loan A-7 | | First Lien | | | - | | | 1,644,685 | | | - | | | - | | | - | | | 1,644,685 | | | - | |
| Revolver | | First Lien | | | 63,597 | | | - | | | - | | | - | | | - | | | 63,597 | | | - | |
| EH Holdco, LLC Common Units | | Equity | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| EH Holdco, LLC Series A Preferred Units | | Equity | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| J.R. Watkins, LLC | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loan | | First Lien | | $ | 2,855,414 | | $ | - | | $ | - | | $ | - | | $ | 543,888 | | | 3,399,302 | | | - | |
| Revolver | | First Lien | | | 236,250 | | | 462,113 | | | - | | | - | | | 2,475,863 | | | 3,174,226 | | | - | |
| Class A Preferred | | Equity | | | - | | | - | | | - | | | (1,132,576) | | | 1,132,576 | | | - | | | - | |
| Class A Units | | Equity | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| Total control investments | | | | $ | 10,744,100 | | $ | 3,227,622 | | $ | (2,281,116) | | $ | (1,132,576) | | $ | 4,395,102 | | $ | 14,953,132 | | $ | - | |
(a) Gross additions include increases in the cost basis of investments resulting from new investments, follow-on investments, payment-in-kind interest or dividends, the amortization of any unearned income or discounts on debt investments, as applicable.
(b) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales and return of capital.
(c) Represents the total amount of interest, fees or dividends credited to income for the portion of the year an investment was included in the control category.
| (23) | Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% (inclusive) of the voting securities are owned and the investments are not classified as Control investments. | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December31,2024 | | Gross Additions | | Gross Reductions | | Amount of Realized | | Amount of Unrealized | | December31,2025 | | Interest Income | |
| Investments | | Security | | Value | | (a) | | (b) | | Loss | | Appreciation (Depreciation) | | Value | | (c) | |
| Simpler Trading, LLC | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loan (SBIC) | | First Lien | | $ | 5,320,286 | | $ | 217,434 | | $ | (1,579,771) | | $ | (5,605,667) | | $ | 4,515,792 | | $ | 2,868,074 | | $ | 226,424 | |
| Revolver | | First Lien | | | 20,865 | | | 7,000 | | | - | | | (46,000) | | | 18,135 | | | - | | | - | |
| Trade Education Holdings, L.L.C. Class A Units | | Equity | | | - | | | - | | | - | | | (662,660) | | | 662,660 | | | - | | | - | |
| Simpler Trading, LLC Preferred Units (SBIC) | | Equity | | | - | | | 1,656,650 | | | - | | | - | | | (774,050) | | | 882,600 | | | - | |
| Simpler Ultimate Holdings, LLC Class A Units (SBIC) | | Equity | | | - | | | 281,936 | | | - | | | - | | | (281,936) | | | - | | | - | |
| Total non-controlled, affiliated investments | | | | $ | 5,341,151 | | $ | 2,163,020 | | $ | (1,579,771) | | $ | (6,314,327) | | $ | 4,140,601 | | $ | 3,750,674 | | $ | 226,424 | |
(a) Gross additions include increases in the cost basis of investments resulting from new investments, follow-on investments, PIK interest or dividends, the amortization of any unearned income or discounts on debt investments, as applicable.
(b) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales and return of capital.
(c) Represents the total amount of interest, fees or dividends credited to income for the portion of the year an investment was included in the non-controlled, affiliated investments category.
| (24) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an unfunded rate of 0.00% and a maturity of August 31, 2027. The Company has full discretion to fund the revolver commitment. | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONSOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2025**
| (25) | Investment has been on non-accrual since the later of October 1, 2025 or the investment date. | |
| (26) | Investment has been on non-accrual since the later of August 21, 2024 or the investment date. | |
| (27) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,526,600 with an unfunded rate of 0.50% and a maturity of June 22, 2029. The Company has full discretion to fund the revolver commitment. | |
| (28) | Excluded from the investment is an uncalled capital commitment in an amount not to exceed $99,799. | |
**Abbreviation Legend**
BSBY Bloomberg Short-Term Bank Yield Index
PIKPayment-In-Kind
SOFR Secured Overnight Financing Rate
SONIA Sterling Overnight Index Average
*The accompanying notes are an integral part of these consolidated financial statements.*
125
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Control investments | | (23) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EH Real Estate Services, LLC | | | | | | | | | | | | | | | | | | | Skokie, IL | | | | | | | | | | | | | |
| Term Loan A-1 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 9/3/2021 | | 9/3/2026 | | FIRE: Real Estate | | $ | 1,882,226 | | | 1,882,226 | | | 254,101 | | 0.07 | % | |
| Term Loan A-2 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 4/3/2023 | | 9/3/2026 | | | | | 650,943 | | | 650,943 | | | 87,877 | | 0.02 | % | |
| Term Loan A-3 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 6/7/2023 | | 9/3/2026 | | | | | 230,678 | | | 230,678 | | | 31,142 | | 0.01 | % | |
| Term Loan A-4 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 7/12/2023 | | 9/3/2026 | | | | | 1,505,537 | | | 1,505,537 | | | 1,505,537 | | 0.41 | % | |
| Term Loan A-5 | | (16) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 1/8/2024 | | 9/3/2026 | | | | | 5,710,182 | | | 5,710,182 | | | 5,710,182 | | 1.54 | % | |
| Revolver | | (16)(22) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 10/3/2023 | | 9/3/2026 | | | | | 63,597 | | | 63,597 | | | 63,597 | | 0.02 | % | |
| EH Holdco, LLC Common Units | | | | Equity | | | | | | | | | | | 10/3/2023 | | | | | | | 15,356 | | | 3 | | | - | | 0.00 | % | |
| EH Holdco, LLC Series A Preferred Units | | | | Equity | | | | | | | | | | | 9/3/2021 | | | | | | | 7,892 | | | 7,891,642 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 17,934,808 | | $ | 7,652,436 | | 2.07 | % | |
| Total Control investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 17,934,808 | | $ | 7,652,436 | | 2.07 | % | |
| Non-controlled, non-affiliated investments | | (4)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2X LLC | | (9) | | | | | | | | | | | | | | | | | Berwyn, PA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 9.33 | % | | | 6/5/2023 | | 6/5/2028 | | Services: Business | | $ | 5,431,456 | | | 5,329,224 | | | 5,404,299 | | 1.46 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 9.33 | % | | | 10/31/2023 | | 6/5/2028 | | | | | 1,430,283 | | | 1,401,610 | | | 1,423,132 | | 0.38 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 9.33 | % | | | 12/2/2024 | | 6/5/2028 | | | | | 3,851,702 | | | 3,795,049 | | | 3,832,443 | | 1.04 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 2.00 | % | 9.33 | % | | | 6/5/2023 | | 6/5/2028 | | | | | 12,500 | | | 12,500 | | | 12,438 | | 0.00 | % | |
| 2X Investors LP Class A Units | | | | Equity | | | | | | | | | | | 6/5/2023 | | | | | | | 58,949 | | | 589,496 | | | 779,253 | | 0.21 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,127,879 | | $ | 11,451,565 | | 3.09 | % | |
| Ad.Net Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.59 | % | | | 5/7/2021 | | 5/7/2026 | | Services: Business | | $ | 15,042,647 | | | 14,971,098 | | | 15,042,647 | | 4.07 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.59 | % | | | 5/7/2021 | | 5/7/2026 | | | | | 854,217 | | | 854,217 | | | 854,217 | | 0.23 | % | |
| Ad.Net Holdings, Inc. Series A Common Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 5/7/2021 | | | | | | | 7,794 | | | 77,941 | | | 68,620 | | 0.02 | % | |
| Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 5/7/2021 | | | | | | | 7,015 | | | 701,471 | | | 617,581 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,604,727 | | $ | 16,583,065 | | 4.49 | % | |
| AdCellerant LLC | | (9) | | | | | | | | | | | | | | | | | Denver, CO | | | | | | | | | | | | | |
| Term A Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 10.38 | % | | | 12/12/2023 | | 12/12/2028 | | Media: Advertising, Printing & Publishing | | $ | 9,900,000 | | | 9,734,838 | | | 9,850,500 | | 2.66 | % | |
| AdCellerant Holdings, LLC Serires A Units | | | | Equity | | | | | | | | | | | 12/12/2023 | | | | | | | 728,710 | | | 728,710 | | | 633,353 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,463,548 | | $ | 10,483,853 | | 2.83 | % | |
| ADS Group Opco, LLC | | | | | | | | | | | | | | | | | | | Lakewood, CO | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(25) | | First Lien | | | 5.00 | % | - | % | - | % | - | % | 6/4/2021 | | 12/31/2027 | | Aerospace & Defense | | $ | 12,851,659 | | | 12,764,381 | | | 10,474,102 | | 2.83 | % | |
| Revolver (SBIC II) | | (5)(9)(25) | | First Lien | | | 5.00 | % | - | % | - | % | - | % | 9/30/2024 | | 12/31/2027 | | | | | 9,260 | | | 9,260 | | | 7,547 | | 0.00 | % | |
| ADS Group Topco, LLC Class A Units | | | | Equity | | | | | | | | | | | 6/4/2021 | | | | | | | 77,626 | | | 288,691 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class B Units | | | | Equity | | | | | | | | | | | 6/4/2021 | | | | | | | 56,819 | | | 211,309 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class D Units | | | | Equity | | | | | | | | | | | 9/30/2024 | | | | | | | 432 | | | - | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class Y Units | | (6) | | Equity | | | | | | | | | | | 4/11/2023 | | | | | | | 48,216 | | | 165,027 | | | - | | 0.00 | % | |
| ADS Group Topco, LLC Class Z Units | | | | Equity | | | | | | | | | | | 6/15/2022 | | | | | | | 72,043 | | | 267,929 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,706,597 | | $ | 10,481,649 | | 2.83 | % | |
| Advanced Barrier Extrusions, LLC | | | | | | | | | | | | | | | | | | | Rhinelander, WI | | | | | | | | | | | | | |
| Term Loan B (SBIC) | | (4)(11)(13) | | First Lien | | 1M SOFR+ | 9.50 | % | 1.00 | % | - | % | - | % | 11/30/2020 | | 11/30/2026 | | Containers, Packaging, & Glass | | $ | 16,843,750 | | | 16,718,372 | | | 12,464,374 | | 3.38 | % | |
| Term Loan (SBIC) | | (4)(13) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 12/6/2024 | | 12/20/2024 | | | | | 604,622 | | | 604,622 | | | 447,420 | | 0.13 | % | |
| GP ABX Holdings Partnership, L.P. Partner Interests | | | | Equity | | | | | | | | | | | 8/8/2018 | | | | | | | 644,737 | | | 528,395 | | | - | | 0.00 | % | |
| GP ABX Holdings Partnership, L.P. Series B Preferred Interests | | | | Equity | | | | | | | | | | | 1/5/2023 | | | | | | | 1,562 | | | 156,182 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 18,007,571 | | $ | 12,911,794 | | 3.51 | % | |
| AGT Robotique Inc. | | (7)(9) | | | | | | | | | | | | | | | | | Trois Rivieres, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.58 | % | | | 6/24/2024 | | 6/22/2029 | | Capital Equipment | | $ | 10,673,296 | | | 10,476,264 | | | 10,513,197 | | 2.84 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,476,264 | | $ | 10,513,197 | | 2.84 | % | |
| American Refrigeration, LLC | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.50 | % | 10.58 | % | | | 3/31/2023 | | 3/31/2028 | | Capital Equipment | | $ | 8,130,853 | | | 7,985,352 | | | 8,130,853 | | 2.20 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.50 | % | 10.58 | % | | | 3/31/2023 | | 3/31/2028 | | | | | 99,250 | | | 98,216 | | | 99,250 | | 0.03 | % | |
| AR-USA Holdings, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 3/31/2023 | | | | | | | 141 | | | 135,778 | | | 193,132 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,219,346 | | $ | 8,423,235 | | 2.28 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
126
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| AMII Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Coral Gables, FL | | | | | | | | | | | | | |
| Term Loan (SBIC II ) | | (5)(11) | | First Lien | | 3M SOFR+ | 4.75 | % | 1.50 | % | 9.08 | % | | | 12/4/2024 | | 12/4/2029 | | Services: Consumer | | $ | 8,819,468 | | | 8,688,867 | | | 8,688,867 | | 2.35 | % | |
| AMII Holdings, LP Class B Units | | | | Equity | | | | | | | | | | | 12/3/2024 | | | | | | | 14,246 | | | 142,460 | | | 142,460 | | 0.04 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,831,327 | | $ | 8,831,327 | | 2.39 | % | |
| Amika OpCo LLC | | (9) | | | | | | | | | | | | | | | | | Brooklyn, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 5.25 | % | 0.75 | % | 9.65 | % | | | 7/1/2022 | | 7/1/2029 | | Consumer Goods: Non-Durable | | $ | 94,638 | | | 93,260 | | | 94,638 | | 0.03 | % | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 5.75 | % | 0.75 | % | 10.33 | % | | | 12/5/2023 | | 7/1/2029 | | | | | 9,608,834 | | | 9,444,289 | | | 9,608,834 | | 2.60 | % | |
| Ishtar Co-Invest-B LP Partnership Interests | | (6) | | Equity | | | | | | | | | | | 7/1/2022 | | | | | | | 77,778 | | | 38,133 | | | 228,190 | | 0.06 | % | |
| Oshun Co-Invest-B LP Partnership Interests | | (6) | | Equity | | | | | | | | | | | 7/1/2022 | | | | | | | 22,222 | | | 21,141 | | | 65,196 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,596,823 | | $ | 9,996,858 | | 2.71 | % | |
| Anne Lewis Strategies, LLC | | (9) | | | | | | | | | | | | | | | | | Washington, DC | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 10.33 | % | | | 3/5/2021 | | 5/9/2028 | | Services: Business | | $ | 9,096,354 | | | 9,044,354 | | | 9,096,354 | | 2.46 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 10.33 | % | | | 4/15/2022 | | 5/9/2028 | | | | | 2,838,697 | | | 2,818,874 | | | 2,838,697 | | 0.77 | % | |
| SG AL Investment, LLC Common Units | | (6) | | Equity | | | | | | | | | | | 3/5/2021 | | | | | | | 1,000 | | | 416,800 | | | 3,794,487 | | 1.03 | % | |
| SG AL Investment, LLC Common-A Units | | | | Equity | | | | | | | | | | | 12/22/2023 | | | | | | | 239 | | | 492,905 | | | 985,826 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,772,933 | | $ | 16,715,364 | | 4.53 | % | |
| APE Holdings, LLC | | | | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 9/5/2014 | | | | Chemicals, Plastics, & Rubber | | | 375,000 | | | 375,000 | | | 25,745 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 375,000 | | $ | 25,745 | | 0.01 | % | |
| Atmosphere Aggregator Holdings II, L.P. | | | | | | | | | | | | | | | | | | | Atlanta, GA | | | | | | | | | | | | | |
| Common Units | | (6) | | Equity | | | | | | | | | | | 1/26/2016 | | | | Services: Business | | | 254,250 | | | - | | | 2,779,048 | | 0.75 | % | |
| Stratose Aggregator Holdings, L.P. Common Units | | (6) | | Equity | | | | | | | | | | | 6/30/2015 | | | | | | | 750,000 | | | - | | | 8,197,783 | | 2.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 10,976,831 | | 2.97 | % | |
| ArborWorks, LLC | | | | | | | | | | | | | | | | | | | Oakhurst, CA | | | | | | | | | | | | | |
| Term Loan | | (11)(17) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | - | % | - | % | 11/6/2023 | | 11/6/2028 | | Environmental Industries | | $ | 3,461,538 | | | 3,461,538 | | | 3,288,461 | | 0.89 | % | |
| Revolver | | (9)(17) | | First Lien | | | 15.00 | % | - | % | - | % | - | % | 11/6/2023 | | 11/6/2028 | | | | | 700,195 | | | 700,195 | | | 665,185 | | 0.18 | % | |
| ArborWorks Intermediate Holdco, LLC Class A-1 Preferred Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 16,037 | | | 3,610,847 | | | 2,750,612 | | 0.74 | % | |
| ArborWorks Intermediate Holdco, LLC Class B-1 Preferred Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 16,037 | | | - | | | - | | 0.00 | % | |
| ArborWorks Intermediate Holdco, LLC Class A-1 Common Units | | | | Equity | | | | | | | | | | | 11/6/2023 | | | | | | | 1,923 | | | - | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,772,580 | | $ | 6,704,258 | | 1.81 | % | |
| Axis Portable Air, LLC | | (9) | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 10.23 | % | | | 3/22/2022 | | 3/22/2028 | | Capital Equipment | | $ | 9,405,000 | | | 9,293,207 | | | 9,405,000 | | 2.54 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 10.23 | % | | | 4/17/2023 | | 3/22/2028 | | | | | 1,874,674 | | | 1,847,626 | | | 1,874,674 | | 0.51 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 10.23 | % | | | 3/22/2022 | | 3/22/2028 | | | | | 99,000 | | | 98,368 | | | 99,000 | | 0.03 | % | |
| Axis Air Parent, LLC Preferred Units | | | | Equity | | | | | | | | | | | 3/22/2022 | | | | | | | 4,436 | | | 443,636 | | | 1,596,690 | | 0.43 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,682,837 | | $ | 12,975,364 | | 3.51 | % | |
| Baker Manufacturing Company, LLC | | | | | | | | | | | | | | | | | | | Evansville, IN | | | | | | | | | | | | | |
| BSC Blue Water Holdings, LLC Series A Units (SBIC II) | | (5) | | Equity | | | | | | | | | | | 7/5/2022 | | | | Capital Equipment | | | 743,770 | | | 743,770 | | | 920,343 | | 0.25 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 743,770 | | $ | 920,343 | | 0.25 | % | |
| Bart & Associates, LLC | | (9) | | | | | | | | | | | | | | | | | McLean, VA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.58 | % | | | 8/16/2024 | | 8/16/2030 | | High Tech Industries | | $ | 8,920,366 | | | 8,770,557 | | | 8,875,764 | | 2.40 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.58 | % | | | 8/16/2024 | | 8/16/2030 | | | | | 104,668 | | | 104,668 | | | 104,145 | | 0.03 | % | |
| B&A Partners Holding, LLC Series A Preferred Units | | | | Equity | | | | | | | | | | | 8/16/2024 | | | | | | | 418,671 | | | 418,671 | | | 393,458 | | 0.11 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,293,896 | | $ | 9,373,367 | | 2.54 | % | |
| BL Products Parent, L.P. | | | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 2/1/2022 | | | | Capital Equipment | | | 879,060 | | | 983,608 | | | 1,443,497 | | 0.39 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 983,608 | | $ | 1,443,497 | | 0.39 | % | |
| Caf Valley, Inc. | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 7.24 | % | 2.00 | % | 11.57 | % | | | 8/28/2019 | | 8/28/2026 | | Beverage & Food | | $ | 15,372,619 | | | 15,372,618 | | | 15,372,619 | | 4.16 | % | |
| CF Topco LLC Units | | | | Equity | | | | | | | | | | | 8/28/2019 | | | | | | | 9,160 | | | 916,015 | | | 1,801,833 | | 0.49 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,288,633 | | $ | 17,174,452 | | 4.65 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
127
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Camp Profiles LLC | | (9) | | | | | | | | | | | | | | | | | Boston, MA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.73 | % | | | 9/3/2021 | | 9/3/2026 | | Media: Advertising, Printing & Publishing | | $ | 9,916,875 | | | 9,839,972 | | | 9,916,875 | | 2.68 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.00 | % | 9.73 | % | | | 12/3/2024 | | 9/3/2026 | | | | | 2,250,000 | | | 2,217,644 | | | 2,250,000 | | 0.61 | % | |
| CIVC VI-A 829 Blocker, LLC Units | | | | Equity | | | | | | | | | | | 9/3/2021 | | | | | | | 250 | | | 250,000 | | | 770,951 | | 0.21 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,307,616 | | $ | 12,937,826 | | 3.50 | % | |
| Carolinas Buyer, Inc. | | (9) | | | | | | | | | | | | | | | | | Charlotte, NC | | | | | | | | | | | | | |
| Term Loan | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.60 | % | | | 12/20/2024 | | 12/20/2030 | | Beverage & Food | | $ | 6,796,831 | | | 6,677,886 | | | 6,677,886 | | 1.81 | % | |
| Carolinas Holdings, L.P. Class A Units | | | | Equity | | | | | | | | | | | 12/20/2024 | | | | | | | 466 | | | 465,637 | | | 465,633 | | 0.13 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,143,523 | | $ | 7,143,519 | | 1.94 | % | |
| CEATI International Inc. | | (7)(9) | | | | | | | | | | | | | | | | | Montreal, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.33 | % | | | 2/19/2021 | | 12/31/2027 | | Services: Business | | $ | 8,439,915 | | | 8,394,322 | | | 8,439,915 | | 2.28 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.35 | % | | | 12/20/2024 | | 12/31/2027 | | | | | 3,200,000 | | | 3,171,714 | | | 3,200,000 | | 0.87 | % | |
| CEATI Holdings, LP Class A Units | | (6) | | Equity | | | | | | | | | | | 2/19/2021 | | | | | | | 250,000 | | | 132,919 | | | 272,853 | | 0.07 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,698,955 | | $ | 11,912,768 | | 3.22 | % | |
| Cerebro Buyer, LLC | | (9) | | | | | | | | | | | | | | | | | Columbia, SC | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 9.36 | % | | | 3/15/2023 | | 3/15/2029 | | Healthcare & Pharmaceuticals | | $ | 4,526,683 | | | 4,439,292 | | | 4,526,683 | | 1.22 | % | |
| Cerebro Holdings Partnership, L.P. Series A Partner Interests | | | | Equity | | | | | | | | | | | 3/15/2023 | | | | | | | 62,961 | | | 62,961 | | | 71,365 | | 0.02 | % | |
| Cerebro Holdings Partnership, L.P. Series B Partner Interests | | (6) | | Equity | | | | | | | | | | | 3/15/2023 | | | | | | | 341,091 | | | 333,925 | | | 386,619 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,836,178 | | $ | 4,984,667 | | 1.34 | % | |
| CF Arch Holdings LLC | | | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 8/10/2022 | | | | Services: Business | | | 100,000 | | | 100,000 | | | 197,987 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 100,000 | | $ | 197,987 | | 0.05 | % | |
| CF512, Inc. | | (9) | | | | | | | | | | | | | | | | | Blue Bell, PA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.69 | % | | | 9/1/2021 | | 9/1/2026 | | Media: Advertising, Printing & Publishing | | $ | 13,360,125 | | | 13,256,520 | | | 13,293,324 | | 3.59 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.52 | % | | | 9/1/2021 | | 9/1/2026 | | | | | 2,885,002 | | | 2,873,374 | | | 2,870,577 | | 0.78 | % | |
| StellPen Holdings, LLC Membership Interests | | | | Equity | | | | | | | | | | | 9/1/2021 | | | | | | | 220,930 | | | 220,930 | | | 181,659 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,350,824 | | $ | 16,345,560 | | 4.42 | % | |
| Channel Partners Intermediateco, LLC | | (9) | | | | | | | | | | | | | | | | | Tampa Bay, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 7.00 | % | 2.00 | % | 11.93 | % | | | 2/24/2022 | | 2/7/2027 | | Retail | | $ | 13,117,995 | | | 13,054,902 | | | 12,986,815 | | 3.51 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 7.00 | % | 2.00 | % | 11.93 | % | | | 3/27/2023 | | 2/7/2027 | | | | | 1,672,682 | | | 1,662,516 | | | 1,655,955 | | 0.45 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 7.00 | % | 2.00 | % | 11.44 | % | | | 2/24/2022 | | 2/7/2027 | | | | | 81,667 | | | 81,667 | | | 80,850 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,799,085 | | $ | 14,723,620 | | 3.98 | % | |
| CompleteCase, LLC | | (9) | | | | | | | | | | | | | | | | | Seattle, WA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.98 | % | | | 12/21/2020 | | 12/21/2025 | | Services: Consumer | | $ | 6,584,450 | | | 6,553,762 | | | 6,551,528 | | 1.77 | % | |
| CompleteCase Holdings, Inc. Class A Common Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 12/21/2020 | | | | | | | 417 | | | 5 | | | 1 | | 0.00 | % | |
| CompleteCase Holdings, Inc. Series A Preferred Stock (SBIC II) | | (5) | | Equity | | | | | | | | | | | 12/21/2020 | | | | | | | 522 | | | 521,734 | | | 137,569 | | 0.04 | % | |
| CompleteCase Holdings, Inc. Class A Common Stock | | | | Equity | | | | | | | | | | | 4/27/2023 | | | | | | | 89 | | | 1 | | | - | | 0.00 | % | |
| CompleteCase Holdings, Inc. Series C Preferred Stock | | | | Equity | | | | | | | | | | | 4/27/2023 | | | | | | | 111 | | | 111,408 | | | 29,376 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,186,910 | | $ | 6,718,474 | | 1.82 | % | |
| Compost 360 Acquisition, LLC | | (9) | | | | | | | | | | | | | | | | | Tampa, FL | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 8/2/2023 | | 8/2/2028 | | Environmental Industries | | $ | 9,475,162 | | | 9,289,539 | | | 9,190,907 | | 2.48 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 8/2/2023 | | 8/2/2028 | | | | | 1,037,841 | | | 1,024,868 | | | 1,006,706 | | 0.27 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 8/2/2023 | | 8/2/2028 | | | | | 86,000 | | | 86,000 | | | 83,420 | | 0.02 | % | |
| Compost 360 Investments, LLC Class A Units | | | | Equity | | | | | | | | | | | 8/2/2023 | | | | | | | 3,124 | | | 300,041 | | | 222,957 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,700,448 | | $ | 10,503,990 | | 2.83 | % | |
| COPILOT Provider Support Services, LLC | | (9) | | | | | | | | | | | | | | | | | Maitland, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.98 | % | | | 11/22/2022 | | 11/22/2027 | | Healthcare & Pharmaceuticals | | $ | 4,887,500 | | | 4,823,845 | | | 4,863,063 | | 1.31 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.98 | % | | | 11/22/2022 | | 11/22/2027 | | | | | 28,333 | | | 28,333 | | | 28,191 | | 0.01 | % | |
| QHP Project Captivate Blocker, Inc. Common Stock | | | | Equity | | | | | | | | | | | 11/22/2022 | | | | | | | 4 | | | 285,714 | | | 184,176 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,137,892 | | $ | 5,075,430 | | 1.37 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
128
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Craftable Intermediate II Inc. | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 10.83 | % | | | 6/30/2023 | | 6/30/2028 | | High Tech Industries | | $ | 9,982,878 | | | 9,830,912 | | | 9,982,878 | | 2.70 | % | |
| Gauge Craftable LP Partnership Interests | | | | Equity | | | | | | | | | | | 6/30/2023 | | | | | | | 626,690 | | | 626,690 | | | 991,476 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,457,602 | | $ | 10,974,354 | | 2.97 | % | |
| Curion Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Chicago, IL | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.73 | % | | | 7/29/2022 | | 7/29/2027 | | Services: Business | | $ | 12,766,151 | | | 12,619,342 | | | 12,702,320 | | 3.43 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.73 | % | | | 7/29/2022 | | 7/29/2027 | | | | | 86,211 | | | 86,211 | | | 85,780 | | 0.02 | % | |
| SP CS Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 7/29/2022 | | | | | | | 739,999 | | | 739,999 | | | 795,702 | | 0.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,445,552 | | $ | 13,583,802 | | 3.67 | % | |
| DRS Holdings III, Inc. | | (9) | | | | | | | | | | | | | | | | | St. Louis, MO | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.00 | % | 10.71 | % | | | 11/1/2019 | | 11/1/2025 | | Consumer Goods: Durable | | $ | 8,586,464 | | | 8,571,140 | | | 8,586,464 | | 2.32 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,571,140 | | $ | 8,586,464 | | 2.32 | % | |
| DTE Holding Company, LLC | | | | | | | | | | | | | | | | | | | Roselle, IL | | | | | | | | | | | | | |
| Class A-2 Units | | | | Equity | | | | | | | | | | | 4/13/2018 | | | | Energy: Oil & Gas | | | 776,316 | | | 466,204 | | | - | | 0.00 | % | |
| Class AA Units | | | | Equity | | | | | | | | | | | 4/13/2018 | | | | | | | 723,684 | | | 723,684 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,189,888 | | $ | - | | 0.00 | % | |
| EHI Buyer, Inc. | | | | | | | | | | | | | | | | | | | Grand Prarie, TX | | | | | | | | | | | | | |
| EHI Group Holdings, L.P. Class A Units | | (6) | | Equity | | | | | | | | | | | 7/31/2023 | | | | Environmental Industries | | | 618 | | | 430,653 | | | 1,073,808 | | 0.29 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 430,653 | | $ | 1,073,808 | | 0.29 | % | |
| Elliott Aviation, LLC | | | | | | | | | | | | | | | | | | | Moline, IL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 10.51 | % | 2.00 | % | 1/31/2020 | | 6/30/2025 | | Aerospace & Defense | | $ | 8,712,311 | | | 8,709,082 | | | 8,276,695 | | 2.24 | % | |
| Term Loan | | | | Unsecured | | | 15.00 | % | - | % | - | % | 15.00 | % | 10/26/2023 | | 1/31/2026 | | | | | 65,807 | | | 65,807 | | | 49,355 | | 0.01 | % | |
| Revolver A | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 10.51 | % | 2.00 | % | 1/31/2020 | | 6/30/2025 | | | | | 1,439,463 | | | 1,439,463 | | | 1,367,490 | | 0.37 | % | |
| Revolver B | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 10.51 | % | 2.00 | % | 3/1/2023 | | 6/30/2025 | | | | | 677,843 | | | 677,843 | | | 643,951 | | 0.17 | % | |
| SP EA Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 1/31/2020 | | | | | | | 1,048,896 | | | 901,489 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,793,684 | | $ | 10,337,491 | | 2.79 | % | |
| EOS Fitness Holdings, LLC | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Class A Preferred Units | | | | Equity | | | | | | | | | | | 12/30/2014 | | | | Hotel, Gaming, & Leisure | | | 118 | | | - | | | - | | 0.00 | % | |
| Class B Common Units | | | | Equity | | | | | | | | | | | 12/30/2014 | | | | | | | 3,017 | | | - | | | 889,366 | | 0.24 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 889,366 | | 0.24 | % | |
| Equine Network, LLC | | (9) | | | | | | | | | | | | | | | | | Boulder, CO | | | | | | | | | | | | | |
| Term A Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 11.28 | % | | | 5/22/2023 | | 5/22/2028 | | Hotel, Gaming, & Leisure | | $ | 7,020,201 | | | 6,881,178 | | | 7,020,201 | | 1.90 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.97 | % | | | 5/22/2023 | | 5/22/2028 | | | | | 133,333 | | | 133,333 | | | 133,333 | | 0.04 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 11.35 | % | | | 5/22/2023 | | 5/22/2028 | | | | | 99,150 | | | 99,150 | | | 99,150 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,113,661 | | $ | 7,252,684 | | 1.97 | % | |
| Eskola LLC | | (9) | | | | | | | | | | | | | | | | | Morristown, TN | | | | | | | | | | | | | |
| Last Out Term Loan | | (10)(12) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 9.96 | % | | | 12/19/2024 | | 12/19/2029 | | Construction & Building | | $ | 7,558,348 | | | 7,426,077 | | | 7,426,077 | | 2.01 | % | |
| Last Out Delayed Draw Term Loan | | (10)(12) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.50 | % | 9.94 | % | | | 12/19/2024 | | 12/19/2029 | | | | | 2,798,784 | | | 2,777,793 | | | 2,749,805 | | 0.74 | % | |
| Eskola Holdings, LLC Class A Units | | | | Equity | | | | | | | | | | | 12/19/2024 | | | | | | | 314 | | | 893,991 | | | 893,738 | | 0.24 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,097,861 | | $ | 11,069,620 | | 2.99 | % | |
| evolv Consulting, LLC | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 11.09 | % | | | 12/7/2023 | | 12/7/2028 | | Services: Business | | $ | 9,900,000 | | | 9,733,850 | | | 9,850,500 | | 2.66 | % | |
| evolv Holdco, LLC Preferred Units | | | | Equity | | | | | | | | | | | 12/7/2023 | | | | | | | 473,485 | | | 473,485 | | | 430,948 | | 0.12 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,207,335 | | $ | 10,281,448 | | 2.78 | % | |
| Evriholder Acquisition, Inc. | | (9) | | | | | | | | | | | | | | | | | Anaheim, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 11.23 | % | | | 1/23/2023 | | 1/24/2028 | | Consumer Goods: Durable | | $ | 12,426,869 | | | 12,213,973 | | | 12,426,869 | | 3.36 | % | |
| KEJ Holdings LP Class A Units | | | | Equity | | | | | | | | | | | 1/23/2023 | | | | | | | 873,333 | | | 873,333 | | | 1,376,994 | | 0.37 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,087,306 | | $ | 13,803,863 | | 3.73 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
129
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Exacta Land Surveyors, LLC | | (20) | | | | | | | | | | | | | | | | | Cleveland, OH | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.50 | % | 10.23 | % | 1.00 | % | 2/8/2019 | | 7/31/2025 | | Services: Business | | $ | 16,313,133 | | | 16,313,132 | | | 15,334,344 | | 4.16 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5..75 | % | 1.50 | % | 10.23 | % | 1.00 | % | 7/15/2022 | | 7/31/2025 | | | | | 991,945 | | | 991,945 | | | 932,428 | | 0.25 | % | |
| Term Loan | | | | Unsecured | | | | | | | | | 15.00 | % | 4/22/2024 | | 6/30/2026 | | | | | 100,211 | | | 100,211 | | | 80,169 | | 0.02 | % | |
| SP ELS Holdings LLC Class A Units | | | | Equity | | | | | | | | | | | 2/8/2019 | | | | | | | 1,338,661 | | | 1,124,414 | | | 227,350 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 18,529,702 | | $ | 16,574,291 | | 4.49 | % | |
| Exigo, LLC | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.00 | % | 10.71 | % | | | 3/16/2022 | | 3/16/2027 | | Services: Business | | $ | 8,721,980 | | | 8,657,351 | | | 8,678,370 | | 2.36 | % | |
| Gauge Exigo Coinvest, LLC Common Units | | | | Equity | | | | | | | | | | | 3/16/2022 | | | | | | | 377,535 | | | 377,535 | | | 353,743 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,034,886 | | $ | 9,032,113 | | 2.46 | % | |
| FairWave Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Kansas City, MO | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 10.83 | % | | | 4/1/2024 | | 4/1/2029 | | Beverage & Food | | $ | 7,558,150 | | | 7,406,992 | | | 7,444,778 | | 2.01 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 10.83 | % | | | 4/1/2024 | | 4/1/2029 | | | | | 656,817 | | | 656,817 | | | 646,965 | | 0.17 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 10.83 | % | | | 4/1/2024 | | 4/1/2029 | | | | | 1,688,532 | | | 1,669,955 | | | 1,663,204 | | 0.45 | % | |
| GRC Java Holdings, LLC Class A Units | | | | Equity | | | | | | | | | | | 4/1/2024 | | | | | | | 2,856 | | | 285,572 | | | 371,158 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,019,336 | | $ | 10,126,105 | | 2.73 | % | |
| FiscalNote Boards LLC | | (7)(9) | | | | | | | | | | | | | | | | | Toronto, Canada | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 9.61 | % | | | 3/11/2024 | | 3/12/2029 | | Services: Business | | $ | 4,279,247 | | | 4,204,427 | | | 4,193,662 | | 1.13 | % | |
| FCP-Connect Holdings LLC Class A Common Shares | | | | Equity | | | | | | | | | | | 5/28/2024 | | | | | | | 284 | | | - | | | - | | 0.00 | % | |
| FCP-Connect Holdings LLC Series A Preferred Shares | | | | Equity | | | | | | | | | | | 5/28/2024 | | | | | | | 284 | | | 190,382 | | | 218,894 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,394,809 | | $ | 4,412,556 | | 1.19 | % | |
| Florachem Corporation | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 4/29/2022 | | 4/29/2028 | | Chemicals, Plastics, & Rubber | | $ | 9,750,000 | | | 9,630,079 | | | 9,750,000 | | 2.64 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 4/29/2022 | | 4/29/2028 | | | | | 66,667 | | | 66,667 | | | 66,667 | | 0.02 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 4/29/2022 | | 4/29/2028 | | | | | 53,213 | | | 53,213 | | | 53,213 | | 0.01 | % | |
| SK FC Holdings, L.P. Class A Units | | | | Equity | | | | | | | | | | | 4/29/2022 | | | | | | | 362 | | | 362,434 | | | 613,507 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,112,393 | | $ | 10,483,387 | | 2.84 | % | |
| General LED OPCO, LLC | | | | | | | | | | | | | | | | | | | San Antonio, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | Second Lien | | 3M SOFR+ | 9.00 | % | 1.50 | % | 13.43 | % | | | 5/1/2018 | | 3/31/2026 | | Services: Business | | $ | 4,500,000 | | | 4,484,133 | | | 4,410,000 | | 1.19 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,484,133 | | $ | 4,410,000 | | 1.19 | % | |
| Green Intermediateco II, Inc. | | | | | | | | | | | | | | | | | | | Irvine, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 10.33 | % | | | 8/8/2023 | | 8/8/2028 | | High Tech Industries | | $ | 11,030,624 | | | 10,814,754 | | | 10,920,318 | | 2.95 | % | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.00 | % | 2.00 | % | 10.36 | % | | | 11/6/2024 | | 8/8/2028 | | | | | 1,296,750 | | | 1,271,726 | | | 1,283,783 | | 0.35 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 10.33 | % | | | 8/8/2023 | | 8/8/2028 | | | | | 404,046 | | | 399,952 | | | 400,006 | | 0.11 | % | |
| Green Topco Holdings, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 8/8/2023 | | | | | | | 271,401 | | | 219,664 | | | 362,217 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,706,096 | | $ | 12,966,324 | | 3.51 | % | |
| GS HVAM Intermediate, LLC | | (9) | | | | | | | | | | | | | | | | | Carlsbad, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 11.24 | % | | | 10/18/2019 | | 2/28/2026 | | Beverage & Food | | $ | 12,260,275 | | | 12,251,602 | | | 12,260,275 | | 3.31 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 11.16 | % | | | 10/18/2019 | | 2/28/2026 | | | | | 2,174,242 | | | 2,174,242 | | | 2,174,242 | | 0.59 | % | |
| HV GS Acquisition, LP Class A Interests | | (6) | | Equity | | | | | | | | | | | 10/2/2019 | | | | | | | 2,144 | | | 563,209 | | | 4,852,169 | | 1.31 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,989,053 | | $ | 19,286,686 | | 5.21 | % | |
| Guidant Corp. | | (9) | | | | | | | | | | | | | | | | | Erie, PA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 3/11/2024 | | 3/12/2029 | | Energy: Oil & Gas | | $ | 9,954,000 | | | 9,648,493 | | | 9,954,000 | | 2.69 | % | |
| Titan Meter Topco LP Class A Units | | | | Equity | | | | | | | | | | | 3/11/2024 | | | | | | | 515,578 | | | 515,578 | | | 774,031 | | 0.21 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,164,071 | | $ | 10,728,031 | | 2.90 | % | |
| Heartland Business Systems, LLC | | | | | | | | | | | | | | | | | | | Little Chute, WI | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.73 | % | | | 8/26/2022 | | 8/26/2027 | | Services: Business | | $ | 9,775,000 | | | 9,658,966 | | | 9,775,000 | | 2.64 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.73 | % | | | 8/26/2022 | | 8/26/2027 | | | | | 49,125 | | | 48,799 | | | 49,125 | | 0.01 | % | |
| AMCO HBS Holdings, LP Class A Units | | (6) | | Equity | | | | | | | | | | | 8/26/2022 | | | | | | | 2,861 | | | 219,823 | | | 616,165 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,927,588 | | $ | 10,440,290 | | 2.82 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
130
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Husk AcquireCo Inc. | | | | | | | | | | | | | | | | | | | Vaughan, Canada | | | | | | | | | | | | | |
| Term Loan | | (7)(11) | | First Lien | | 6M SOFR+ | 5.75 | % | 1.50 | % | 10.16 | % | | | 11/14/2024 | | 11/15/2029 | | Beverage & Food | | $ | 5,317,225 | | | 5,239,463 | | | 5,239,463 | | 1.42 | % | |
| SK Spectra Holdings LP Class A Units | | | | Equity | | | | | | | | | | | 11/15/2024 | | | | | | | 298 | | | 297,765 | | | 297,765 | | 0.08 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,537,228 | | $ | 5,537,228 | | 1.50 | % | |
| HV Watterson Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Schaumburg, IL | | | | | | | | | | | | | |
| Term Loan | | | | First Lien | | | 12.00 | % | - | % | 8.00 | % | 4.00 | % | 12/17/2021 | | 12/17/2026 | | Services: Business | | $ | 13,372,834 | | | 13,256,191 | | | 13,105,377 | | 3.54 | % | |
| Revolver | | | | First Lien | | | 12.00 | % | - | % | 8.00 | % | 4.00 | % | 12/17/2021 | | 12/17/2026 | | | | | 97,994 | | | 97,994 | | | 96,034 | | 0.03 | % | |
| Delayed Draw Term Loan | | | | First Lien | | | 12.00 | % | - | % | 8.00 | % | 4.00 | % | 12/17/2021 | | 12/17/2026 | | | | | 324,861 | | | 323,234 | | | 318,364 | | 0.09 | % | |
| HV Watterson Parent, LLC Class A Units | | | | Equity | | | | | | | | | | | 12/17/2021 | | | | | | | 1,632 | | | 1,631,591 | | | 394,674 | | 0.11 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,309,010 | | $ | 13,914,449 | | 3.77 | % | |
| I2P Holdings, LLC | | | | | | | | | | | | | | | | | | | Cleveland, OH | | | | | | | | | | | | | |
| Series A Preferred Units | | | | Equity | | | | | | | | | | | 1/31/2018 | | | | Services: Business | | | 750,000 | | | - | | | 3,618,142 | | 0.98 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | - | | $ | 3,618,142 | | 0.98 | % | |
| Impact Home Services LLC | | (9) | | | | | | | | | | | | | | | | | Tampa, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 4/28/2023 | | 4/28/2028 | | Services: Consumer | | $ | 5,847,846 | | | 5,740,907 | | | 5,643,171 | | 1.53 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 10/11/2023 | | 4/28/2028 | | | | | 532,972 | | | 522,558 | | | 514,318 | | 0.14 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 6/30/2023 | | 4/28/2028 | | | | | 265,811 | | | 260,822 | | | 256,508 | | 0.07 | % | |
| Revolver | | (11)(27) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.83 | % | | | 4/28/2023 | | 4/28/2028 | | | | | 82,500 | | | 82,500 | | | 79,613 | | 0.02 | % | |
| Impact Holdings Georgia LLC Class A Units | | | | Equity | | | | | | | | | | | 4/28/2023 | | | | | | | 375 | | | 375,156 | | | - | | 0.00 | % | |
| Impact Holdings Georgia LLC Class A-1 Units | | | | Equity | | | | | | | | | | | 1/31/2024 | | | | | | | 38 | | | 37,962 | | | 23,001 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,019,905 | | $ | 6,516,611 | | 1.77 | % | |
| Infolinks Media Buyco, LLC | | | | | | | | | | | | | | | | | | | Ridgewood, NJ | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.83 | % | | | 11/1/2021 | | 11/1/2026 | | Media: Advertising, Printing & Publishing | | $ | 7,168,033 | | | 7,107,521 | | | 7,168,033 | | 1.94 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.83 | % | | | 6/6/2024 | | 11/1/2026 | | | | | 2,440,641 | | | 2,411,660 | | | 2,440,641 | | 0.66 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.83 | % | | | 11/1/2021 | | 11/1/2026 | | | | | 1,462,725 | | | 1,453,825 | | | 1,462,725 | | 0.40 | % | |
| Tower Arch Infolinks Media, LP LP Interests | | (6)(15) | | Equity | | | | | | | | | | | 10/28/2021 | | | | | | | 452,781 | | | 208,809 | | | 682,924 | | 0.18 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,181,815 | | $ | 11,754,323 | | 3.18 | % | |
| Informativ, LLC | | (9) | | | | | | | | | | | | | | | | | Fresno, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.98 | % | | | 7/30/2021 | | 7/30/2026 | | High Tech Industries | | $ | 8,394,781 | | | 8,335,177 | | | 8,394,781 | | 2.27 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.98 | % | | | 3/31/2022 | | 7/30/2026 | | | | | 6,328,624 | | | 6,277,694 | | | 6,328,624 | | 1.71 | % | |
| Credit Connection Holdings, LLC Series A Units | | | | Equity | | | | | | | | | | | 7/30/2021 | | | | | | | 804,384 | | | 804,384 | | | 1,456,662 | | 0.39 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,417,255 | | $ | 16,180,067 | | 4.37 | % | |
| Inoapps Bidco, LLC | | (9) | | | | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | | | |
| Term Loan B | | (11) | | First Lien | | 3M SONIA+ | 5.75 | % | 1.00 | % | 10.56 | % | | | 2/15/2022 | | 2/15/2027 | | High Tech Industries | | | 9,750,000 | | $ | 13,094,801 | | $ | 12,114,950 | | 3.28 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.75 | % | 1.00 | % | 10.22 | % | | | 2/15/2022 | | 2/15/2027 | | | | | 80,000 | | | 80,000 | | | 80,000 | | 0.02 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 1.00 | % | 10.60 | % | | | 2/15/2022 | | 2/15/2027 | | | | | 81,458 | | | 81,032 | | | 81,458 | | 0.02 | % | |
| Inoapps Holdings, LLC Series A-1 Preferred Units | | | | Equity | | | | | | | | | | | 2/15/2022 | | | | | | | 739,844 | | | 783,756 | | | 1,001,613 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 14,039,589 | | $ | 13,278,021 | | 3.59 | % | |
| iNovex Information Systems Incorporated | | (9) | | | | | | | | | | | | | | | | | Columbia, MD | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 9.63 | % | | | 12/17/2024 | | 12/17/2030 | | Services: Business | | $ | 7,522,184 | | | 7,409,351 | | | 7,409,351 | | 2.00 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 9.61 | % | | | 12/17/2024 | | 12/17/2030 | | | | | 28,000 | | | 28,000 | | | 27,580 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,437,351 | | $ | 7,436,931 | | 2.01 | % | |
| Invincible Boat Company LLC | | | | | | | | | | | | | | | | | | | Opa Locka, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 12.01 | % | | | 8/28/2019 | | 12/31/2026 | | Consumer Goods: Durable | | $ | 5,342,606 | | | 5,328,007 | | | 5,182,328 | | 1.40 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 12.01 | % | | | 8/28/2019 | | 12/31/2026 | | | | | 4,931,637 | | | 4,918,069 | | | 4,783,688 | | 1.29 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 12.01 | % | | | 6/1/2021 | | 12/31/2026 | | | | | 1,096,691 | | | 1,092,703 | | | 1,063,790 | | 0.29 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.50 | % | 12.01 | % | | | 8/28/2019 | | 12/31/2026 | | | | | 1,063,830 | | | 1,063,830 | | | 1,031,915 | | 0.28 | % | |
| Warbird Parent Holdco, LLC Class A Units | | | | Equity | | | | | | | | | | | 8/28/2019 | | | | | | | 1,362,575 | | | 1,299,691 | | | 367,676 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,702,300 | | $ | 12,429,397 | | 3.36 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
131
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| J.R. Watkins, LLC | | | | | | | | | | | | | | | | | | | San Francisco,CA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(19) | | First Lien | | | 12.00 | % | - | % | - | % | - | % | 12/22/2017 | | 5/3/2026 | | Consumer Goods: Non-Durable | | $ | 13,597,208 | | | 13,597,207 | | | 2,855,414 | | 0.77 | % | |
| Revolver (SBIC) | | (4)(9)(19) | | First Lien | | | 5.00 | % | - | % | - | % | - | % | 5/3/2024 | | 5/3/2026 | | | | | 1,125,000 | | | 1,125,000 | | | 236,250 | | 0.06 | % | |
| J.R. Watkins Holdings, Inc. Class A Preferred Stock | | | | Equity | | | | | | | | | | | 12/22/2017 | | | | | | | 1,133 | | | 1,132,576 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,854,783 | | $ | 3,091,664 | | 0.83 | % | |
| Ledge Lounger, Inc. | | (9) | | | | | | | | | | | | | | | | | Katy, TX | | | | | | | | | | | | | |
| Term Loan A (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | 1.00 | % | 11/9/2021 | | 11/9/2027 | | Consumer Goods: Durable | | $ | 7,439,791 | | | 7,376,964 | | | 7,030,602 | | 1.90 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | 1.00 | % | 11/9/2021 | | 11/9/2027 | | | | | 58,443 | | | 58,443 | | | 55,229 | | 0.01 | % | |
| SP L2 Holdings LLC Class A Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 11/9/2021 | | | | | | | 375,000 | | | 375,000 | | | - | | 0.00 | % | |
| SP L2 Holdings LLC Class C Units (SBIC) | | (4) | | Equity | | | | | | | | | | | 10/9/2024 | | | | | | | 140,834 | | | 34,504 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,844,911 | | $ | 7,085,831 | | 1.91 | % | |
| Lightning Intermediate II, LLC | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 6M SOFR+ | 6.50 | % | 1.00 | % | 11.03 | % | | | 6/6/2022 | | 6/6/2027 | | Consumer Goods: Non-Durable | | $ | 12,899,115 | | | 12,758,237 | | | 12,834,619 | | 3.47 | % | |
| Gauge Vimergy Coinvest, LLC Units | | | | Equity | | | | | | | | | | | 6/6/2022 | | | | | | | 399 | | | 391,274 | | | 125,618 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,149,511 | | $ | 12,960,237 | | 3.50 | % | |
| Luxium Solutions, LLC | | | | | | | | | | | | | | | | | | | Deerfield, OH | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 5/10/2024 | | 12/1/2027 | | High Tech Industries | | $ | 8,252,261 | | | 8,147,122 | | | 8,211,000 | | 2.22 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 5/10/2024 | | 12/1/2027 | | | | | 1,194,249 | | | 1,186,357 | | | 1,188,278 | | 0.32 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,333,479 | | $ | 9,399,278 | | 2.54 | % | |
| MacKenzie-Childs Acquisition, Inc. | | (9) | | | | | | | | | | | | | | | | | Aurora, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.48 | % | | | 9/2/2022 | | 9/2/2027 | | Consumer Goods: Durable | | $ | 88,553 | | | 87,756 | | | 88,553 | | 0.02 | % | |
| MacKenzie-Childs Investment, LP Partnership Interests | | | | Equity | | | | | | | | | | | 9/2/2022 | | | | | | | 100,000 | | | 100,000 | | | 100,282 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 187,756 | | $ | 188,835 | | 0.05 | % | |
| Madison Logic Holdings, Inc. | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.00 | % | 1.00 | % | 11.34 | % | | | 12/30/2022 | | 12/30/2028 | | Media: Advertising, Printing & Publishing | | $ | 3,579,241 | | | 3,507,484 | | | 3,471,864 | | 0.94 | % | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 7.50 | % | 1.00 | % | | | 11.84 | % | 12/30/2022 | | 12/30/2028 | | | | | 894,810 | | | 876,871 | | | 867,966 | | 0.23 | % | |
| BC Partners Glengarry Co-Investment LP Class 1 Interests | | (6) | | Equity | | | | | | | | | | | 7/7/2023 | | | | | | | 394,767 | | | 394,767 | | | 214,870 | | 0.06 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,779,122 | | $ | 4,554,700 | | 1.23 | % | |
| MBH Management LLC | | (9) | | | | | | | | | | | | | | | | | Washington, DC | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.50 | % | 9.61 | % | | | 11/15/2024 | | 11/15/2029 | | Healthcare & Pharmaceuticals | | $ | 9,476,743 | | | 9,291,975 | | | 9,291,975 | | 2.51 | % | |
| MBH Parent, LLC Common Units | | | | Equity | | | | | | | | | | | 11/15/2024 | | | | | | | 646,944 | | | 646,944 | | | 646,944 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,938,919 | | $ | 9,938,919 | | 2.68 | % | |
| MedLearning Group, LLC | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 3/26/2024 | | 12/30/2027 | | Healthcare & Pharmaceuticals | | $ | 4,306,952 | | | 4,234,800 | | | 4,242,348 | | 1.15 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 2,524,493 | | | 2,482,201 | | | 2,486,626 | | 0.67 | % | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 2,061,314 | | | 2,026,873 | | | 2,030,394 | | 0.55 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.58 | % | | | 3/26/2024 | | 12/30/2027 | | | | | 489,038 | | | 484,148 | | | 481,702 | | 0.13 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,228,022 | | $ | 9,241,070 | | 2.50 | % | |
| Michelli, LLC | | (9) | | | | | | | | | | | | | | | | | New Orleans, LA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 10.08 | % | | | 12/21/2023 | | 12/21/2028 | | Capital Equipment | | $ | 4,950,000 | | | 4,866,492 | | | 4,925,250 | | 1.33 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.75 | % | 2.00 | % | 10.08 | % | | | 12/21/2023 | | 12/21/2028 | | | | | 3,876,499 | | | 3,840,682 | | | 3,857,117 | | 1.04 | % | |
| SP MWM Holdco LLC Class A Units | | | | Equity | | | | | | | | | | | 12/21/2023 | | | | | | | 509,215 | | | 509,215 | | | 589,463 | | 0.16 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,216,389 | | $ | 9,371,830 | | 2.53 | % | |
| Microbe Formulas LLC | | (9) | | | | | | | | | | | | | | | | | Meridian, ID | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.75 | % | 1.00 | % | 10.21 | % | | | 4/4/2022 | | 4/3/2028 | | Consumer Goods: Non-Durable | | $ | 7,575,773 | | | 7,530,069 | | | 7,575,773 | | 2.05 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 1M SOFR+ | 5.75 | % | 1.00 | % | 10.22 | % | | | 11/20/2024 | | 4/3/2028 | | | | | 4,254,419 | | | 4,233,579 | | | 4,254,419 | | 1.15 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,763,648 | | $ | 11,830,192 | | 3.20 | % | |
| MOM Enterprises, LLC | | (9) | | | | | | | | | | | | | | | | | Richmond, CA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.48 | % | 2.00 | % | 10.81 | % | | | 5/19/2021 | | 5/19/2026 | | Consumer Goods: Non-Durable | | $ | 15,890,333 | | | 15,787,537 | | | 15,810,880 | | 4.27 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.48 | % | 2.00 | % | 10.81 | % | | | 5/19/2021 | | 5/19/2026 | | | | | 37,500 | | | 37,500 | | | 37,313 | | 0.01 | % | |
| MBliss SPC Holdings, LLC Units | | | | Equity | | | | | | | | | | | 5/19/2021 | | | | | | | 933,333 | | | 933,333 | | | 746,138 | | 0.20 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 16,758,370 | | $ | 16,594,331 | | 4.48 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
132
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Monarch Behavioral Therapy, LLC | | (9) | | | | | | | | | | | | | | | | | Addison, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 9.36 | % | | | 6/6/2024 | | 6/6/2030 | | Healthcare & Pharmaceuticals | | $ | 6,730,812 | | | 6,605,639 | | | 6,663,504 | | 1.80 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 9.34 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 36,136 | | | 36,136 | | | 35,775 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.00 | % | 1.00 | % | 9.36 | % | | | 6/6/2024 | | 6/6/2030 | | | | | 382,715 | | | 378,952 | | | 378,888 | | 0.10 | % | |
| BI Investors, LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 6/6/2024 | | | | | | | 4,286 | | | 424,738 | | | 434,111 | | 0.12 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,445,465 | | $ | 7,512,278 | | 2.03 | % | |
| Monitorus Holding, LLC | | (7) | | | | | | | | | | | | | | | | | London, UK | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 7.00 | % | 1.00 | % | 11.59 | % | | | 5/24/2022 | | 5/24/2027 | | Media: Diversified & Production | | $ | 106,248 | | | 105,711 | | | 105,186 | | 0.03 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 7.00 | % | 1.00 | % | 11.59 | % | | | 5/24/2022 | | 5/24/2027 | | | | | 106,498 | | | 115,781 | | | 114,623 | | 0.03 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 7.00 | % | 1.00 | % | 11.59 | % | | | 5/24/2022 | | 5/24/2027 | | | | | 106,248 | | | 107,237 | | | 106,165 | | 0.03 | % | |
| Sapphire Aggregator S.a r.l. Convertible Bonds | | (14) | | Unsecured | | | 8.00 | % | - | % | - | % | 8.00 | % | 11/15/2023 | | 3/31/2025 | | | | | 6,030 | | | 6,473 | | | 6,216 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Convertible Bonds | | (14) | | Unsecured | | | 8.00 | % | - | % | - | % | 8.00 | % | 3/1/2024 | | 6/30/2025 | | | | | 12,241 | | | 13,291 | | | 12,620 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Convertible Bonds | | (14) | | Unsecured | | | 8.00 | % | - | % | - | % | 8.00 | % | 9/30/2024 | | 12/21/2025 | | | | | 11,629 | | | 13,002 | | | 11,989 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class A Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,689 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class B Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class C Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class D Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class E Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class F Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class G Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class H Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Sapphire Aggregator S.a r.l. Class I Shares | | | | Equity | | | | | | | | | | | 9/1/2022 | | | | | | | 557,682 | | | 11,156 | | | 12,326 | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 461,899 | | $ | 467,733 | | 0.09 | % | |
| Morgan Electrical Group Intermediate Holdings, Inc. | | (9) | | | | | | | | | | | | | | | | | Fremont, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.50 | % | 10.61 | % | | | 8/3/2023 | | 8/3/2029 | | Construction & Building | | $ | 4,395,044 | | | 4,313,186 | | | 4,373,069 | | 1.18 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.25 | % | 1.50 | % | 10.61 | % | | | 8/3/2023 | | 8/3/2029 | | | | | 1,705,604 | | | 1,688,941 | | | 1,697,076 | | 0.46 | % | |
| Morgan Electrical Group Holdings, LLC Series A-2 Preferred Units | | | | Equity | | | | | | | | | | | 8/3/2023 | | | | | | | 380 | | | 380,330 | | | 308,668 | | 0.08 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,382,457 | | $ | 6,378,813 | | 1.72 | % | |
| Naumann/Hobbs Material Handling Corporation II, Inc. | | | | | | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 11.08 | % | | | 8/30/2019 | | 8/30/2025 | | Services: Business | | $ | 8,125,763 | | | 8,116,850 | | | 8,044,505 | | 2.17 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 11.08 | % | | | 8/30/2019 | | 8/30/2025 | | | | | 5,124,136 | | | 5,118,576 | | | 5,072,895 | | 1.37 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.75 | % | 1.50 | % | 11.08 | % | | | 8/30/2019 | | 8/30/2025 | | | | | 1,763,033 | | | 1,763,033 | | | 1,745,403 | | 0.47 | % | |
| Naumann Hobbs Holdings, L.P. Class A-1 Units | | | | Equity | | | | | | | | | | | 9/29/2022 | | | | | | | 123 | | | 220,379 | | | - | | 0.00 | % | |
| Naumann Hobbs Holdings, L.P. Class A-2 Units | | | | Equity | | | | | | | | | | | 9/29/2022 | | | | | | | 123 | | | 220,379 | | | - | | 0.00 | % | |
| Naumann Hobbs Holdings, L.P. Class B Units | | | | Equity | | | | | | | | | | | 12/27/2024 | | | | | | | 142 | | | 142,200 | | | 937,078 | | 0.25 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,581,417 | | $ | 15,799,881 | | 4.26 | % | |
| NINJIO, LLC | | (9) | | | | | | | | | | | | | | | | | Westlake Village, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 11.08 | % | | | 10/12/2022 | | 10/12/2027 | | Media: Diversified & Production | | $ | 4,962,500 | | | 4,900,478 | | | 4,962,500 | | 1.34 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 11.08 | % | | | 10/12/2022 | | 10/12/2027 | | | | | 33,333 | | | 33,333 | | | 33,333 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.50 | % | 11.08 | % | | | 10/12/2022 | | 10/12/2027 | | | | | 100,000 | | | 99,204 | | | 100,000 | | 0.03 | % | |
| NINJIO Holdings, LLC Units | | | | Equity | | | | | | | | | | | 10/12/2022 | | | | | | | 184 | | | 313,253 | | | 314,702 | | 0.09 | % | |
| Gauge NINJIO Blocker LLC Preferred Units | | | | Equity | | | | | | | | | | | 9/22/2023 | | | | | | | 14 | | | 14,470 | | | 56,585 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,360,738 | | $ | 5,467,120 | | 1.49 | % | |
| Norplex Micarta Acquisition, Inc. | | (9) | | | | | | | | | | | | | | | | | Postville, IA | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.84 | % | | | 10/31/2024 | | 10/31/2029 | | Chemicals, Plastics, & Rubber | | $ | 13,000,000 | | | 12,746,682 | | | 12,746,682 | | 3.45 | % | |
| Norplex Micarta Parent, LP Preferred Units | | | | Equity | | | | | | | | | | | 10/31/2024 | | | | | | | 739,804 | | | 739,804 | | | 739,804 | | 0.20 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,486,486 | | $ | 13,486,486 | | 3.65 | % | |
| NS412, LLC | | | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | Second Lien | | 3M SOFR+ | 8.75 | % | 1.00 | % | 13.18 | % | | | 5/6/2019 | | 5/6/2026 | | Services: Consumer | | $ | 7,615,000 | | | 7,589,599 | | | 7,538,850 | | 2.04 | % | |
| NS Group Holding Company, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/6/2019 | | | | | | | 782 | | | 795,002 | | | 598,221 | | 0.16 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,384,601 | | $ | 8,137,071 | | 2.20 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
133
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| NuSource Financial Acquisition, Inc. | | | | | | | | | | | | | | | | | | | Eden Prairie, MN | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5) | | Unsecured | | | 13.75 | % | - | % | 8.00 | % | 5.75 | % | 1/29/2021 | | 1/31/2027 | | Services: Business | | $ | 6,484,567 | | | 6,448,091 | | | 6,452,144 | | 1.74 | % | |
| NuSource Holdings, Inc. Warrants (SBIC II) | | (5) | | Equity | | | | | | | | | | | 1/29/2021 | | | | | | | 54,966 | | | - | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,448,091 | | $ | 6,452,144 | | 1.74 | % | |
| Onpoint Industrial Services, LLC | | | | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 7.00 | % | 1.75 | % | 11.33 | % | | | 11/16/2022 | | 11/16/2027 | | Services: Business | | $ | 12,351,615 | | | 12,190,355 | | | 12,351,615 | | 3.34 | % | |
| Spearhead TopCo, LLC Class A Units | | | | Equity | | | | | | | | | | | 11/16/2022 | | | | | | | 606,742 | | | 606,742 | | | 986,938 | | 0.27 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,797,097 | | $ | 13,338,553 | | 3.61 | % | |
| PCP MT Aggregator Holdings, L.P. | | (7) | | | | | | | | | | | | | | | | | Oak Brook, IL | | | | | | | | | | | | | |
| Common Units | | | | Equity | | | | | | | | | | | 3/29/2019 | | | | Finance | | | 825,020 | | | 119,281 | | | 5,092,459 | | 1.38 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 119,281 | | $ | 5,092,459 | | 1.38 | % | |
| PCS Software, Inc. | | (9) | | | | | | | | | | | | | | | | | Shenandoah, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 10.48 | % | | | 7/1/2019 | | 1/1/2026 | | Transportation & Logistics | | $ | 13,882,311 | | | 13,882,310 | | | 13,812,899 | | 3.73 | % | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 10.48 | % | | | 7/1/2019 | | 1/1/2026 | | | | | 1,820,631 | | | 1,820,631 | | | 1,811,528 | | 0.49 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 10.48 | % | | | 7/1/2019 | | 1/1/2026 | | | | | 571,195 | | | 571,195 | | | 568,339 | | 0.15 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.50 | % | 10.48 | % | | | 7/1/2019 | | 1/1/2026 | | | | | 960,000 | | | 960,000 | | | 955,200 | | 0.26 | % | |
| PCS Software Parent, LLC Class A Common Units | | | | Equity | | | | | | | | | | | 9/16/2022 | | | | | | | 471,211 | | | 9,995 | | | 384,522 | | 0.10 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 17,244,131 | | $ | 17,532,488 | | 4.73 | % | |
| Pearl Media Holdings, LLC | | (24) | | | | | | | | | | | | | | | | | Garland, TX | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.73 | % | | | 8/31/2022 | | 8/31/2027 | | Media: Advertising, Printing & Publishing | | $ | 8,680,556 | | | 8,577,517 | | | 8,593,750 | | 2.32 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,577,517 | | $ | 8,593,750 | | 2.32 | % | |
| Peltram Group Holdings LLC | | | | | | | | | | | | | | | | | | | Auburn, WA | | | | | | | | | | | | | |
| Class A Units | | (6) | | Equity | | | | | | | | | | | 12/30/2021 | | | | Construction & Building | | | 508,516 | | | 492,499 | | | 693,537 | | 0.19 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 492,499 | | $ | 693,537 | | 0.19 | % | |
| Premiere Digital Services, Inc. | | (9) | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.25 | % | 1.00 | % | 9.59 | % | | | 11/3/2021 | | 11/3/2026 | | Media: Broadcasting & Subscription | | $ | 12,196,092 | | | 12,170,577 | | | 12,196,092 | | 3.30 | % | |
| Premiere Digital Holdings, Inc. Common Stock | | | | Equity | | | | | | | | | | | 10/18/2018 | | | | | | | 5,000 | | | - | | | 2,118,619 | | 0.57 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,170,577 | | $ | 14,314,711 | | 3.87 | % | |
| Red's All Natural, LLC | | | | | | | | | | | | | | | | | | | Franklin, TN | | | | | | | | | | | | | |
| Last Out Term Loan (SBIC II) | | (5)(10)(12) | | First Lien | | 3M SOFR+ | 4.50 | % | 1.50 | % | 9.88 | % | | | 1/31/2023 | | 1/31/2029 | | Beverage & Food | | $ | 8,815,327 | | | 8,681,968 | | | 8,815,327 | | 2.38 | % | |
| Centeotl Co-Invest B, LP Common Units | | | | Equity | | | | | | | | | | | 1/31/2023 | | | | | | | 710,600 | | | 710,600 | | | 818,825 | | 0.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,392,568 | | $ | 9,634,152 | | 2.60 | % | |
| RIA Advisory Borrower, LLC | | (9) | | | | | | | | | | | | | | | | | Coral Gables, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 11.22 | % | | | 5/1/2023 | | 8/2/2027 | | High Tech Industries | | $ | 5,895,000 | | | 5,815,274 | | | 5,895,000 | | 1.59 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 11.22 | % | | | 5/1/2023 | | 8/2/2027 | | | | | 26,114 | | | 26,114 | | | 26,114 | | 0.01 | % | |
| RIA Advisory Aggregator, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/1/2023 | | | | | | | 104,425 | | | 165,078 | | | 127,378 | | 0.03 | % | |
| RIA Products Aggregator, LLC Class A Units | | | | Equity | | | | | | | | | | | 5/1/2023 | | | | | | | 81,251 | | | 78,390 | | | 78,390 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,084,856 | | $ | 6,126,882 | | 1.65 | % | |
| Rogers Mechanical Contractors, LLC | | (9) | | | | | | | | | | | | | | | | | Atlanta, GA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 6M SOFR+ | 6.25 | % | 1.00 | % | 10.91 | % | | | 4/28/2021 | | 9/28/2028 | | Construction & Building | | $ | 8,668,481 | | | 8,619,680 | | | 8,581,796 | | 2.32 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 8,619,680 | | $ | 8,581,796 | | 2.32 | % | |
| Said Intermediate, LLC | | (9) | | | | | | | | | | | | | | | | | Boston, MA | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.00 | % | 9.86 | % | | | 6/13/2024 | | 6/13/2029 | | Media: Advertising, Printing & Publishing | | $ | 7,443,117 | | | 7,307,325 | | | 7,331,470 | | 1.98 | % | |
| FCP-Said Holdings, LLC Class A Common Shares | | | | Equity | | | | | | | | | | | 6/13/2024 | | | | | | | 804 | | | - | | | - | | 0.00 | % | |
| FCP-Said Holdings, LLC Series A Preferred Shares | | | | Equity | | | | | | | | | | | 6/13/2024 | | | | | | | 852 | | | 350,649 | | | 290,102 | | 0.08 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,657,974 | | $ | 7,621,572 | | 2.06 | % | |
| Sales Benchmark Index, LLC | | (9) | | | | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 2.00 | % | 10.53 | % | | | 1/7/2020 | | 7/7/2026 | | Services: Business | | $ | 12,148,958 | | | 12,144,103 | | | 12,148,958 | | 3.28 | % | |
| SBI Holdings Investments LLC Class A Units | | | | Equity | | | | | | | | | | | 1/7/2020 | | | | | | | 66,573 | | | 665,730 | | | 627,734 | | 0.17 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,809,833 | | $ | 12,776,692 | | 3.45 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
134
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Principal | | | | | | | | %of | | |
| | | | | | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| Service Minds Company, LLC | | | | | | | | | | | | | | | | | | | Bradenton, FL | | | | | | | | | | | | | |
| Term Loan | | (11)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 2/7/2022 | | 2/7/2028 | | Services: Consumer | | $ | 5,431,921 | | | 5,373,590 | | | 3,340,631 | | 0.90 | % | |
| Revolver | | (11)(18)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 2/7/2022 | | 2/7/2028 | | | | | 83,533 | | | 83,533 | | | 51,373 | | 0.01 | % | |
| Revolver | | (11)(18)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 7/2/2024 | | 2/7/2028 | | | | | 20,223 | | | 20,223 | | | 20,223 | | 0.01 | % | |
| Revolver | | (11)(18)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 9/13/2024 | | 2/7/2028 | | | | | 20,000 | | | 20,000 | | | 20,000 | | 0.01 | % | |
| Revolver | | (11)(18)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 11/12/2024 | | 2/7/2028 | | | | | 45,000 | | | 45,000 | | | 45,000 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11)(26) | | First Lien | | PRIME+ | 7.50 | % | 1.00 | % | - | % | - | % | 2/7/2022 | | 2/7/2028 | | | | | 99,116 | | | 98,498 | | | 60,956 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,640,844 | | $ | 3,538,183 | | 0.96 | % | |
| TAC LifePort Holdings, LLC | | | | | | | | | | | | | | | | | | | Woodland, WA | | | | | | | | | | | | | |
| Common Units | | (6) | | Equity | | | | | | | | | | | 3/1/2021 | | | | Aerospace & Defense | | | 546,543 | | | 513,825 | | | 804,951 | | 0.22 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 513,825 | | $ | 804,951 | | 0.22 | % | |
| Teckrez, LLC | | (9) | | | | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.75 | % | 2.00 | % | 11.21 | % | | | 5/24/2024 | | 11/30/2028 | | Chemicals, Plastics, & Rubber | | $ | 4,283,396 | | | 4,225,574 | | | 4,261,979 | | 1.15 | % | |
| Revolver | | (11) | | First Lien | | 1M SOFR+ | 6.75 | % | 2.00 | % | 11.21 | % | | | 5/24/2024 | | 11/30/2028 | | | | | 721,110 | | | 721,110 | | | 717,504 | | 0.19 | % | |
| HH-Teckrez Parent, LP Preferred Units | | | | Equity | | | | | | | | | | | | | | | | | | 90,139 | | | 90,139 | | | 127,187 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,036,823 | | $ | 5,106,670 | | 1.37 | % | |
| The Hardenbergh Group, Inc. | | (9) | | | | | | | | | | | | | | | | | Livonia, MI | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.93 | % | | | 8/7/2023 | | 8/7/2028 | | Healthcare & Pharmaceuticals | | $ | 10,370,624 | | | 10,168,144 | | | 10,370,624 | | 2.80 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 2.00 | % | 10.93 | % | | | 9/30/2024 | | 8/7/2028 | | | | | 802,021 | | | 786,798 | | | 802,021 | | 0.22 | % | |
| BV HGI Holdings, L.P. Class A Units | | | | Equity | | | | | | | | | | | 8/7/2023 | | | | | | | 434,504 | | | 434,504 | | | 337,963 | | 0.09 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 11,389,446 | | $ | 11,510,608 | | 3.11 | % | |
| Tiger 21, LLC | | (9) | | | | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.00 | % | 1.00 | % | 9.32 | % | | | 12/30/2024 | | 12/30/2030 | | Services: Consumer | | $ | 12,000,000 | | | 11,760,000 | | | 11,760,000 | | 3.18 | % | |
| Tiger 21 Blocker, Inc. Class A-3 Common Stock | | | | Equity | | | | | | | | | | | 12/30/2024 | | | | | | | 565 | | | 564,635 | | | 564,635 | | 0.15 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 12,324,635 | | $ | 12,324,635 | | 3.33 | % | |
| Tilley Distribution, Inc. | | (9) | | | | | | | | | | | | | | | | | Baltimore, MD | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.00 | % | 1.00 | % | 10.48 | % | | | 4/1/2022 | | 12/31/2026 | | Chemicals, Plastics, & Rubber | | $ | 92,610 | | | 91,943 | | | 89,369 | | 0.02 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 91,943 | | $ | 89,369 | | 0.02 | % | |
| Trade Education Acquisition, L.L.C. | | | | | | | | | | | | | | | | | | | Austin, TX | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(28) | | First Lien | | | - | % | 1.00 | % | - | % | | | 12/28/2021 | | 12/28/2027 | | Education | | $ | 9,944,460 | | | 9,836,078 | | | 5,320,286 | | 1.44 | % | |
| Revolver | | (9)(28) | | First Lien | | 1M SOFR+ | 9.25 | % | 1.00 | % | - | % | | | 12/28/2021 | | 12/28/2027 | | | | | 39,000 | | | 39,000 | | | 20,865 | | 0.01 | % | |
| Trade Education Holdings, L.L.C. Class A Units | | | | Equity | | | | | | | | | | | 12/28/2021 | | | | | | | 662,660 | | | 662,660 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 10,537,738 | | $ | 5,341,151 | | 1.45 | % | |
| TradePending OpCo Aggregator, LLC | | (9) | | | | | | | | | | | | | | | | | Carrboro, NC | | | | | | | | | | | | | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.73 | % | | | 3/2/2021 | | 3/2/2026 | | High Tech Industries | | $ | 9,527,778 | | | 9,473,791 | | | 9,527,778 | | 2.58 | % | |
| Term Loan (SBIC II) | | (5)(11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.73 | % | | | 8/4/2023 | | 3/2/2026 | | | | | 2,436,128 | | | 2,411,250 | | | 2,436,128 | | 0.66 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.73 | % | | | 3/2/2021 | | 3/2/2026 | | | | | 33,333 | | | 33,333 | | | 33,333 | | 0.01 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 2.00 | % | 10.73 | % | | | 8/4/2023 | | 3/2/2026 | | | | | 680,137 | | | 676,477 | | | 680,137 | | 0.18 | % | |
| TradePending Holdings, LLC Series A Units | | (6) | | Equity | | | | | | | | | | | 3/2/2021 | | | | | | | 908,333 | | | 947,699 | | | 1,973,113 | | 0.53 | % | |
| TradePending Holdings, LLC Series A-1 Units | | | | Equity | | | | | | | | | | | 8/4/2023 | | | | | | | 132,783 | | | 260,254 | | | 520,010 | | 0.14 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 13,802,804 | | $ | 15,170,499 | | 4.10 | % | |
| TriplePoint Acquisition Holdings LLC | | (9) | | | | | | | | | | | | | | | | | Columbus, OH | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.83 | % | | | 5/31/2024 | | 5/31/2029 | | Construction & Building | | $ | 5,329,708 | | | 5,232,677 | | | 5,303,059 | | 1.43 | % | |
| TriplePoint Holdco LLC Class A Units | | (6) | | Equity | | | | | | | | | | | 5/31/2024 | | | | | | | 557,968 | | | 549,818 | | | 953,034 | | 0.26 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 5,782,495 | | $ | 6,256,093 | | 1.69 | % | |
| Unicat Catalyst Holdings, LLC | | (21) | | | | | | | | | | | | | | | | | Alvin, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 1M SOFR+ | 6.50 | % | 1.00 | % | 10.96 | % | | | 4/27/2021 | | 4/27/2026 | | Chemicals, Plastics, & Rubber | | $ | 6,843,750 | | | 6,801,773 | | | 6,843,750 | | 1.85 | % | |
| Unicat Catalyst, LLC Class A Units | | | | Equity | | | | | | | | | | | 4/27/2021 | | | | | | | 7,500 | | | 750,000 | | | 819,105 | | 0.22 | % | |
| Unicat Catalyst, LLC Class A-1 Units | | | | Equity | | | | | | | | | | | 12/13/2023 | | | | | | | 701 | | | 38,683 | | | 53,090 | | 0.01 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,590,456 | | $ | 7,715,945 | | 2.08 | % | |
*The accompanying notes are an integral part of these consolidated financial statements.*
135
[Table of Contents](#TOC)
**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investments | | Footnotes | | Security(2) | | Coupon | | Floor | | Cash | | PIK | | Date | | Maturity | | Industry | | Shares(3) | | Cost | | Value(1) | | Assets | | |
| U.S. Expediters, LLC | | (9) | | | | | | | | | | | | | | | | | Stafford, TX | | | | | | | | | | | | | |
| Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.25 | % | 1.00 | % | 10.78 | % | | | 12/22/2021 | | 12/22/2026 | | Healthcare & Pharmaceuticals | | $ | 14,460,123 | | | 14,331,044 | | | 14,315,522 | | 3.87 | % | |
| Cathay Hypnos LLC Units | | | | Equity | | | | | | | | | | | 12/22/2021 | | | | | | | 1,737,087 | | | 1,353,155 | | | 975,688 | | 0.26 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,684,199 | | $ | 15,291,210 | | 4.13 | % | |
| USDTL AcquisitionCo, Inc. | | (9) | | | | | | | | | | | | | | | | | Des Plaines, IL | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.58 | % | | | 12/9/2024 | | 12/9/2030 | | Healthcare & Pharmaceuticals | | $ | 6,000,000 | | | 5,881,196 | | | 5,881,196 | | 1.59 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.25 | % | 1.50 | % | 9.58 | % | | | 12/9/2024 | | 12/9/2030 | | | | | 20,000 | | | 20,000 | | | 19,604 | | 0.01 | % | |
| USDTL Holdings, LLC Preferred Units | | | | Equity | | | | | | | | | | | 12/9/2024 | | | | | | | 110 | | | 110,000 | | | 109,998 | | 0.03 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,011,196 | | $ | 6,010,798 | | 1.63 | % | |
| Venbrook Buyer, LLC | | | | | | | | | | | | | | | | | | | Los Angeles, CA | | | | | | | | | | | | | |
| Term Loan B (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 8.50 | % | 1.50 | % | 5.48 | % | 7.50 | % | 3/13/2020 | | 3/13/2026 | | Services: Business | | $ | 14,603,639 | | | 14,541,079 | | | 13,873,457 | | 3.75 | % | |
| Term Loan B | | (11) | | First Lien | | 3M SOFR+ | 8.50 | % | 1.50 | % | 5.48 | % | 7.50 | % | 3/13/2020 | | 3/13/2026 | | | | | 166,160 | | | 165,448 | | | 157,852 | | 0.04 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 8.50 | % | 1.50 | % | 5.48 | % | 7.50 | % | 3/13/2020 | | 3/13/2026 | | | | | 2,579,814 | | | 2,579,814 | | | 2,450,823 | | 0.66 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 8.50 | % | 1.50 | % | 5.48 | % | 7.50 | % | 3/13/2020 | | 3/13/2026 | | | | | 4,979,640 | | | 4,967,241 | | | 4,730,658 | | 1.28 | % | |
| Venbrook Holdings, LLC Convertible Term Loan | | (14) | | Unsecured | | | 10.00 | % | - | % | - | % | 10.00 | % | 3/31/2022 | | 12/20/2028 | | | | | 108,991 | | | 108,991 | | | - | | 0.00 | % | |
| Venbrook Holdings, LLC Common Units | | | | Equity | | | | | | | | | | | 3/13/2020 | | | | | | | 822,758 | | | 819,262 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 23,181,835 | | $ | 21,212,790 | | 5.73 | % | |
| WER Holdings, LLC | | (9) | | | | | | | | | | | | | | | | | Sugar Hill, GA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 6M SOFR+ | 5.50 | % | 1.00 | % | 9.95 | % | | | 4/11/2024 | | 4/11/2030 | | Services: Business | | $ | 2,690,643 | | | 2,641,658 | | | 2,650,283 | | 0.72 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 5.50 | % | 1.00 | % | 9.83 | % | | | 4/11/2024 | | 4/11/2030 | | | | | 133,870 | | | 133,870 | | | 131,862 | | 0.04 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 1M SOFR+ | 5.50 | % | 1.00 | % | 9.87 | % | | | 4/11/2024 | | 4/11/2030 | | | | | 824,382 | | | 816,172 | | | 812,016 | | 0.22 | % | |
| Blade Landscape Investments, LLC Class A Units | | | | Equity | | | | | | | | | | | | | | | | | | 1,803 | | | 180,300 | | | 192,289 | | 0.05 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 3,772,000 | | $ | 3,786,450 | | 1.03 | % | |
| Whisps Holdings LP | | | | | | | | | | | | | | | | | | | Elgin, IL | | | | | | | | | | | | | |
| Class A Units | | | | Equity | | | | | | | | | | | 4/18/2019 | | | | Beverage & Food | | | 500,000 | | | 500,000 | | | - | | 0.00 | % | |
| Class A-1 Units | | | | Equity | | | | | | | | | | | 3/6/2023 | | | | | | | 182,610 | | | 182,610 | | | - | | 0.00 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 682,610 | | $ | - | | 0.00 | % | |
| Xanitos, Inc. | | (9) | | | | | | | | | | | | | | | | | Newtown Square, PA | | | | | | | | | | | | | |
| Term Loan (SBIC) | | (4)(11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 6/25/2021 | | 6/25/2026 | | Healthcare & Pharmaceuticals | | $ | 12,352,000 | | | 12,267,321 | | | 12,352,000 | | 3.34 | % | |
| Revolver | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 6/25/2021 | | 6/25/2026 | | | | | 140,000 | | | 140,000 | | | 140,000 | | 0.04 | % | |
| Delayed Draw Term Loan | | (11) | | First Lien | | 3M SOFR+ | 6.50 | % | 1.00 | % | 10.98 | % | | | 6/25/2021 | | 6/25/2026 | | | | | 2,176,309 | | | 2,168,201 | | | 2,176,309 | | 0.59 | % | |
| Pure TopCo, LLC Class A Units | | | | Equity | | | | | | | | | | | | | | | | | | 442,133 | | | 1,053,478 | | | 1,245,129 | | 0.34 | % | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,629,000 | | $ | 15,913,438 | | 4.31 | % | |
| Total Non-control, non-affiliated investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 943,853,898 | | $ | 945,845,252 | | 255.69 | % | |
| Total Investments | | | | | | | | | | | | | | | | | | | | | | | | $ | 961,788,706 | | $ | 953,497,688 | | 257.76 | % | |
| LIABILITIES IN EXCESS OF OTHER ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (583,575,748) | | (157.76) | % | |
| NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 369,921,940 | | 100.00 | % | |
| (1) | See Note1 of the Notesto the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio. | |
| (2) | Debt investments are income producing and equity securities are non-income producing, unless otherwise noted. | |
| (3) | Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars ($) unless otherwise noted, Euro (), or Great British Pound (). | |
| (4) | Investments held by the SBIC subsidiary (as defined in Note1), which include $16,925,317 of cash and $240,789,911 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility (as defined in Note9). Stellus Capital Investment Corporations (the Company) obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries (as defined in Note1). | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| (5) | Investments held by the SBIC II subsidiary (as defined in Note 1), which include $2,793,535 of cash and $272,646,904 of investments (at cost), are excluded from the obligations to the lenders of the Credit Facility. The Companys obligations to the lenders of the Credit Facility are secured by a first priority security interest in all investments and cash and cash equivalents, except for cash and investments held by the SBIC subsidiaries. | |
| (6) | Security is non-income producing. | |
| (7) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Companys total assets. Qualifying assets represent approximately 95.2% of the Companys total assets as of December 31, 2024. | |
| (8) | Represents a PIK interest security. At the option of the issuer, interest can be paid in cash or cash and PIK interest. Thepercentage of PIK interest shown is the maximum PIK interest that can be elected by the issuer. | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| (9) | At December 31, 2024, the Company had the following outstanding revolver and delayed draw term loan commitments: | |
| | | | | | | | | | | |
| | | | | | | | Unused | | | |
| | | | | Unfunded | | Commitment | | | |
| Investments | | Security | | Commitment | | Fee | | Maturity | |
| 2X LLC | | Revolver | | $ | 87,500 | | 0.50% | | June 5, 2028 | |
| Ad.Net Acquisition, LLC | | Revolver | | | 444,803 | | 0.50% | | May 7, 2026 | |
| AdCellerant LLC | | Revolver | | | 875,995 | | 0.50% | | December 12, 2028 | |
| ADS Group Opco, LLC | | Revolver | | | 60,149 | | 0.00% | | December 31, 2027 | |
| AGT Robotique Inc. | | Revolver | | | 1,526,600 | | 0.50% | | June 22, 2029 | |
| American Refrigeration, LLC | | Revolver | | | 100,000 | | 0.50% | | March 31, 2028 | |
| AMII Acquisition, LLC | | Revolver | | | 500,000 | | 0.50% | | December 4, 2029 | |
| Amika OpCo LLC * | | Revolver | | | 100,000 | | 0.50% | | July 1, 2028 | |
| Anne Lewis Strategies, LLC | | Revolver | | | 50,000 | | 0.50% | | May 9, 2028 | |
| ArborWorks, LLC | | Revolver | | | 1,325,032 | | 0.00% | | November 6, 2028 | |
| Axis Portable Air LLC | | Revolver | | | 100,000 | | 0.50% | | March 22, 2028 | |
| Bart & Associates, LLC | | Revolver | | | 942,010 | | 0.50% | | August 16, 2030 | |
| Bart & Associates, LLC | | Delayed Draw Term Loan | | | 1,733,387 | | 1.00% | | August 16, 2030 | |
| Camp Profiles LLC | | Revolver | | | 100,000 | | 0.50% | | September 3, 2026 | |
| Carolinas Buyer, Inc. | | Delayed Draw Term Loan | | | 2,216,358 | | 1.00% | | December 20, 2030 | |
| Carolinas Buyer, Inc. | | Revolver | | | 100,000 | | 0.50% | | December 20, 2030 | |
| CEATI International Inc. | | Revolver | | | 100,000 | | 0.50% | | December 31, 2027 | |
| Cerebro Buyer, LLC | | Delayed Draw Term Loan | | | 1,130,707 | | 1.00% | | March 15, 2029 | |
| Cerebro Buyer, LLC | | Revolver | | | 100,000 | | 0.50% | | March 15, 2029 | |
| CF512, Inc. | | Revolver | | | 100,000 | | 0.50% | | September 1, 2026 | |
| Channel Partners Intermediateco, LLC | | Revolver | | | 18,333 | | 0.50% | | February 7, 2027 | |
| CompleteCase, LLC | | Revolver | | | 166,667 | | 0.50% | | December 21, 2025 | |
| Compost 360 Acquisition, LLC | | Revolver | | | 14,000 | | 0.50% | | August 2, 2028 | |
| COPILOT Provider Support Services, LLC | | Revolver | | | 71,667 | | 0.50% | | November 22, 2027 | |
| Craftable Intermediate II Inc. | | Revolver | | | 100,000 | | 0.50% | | June 30, 2028 | |
| Curion Holdings, LLC | | Revolver | | | 35,499 | | 0.50% | | July 29, 2027 | |
| DRS Holdings III, Inc. | | Revolver | | | 909,091 | | 0.50% | | November 1, 2025 | |
| Equine Network, LLC | | Revolver | | | 33,333 | | 0.50% | | May 22, 2028 | |
| Eskola, LLC** | | Delayed Draw Term Loan | | | 3,918,298 | | 1.00% | | December 19, 2029 | |
| evolv Consulting, LLC | | Revolver | | | 1,363,636 | | 0.50% | | December 7, 2028 | |
| Evriholder Acquisition, Inc. | | Revolver | | | 100,000 | | 0.50% | | January 24, 2028 | |
| Exigo, LLC | | Revolver | | | 100,000 | | 0.50% | | March 16, 2027 | |
| FairWave Holdings, LLC | | Delayed Draw Term Loan | | | 976,811 | | 0.50% | | April 1, 2029 | |
| FairWave Holdings, LLC | | Revolver | | | 485,473 | | 0.50% | | April 1, 2029 | |
| FiscalNote Boards LLC | | Delayed Draw Term Loan | | | 627,139 | | 1.00% | | March 12, 2029 | |
| FiscalNote Boards LLC | | Revolver | | | 391,962 | | 0.50% | | March 12, 2029 | |
| Florachem Corporation | | Revolver | | | 33,333 | | 0.50% | | April 29, 2028 | |
| GS HVAM Intermediate, LLC | | Revolver | | | 477,273 | | 0.50% | | February 28, 2026 | |
| Guidant Corp. | | Revolver | | | 1,055,707 | | 0.50% | | March 12, 2029 | |
| HV Watterson Holdings, LLC | | Revolver | | | 2,006 | | 0.50% | | December 17, 2026 | |
| Impact Home Services LLC | | Delayed Draw Term Loan | | | 1,571,984 | | 1.00% | | April 28, 2028 | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| | | | | | | | | | | |
| | | | | | | | Unused | | | |
| | | | | Unfunded | | Commitment | | | |
| Investments | | Security | | Commitment | | Fee | | Maturity | |
| Informativ, LLC | | Revolver | | $ | 100,000 | | 0.50% | | July 30, 2026 | |
| Inoapps Bidco, LLC | | Revolver | | | 20,000 | | 0.50% | | February 15, 2027 | |
| iNovex Information Systems Incorporated | | Revolver | | | 72,000 | | 0.50% | | December 17, 2030 | |
| J.R. Watkins, LLC | | Revolver | | | 337,433 | | 0.00% | | May 3, 2026 | |
| Ledge Lounger, Inc. | | Revolver | | | 24,915 | | 0.50% | | November 9, 2027 | |
| Lightning Intermediate II, LLC | | Revolver | | | 100,000 | | 0.50% | | June 6, 2027 | |
| MacKenzie-Childs Acquisition, Inc. | | Revolver | | | 100,000 | | 0.50% | | September 2, 2027 | |
| Madison Logic Holdings, Inc. | | Revolver | | | 52,632 | | 0.50% | | December 30, 2027 | |
| MBH Management LLC | | Delayed Draw Term Loan | | | 500,000 | | 1.00% | | November 15, 2029 | |
| MBH Management LLC | | Revolver | | | 500,000 | | 0.50% | | November 15, 2029 | |
| MedLearning Group, LLC | | Delayed Draw Term Loan | | | 1,956,150 | | 1.00% | | December 30, 2027 | |
| Michelli, LLC | | Revolver | | | 1,296,076 | | 0.50% | | December 21, 2028 | |
| Microbe Formulas LLC | | Revolver | | | 100,000 | | 0.50% | | April 3, 2028 | |
| MOM Enterprises, LLC | | Revolver | | | 62,500 | | 0.50% | | May 19, 2026 | |
| Monarch Behavioral Therapy, LLC | | Delayed Draw Term Loan | | | 701,036 | | 1.00% | | June 6, 2030 | |
| Monarch Behavioral Therapy, LLC | | Revolver | | | 686,582 | | 0.50% | | June 6, 2030 | |
| Morgan Electrical Group Intermediate Holdings, Inc. | | Delayed Draw Term Loan | | | 1,145,662 | | 1.00% | | August 3, 2029 | |
| Morgan Electrical Group Intermediate Holdings, Inc. | | Revolver | | | 100,000 | | 0.50% | | August 3, 2029 | |
| NINJIO, LLC | | Revolver | | | 66,667 | | 0.50% | | October 12, 2027 | |
| Norplex Micarta Acquisition, Inc. | | Revolver | | | 500,000 | | 0.50% | | October 31, 2029 | |
| PCS Software, Inc. | | Revolver | | | 746,948 | | 0.50% | | January 1, 2026 | |
| Premiere Digital Services, Inc. | | Revolver | | | 576,923 | | 0.50% | | November 3, 2026 | |
| RIA Advisory Borrower, LLC | | Revolver | | | 73,886 | | 0.50% | | August 2, 2027 | |
| Rogers Mechanical Contractors, LLC | | Revolver | | | 83,333 | | 0.50% | | September 28, 2028 | |
| Said Intermediate, LLC | | Revolver | | | 1,168,831 | | 0.50% | | June 13, 2029 | |
| Sales Benchmark Index, LLC | | Revolver | | | 1,109,551 | | 0.50% | | July 26, 2026 | |
| Teckrez, LLC | | Revolver | | | 721,110 | | 1.00% | | November 30, 2028 | |
| The Hardenbergh Group, Inc. | | Revolver | | | 100,000 | | 0.50% | | August 6, 2028 | |
| Tiger 21, LLC | | Revolver | | | 100,000 | | 0.50% | | December 30, 2030 | |
| Tilley Distribution, Inc. | | Revolver | | | 100,000 | | 0.50% | | December 31, 2026 | |
| Trade Education Acquisition, L.L.C. | | Revolver | | | 41,000 | | 0.50% | | December 28,2027 | |
| TradePending OpCo Aggregator, LLC | | Revolver | | | 66,667 | | 0.50% | | March 2, 2026 | |
| TriplePoint Acquisition Holdings LLC | | Delayed Draw Term Loan | | | 1,339,123 | | 1.00% | | May 31, 2029 | |
| TriplePoint Acquisition Holdings LLC | | Revolver | | | 743,957 | | 0.50% | | May 31, 2029 | |
| U.S. Expediters, LLC | | Revolver | | | 30,000 | | 0.50% | | December 22, 2026 | |
| USDTL AcquisitionCo, Inc. | | Delayed Draw Term Loan | | | 500,000 | | 1.00% | | December 9, 2030 | |
| USDTL AcquisitionCo, Inc. | | Revolver | | | 80,000 | | 0.50% | | December 9, 2030 | |
| WER Holdings, LLC | | Delayed Draw Term Loan | | | 514,059 | | 1.00% | | April 11, 2030 | |
| WER Holdings, LLC*** | | Revolver | | | 267,739 | | 0.50% | | April 11, 2030 | |
| Xanitos, Inc. | | Revolver | | | 60,000 | | 0.50% | | June 25, 2026 | |
| | | Total Unfunded Debt Commitments | | $ | 40,989,533 | | | | | |
* Included in this investment is Line of Credit in the amount of $4,861, with Line of Credit rate of 5.25% and a maturity of July 1, 2028.
** This a last-out delayed draw term loan with contractual rates higher than the applicable rates.
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
*** Included in this investment is Line of Credit in the amount of $41,071, with Line of Credit rate of 5.50% and a maturity of April 11, 2030.
| (10) | This loan is a unitranche investment. | |
| (11) | These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floors are not in effect. | |
| (12) | These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floors are not in effect. | |
| (13) | Investment has been on non-accrual since November 1, 2024. | |
| (14) | This loan is convertible to common units at maturity or at the majority of holders. | |
| (15) | Excluded from the investment is an uncalled capital commitment in an amount not to exceed $297,219. | |
| (16) | Investment has been on non-accrual since the later of January 1, 2023 or the investment date. | |
| (17) | Investment has been on non-accrual since November 6, 2023. | |
| (18) | The Company has full discretion to fund the revolver commitment, with an unfunded rate of 0.00% and a maturity of February 7, 2028. As of December 31, 2024, there was no undrawn revolver commitment. | |
| (19) | Investment has been on non-accrual since January 1, 2024. | |
| (20) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $1,500,000, with an unfunded rate of 0.00% and a maturity of July 31, 2025. The Company has full discretion to fund the revolver commitment. | |
| (21) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,000,000, with an unfunded rate of 0.00% and a maturity of April 27, 2026. The Company has full discretion to fund the revolver commitment. | |
| (22) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $2,200,821, with an unfunded rate of 0.00% and a maturity of September 3, 2026. The Company has full discretion to fund the revolver commitment. | |
*The accompanying notes are an integral part of these consolidated financial statements.*
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**STELLUS CAPITAL INVESTMENT CORPORATION**
**CONOLIDATED SCHEDULE OF INVESTMENTS**
**December 31, 2024**
| (23) | Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Amount of Interest | |
| | | | | | December31,2023 | | | Gross Additions | | | Gross Reductions | | Amount of Realized | | Amount of Unrealized | | December31,2024 | | Credited to Income | |
| Investments | | Security | | | Value | | | (a) | | | (b) | | Gain (loss) | | Gain (loss) | | Value | | (c) | |
| EH Real Estate Services, LLC | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loan A-1 | | First Lien | | $ | - | | $ | 1,882,226 | | $ | - | | $ | - | | $ | (1,628,125) | | $ | 254,101 | | - | |
| Term Loan A-1 (SBIC) | | First Lien | | | 3,042,204 | | | - | | | (5,255,564) | | | - | | | 2,213,360 | | | - | | 81,636 | |
| Term Loan A-2 | | First Lien | | | 325,059 | | | 80,664 | | | - | | | - | | | (317,846) | | | 87,877 | | - | |
| Term Loan A-2 (SBIC) | | First Lien | | | 650,118 | | | - | | | (1,140,558) | | | - | | | 490,440 | | | - | | - | |
| Term Loan A-3 | | First Lien | | | 111,979 | | | 34,223 | | | - | | | - | | | (115,060) | | | 31,142 | | - | |
| Term Loan A-3 (SBIC) | | First Lien | | | 223,959 | | | - | | | (392,910) | | | - | | | 168,951 | | | - | | - | |
| Term Loan A-4 | | First Lien | | | 496,828 | | | 1,003,691 | | | - | | | - | | | 5,018 | | | 1,505,537 | | - | |
| Term Loan A-4 (SBIC) | | First Lien | | | 993,654 | | | - | | | (1,003,691) | | | - | | | 10,037 | | | - | | - | |
| Term Loan A-5 | | First Lien | | | - | | | 5,710,182 | | | - | | | - | | | - | | | 5,710,182 | | - | |
| Revolver | | First Lien | | | 332,190 | | | 68,434 | | | (337,027) | | | - | | | - | | | 63,597 | | - | |
| EH Holdco, LLC Common Units | | Equity | | | 3 | | | - | | | - | | | - | | | (3) | | | - | | - | |
| EH Holdco, LLC Series A Preferred Units | | Equity | | | - | | | - | | | - | | | - | | | - | | | - | | - | |
| Total Control Investments | | | | $ | 6,175,994 | | $ | 8,779,420 | | $ | (8,129,750) | | $ | - | | $ | 826,772 | | $ | 7,652,436 | | 81,636 | |
(a) Gross additions include increases in the cost basis of investments resulting from new investments, follow-on investments, payment-in-kind interest or dividends, the amortization of any unearned income or discounts on debt investments, as applicable.
(b) Gross reductions include decreases in the cost basis of investments resulting from principal repayments, sales and return of capital.
(c) Represents the total amount of interest, fees or dividends credited to income for the portion of the year an investment was included in the Control category.
| (24) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $100,000, with an unfunded rate of 0.00% and a maturity of August 31, 2027. The Company has full discretion to fund the revolver commitment. | |
| (25) | Investment has been on non-accrual since the later of September 1, 2024 or the investment date. | |
| (26) | Investment has been on non-accrual since the later of August 21, 2024 or the investment date. | |
| (27) | Excluded from the investment is an undrawn revolver commitment in an amount not to exceed $17,500 with an unfunded rate of 0.50% and a maturity of April 28, 2028. The Company has full discretion to fund the revolver commitment. | |
| (28) | Investment has been on non-accrual since June 1, 2024. | |
**Abbreviation Legend**
BSBY Bloomberg Short-Term Bank Yield Index
PIKPayment-In-Kind
SOFR Secured Overnight Financing Rate
SONIA Sterling Overnight Index Average
*The accompanying notes are an integral part of these consolidated financial statements.*
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NOTE1NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
**Nature of Operations**
Stellus Capital Investment Corporation (we, us, our and the Company) was formed as a Maryland corporation on May18, 2012 (Inception) and is an externally managed, closed-end, non-diversified investment management company. The Company is applying the guidance of Accounting Standards Codification (ASC) Topic 946, Financial Services-Investment Companies (ASC Topic 946). The Company has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act), and has elected to be treated, qualifies, and intends to qualify annually to be treated as a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as amended (the Code), for U.S. federal income tax purposes. The Companys investment activities are managed by its investment adviser, Stellus Capital Management, LLC (Stellus Capital or the Advisor).
As of December 31, 2025, the Company had issued a total of28,947,254shares and raised $419,105,333in gross proceeds since Inception, incurring an aggregate of $13,093,525in offering expenses and underwriting fees. Additionally, the Company has received $672,917in offering expenses reimbursements from the Advisor for net proceeds from offerings of $406,684,725. The Companys shares are currently listed on the New York Stock Exchange under the symbol SCM. See Note4 to the consolidated financial statements contained herein for further details.
The Company has established the following wholly owned subsidiaries: SCICConsolidated Blocker,Inc., SCICInvincible Blocker 1,Inc., SCICSKP Blocker 1,Inc., SCICAPE Blocker 1,Inc., SCICVenbrook Blocker,Inc., SCICCC Blocker 1,Inc., SCICERC Blocker 1,Inc., and SCICHollander Blocker 1,Inc., which are structured as Delaware entities to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities) (collectively, the Taxable Subsidiaries). The Taxable Subsidiaries are consolidated for U.S. generally accepted accounting principles (U.S. GAAP) reporting purposes, and the portfolio investments held by them are included in the consolidated financial statements.
On June 14, 2013, the Company formed Stellus Capital SBIC, LP (the SBIC I subsidiary), a Delaware limited partnership, and its general partner, Stellus Capital SBIC GP, LLC, a Delaware limited liability company, as wholly owned subsidiaries of the Company. On June 20, 2014, the SBIC I subsidiary received a license from the U.S. Small Business Administration (SBA) to operate as a small business investment company (SBIC) under Section 301(c) of the Small Business Investment Act of 1958, as amended (the SBIC Act). The SBIC I subsidiary and its general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.
On November 29, 2018, the Company formed Stellus Capital SBIC II, LP (the SBIC II subsidiary) a Delaware limited partnership. On August 14, 2019, the SBIC II subsidiary received a license from the SBA to operate as an SBIC under Section 301(c) of the SBIC Act. The SBIC II subsidiary and its general partner are consolidated for U.S. GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.
The SBIC licenses allow the SBIC I subsidiary and the SBIC II subsidiary (together, the SBIC subsidiaries), to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity, but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10 year maturities. The SBA, as a creditor, will have a superior claim to the SBIC subsidiaries assets over the Companys stockholders in the event the Company liquidates one or both of the SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteed debentures issued by the SBIC subsidiaries upon an event of default. For the SBIC I subsidiary, SBA regulations limit the amount that the SBIC I subsidiary may borrow to a maximum of $150,000,000 when it has at least $75,000,000 in regulatory capital, as such term is defined by the SBA. For the SBIC II subsidiary, SBA regulations limit the amounts that the SBIC II subsidiary may borrow to $175,000,000 when it has at least $87,500,000 in regulatory capital, as such
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term is defined by the SBA. For two or more SBICs under common control, the maximum amount of outstanding SBA-guaranteed debentures cannot exceed $350,000,000.
As of December 31, 2025, the SBIC I subsidiary had $75,000,000 in regulatory capital and $124,000,000 of SBA-guaranteed debentures outstanding. As of December 31, 2024, the SBIC I subsidiary had $75,000,000 in regulatory capital and $150,000,000 of SBA-guaranteed debentures outstanding.
As of both December 31, 2025 and 2024, the SBIC II subsidiary had $87,500,000 in regulatory capital and $175,000,000 of SBA-guaranteed debentures outstanding.
See footnotes (4) and (5) of the Consolidated Schedule of Investments for additional information regarding the treatment of investments in the SBIC subsidiaries with respect to the Credit Facility (as defined in Note9).
Under the provisions of the 1940 Act, the Company is permitted, as a BDC that has satisfied certain requirements, to issue senior securities in amounts such that its asset coverage ratio, as defined in the 1940 Act, equals at least 150% of its gross assets, less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. As of December 31, 2025, the Companys asset coverage ratio was 203%.
The Companys investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in lower middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. lower middle-market companies (typically those with $5.0million to $50.0million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and unsecured debt financings, often with corresponding equity co-investments. The Company sources investments primarily through the extensive network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions, lower middle-market companies, management teams and other professional intermediaries.
**Summary of Significant Accounting Policies**
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP and pursuant to the requirements for reporting on Form10-K and Article10 of RegulationS-X under the Securities Exchange Act of 1934, as amended (the Exchange Act). Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with U.S. GAAP are omitted. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
In the opinion of management, the consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the periods included herein. Certain reclassifications have been made to certain prior period balances to conform with current presentation.
In accordance with RegulationS-X under the Exchange Act, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S. dollars.
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Economic Developments
Economic activity has continued to accelerate across sectors and regions. Nonetheless, the Company has observed and continues to observe macroeconomic uncertainty as a result of various events and trends, including labor resource shortages, commodity inflation, fluctuating interest rates, economic sanctions in response to international conflicts and instances of geopolitical, economic and financial market instability in the United States and abroad, including as a result of the imposition of tariffs in the United States or its trading partners and the prolonged shutdown of the government in October and November 2025. 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.
Portfolio Investment Classification
The Company classifies its portfolio investments in accordance with the requirements of the 1940 Act as follows: (a)Control Investments are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation, (b)Affiliate Investments are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation, and (c)Non-controlled, non-affiliate investments are defined as investments that are neither Control Investments nor Affiliate Investments.
Cash and Cash Equivalents
Cash consists of bank demand deposits. The Company deems certain money market mutual funds, U.S. Treasury Bills, and other high-quality, short-term debt securities as cash equivalents.
At December 31, 2025, cash balances totaling $19,352 did not exceed Federal Deposit Insurance Corporation ("FDIC") insurance protection levels of $250,000. In addition, as of December 31, 2025, the Company held $25,030,804in cash equivalents in money market mutual funds, which are carried at net asset value, which is considered a Level 1 valuation technique. At December 31, 2025, the Company held foreign currency of$353(acquisition cost of$353). All of the Company's cash deposits are held at large, established, high credit quality financial institutions, and management believes that risk of loss associated with any uninsured balances is remote.
Fair Value Measurements
The Company accounts for all of its financial instruments at fair value in accordance with ASC Topic 820,*Fair Value Measurements and Disclosures*(ASC Topic 820). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its financial instruments related to receivables and payables approximate the fair value of these items due to the short maturity of these instruments, which are considered Level 2 in the fair value hierarchy.
The Credit Facility, SBA-guaranteed debentures, and Notes Payable (as defined in Note 11) are carried at amortized cost in the Consolidated Statements of Assets and Liabilities. As of December 31, 2025, the estimated fair value of the Credit Facility approximates the carrying value because the interest rates adjust to the current market interest rate (Level 3 classification). Valuation techniques and significant inputs used to determine fair value include company details; credit, market and liquidity risk and events; financial health of the company; place in the capital structure; interest rate; and terms and conditions of the Credit Facility. The estimated fair value of the SBA-guaranteed debentures was determined by discounting projected remaining payments using market interest rates for borrowings of the Company and entities with similar credit risks at the measurement date. Notes Payable for which readily available market quotations do not exist are valued using prices provided by independent pricing services, which may incorporate matrix pricing and/or independent broker quotations. At the measurement date, the estimated fair values of the SBA-guaranteed debentures and Notes Payable as prepared for disclosure purposes was $290,359,247 (Level 3 classification) and $126,000,000
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(Level 2 classification), respectively. See Note 6 to the Consolidated Financial Statements contained herein for further discussion regarding the fair value measurements and hierarchy.
Consolidation
As permitted under RegulationS-X under the Exchange Act and ASC Topic 946, the Company generally does not consolidate its investments in a portfolio company other than an investment company subsidiary. Accordingly, the Company consolidated the results of the SBIC subsidiaries and the Taxable Subsidiaries. All intercompany balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the Consolidated Statements of Assets and Liabilities in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. Additionally, as explained in Note 1 contained herein, the Consolidated Financial Statements includes investments in the portfolio whose values have been determined in good faith by the Board, pursuant to procedures approved by the Board, in the absence of readily available market quotations. Because of the inherent uncertainty of the investment portfolio valuations, those estimated values may differ materially from the values that would have been determined had a ready market for the securities existed.
Deferred Financing Costs
Deferred financing costs, prepaid loan fees on SBA-guaranteed debentures and prepaid loan structure fees consist of fees and expenses paid in connection with the closing of the Companys Credit Facility, Notes Payable,and SBA-guaranteed debentures and are capitalized at the time of payment. These costs are amortized using the straight-line method over the term of the respective instrument and are presented as an offset to the corresponding debt on the Consolidated Statements of Assets and Liabilities.
Offering Costs
Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Companys common stock, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement and related prospectuses. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering is consummated, and are shown on the Consolidated Statements of Changes in Net Assets and Liabilities as a reduction to paid-in capital. During theyear ended December 31, 2025, the Company incurred $606,848 of costs related to the preparation of its shelf registration statement and related prospectuses, which were capitalized and treated as discussed above as part of the Companys ATM Program (as defined in Note 4) throughout various ATM Program offerings in 2025. As of December31, 2025, no costs related to the preparation of a registration statement were capitalized and need to be treated as discussed above in the event an offering is consummated.
Investments
Rule 2a-5 under the 1940 Act (Rule 2a-5) establishes requirements for determining the fair value of a BDCs investments in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards of directors of BDCs to designate certain parties to perform fair value determinations, subject to oversight of the board of directors and compliance with certain conditions. Rule 2a-5 also defines when market quotations are readily available for purposes of the 1940 Act and the threshold for determining whether a board of directors must determine the fair value of a security. Rule 31a-4 under the 1940 Act (Rule 31a-4), establishes additional recordkeeping requirements related to fair value determinations. While the board of directors of the Company (the Board) has not elected to designate the Advisor as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order to comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
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As a BDC, the Company will generally invest in illiquid loans and securities, including debt and equity securities of private lower middle-market companies. Section 2(a)(41) of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for securities for which a market quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith under procedures adopted by a BDC's board or valuation designee, as applicable. Under procedures established by the Board, the Company values investments for which market quotations are readily available at such market quotations. The Company obtains these market quotations from an independent pricing service or at the midpoint of the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market quotations are not readily available will be valued at fair value as determined in good faith by the Board. Such determination of fair value may involve subjective judgments and estimates. The Company also engages independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least twice annually.
Debt and equity investments purchased within approximately 90 days of the valuation date will be valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. With respect to unquoted securities, the Board values each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board uses the pricing indicated by the external event to corroborate and/or assist in determining the valuation. Because the Company expects that there will not be a readily available market quotation for many of the investments in its portfolio, the Company expects to value most of its portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market quotation, the fair value of the Companys investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
In following these approaches, the types of factors that will be taken into account in fair value pricing investments include, as relevant, but are not limited to:
| | available current market data, including relevant and applicable market trading and transaction comparables; | |
| | applicable market yields and multiples; | |
| | financial covenants; | |
| | call protection provisions; | |
| | information rights; | |
| | the nature and realizable value of any collateral; | |
| | the portfolio companys ability to make payments, its earnings and discounted cash flows and the markets in which it does business; | |
| | comparisons of financial ratios of peer companies that are public; | |
| | comparable merger and acquisition transactions; and | |
| | the principal market and enterprise values. | |
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Revenue Recognition
The Company records interest income on an accrual basis to the extent such interest is deemed collectible. Payment-in-kind (PIK) interest represents contractual interest accrued and added to the loan balance that generally becomes due at maturity. The Company will not accrue any form of interest on loans and debt securities if it has reason to doubt its ability to collect such interest. Loan origination fees, original issue discount and market discounts or premiums are capitalized, and the Company then accretes or amortizes such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fee is recorded as interest income. The Company records prepayment premiums on loans and debt securities as other income. Dividend income, if any, will be recognized on the ex-dividend date.
A presentation of the interest income the Company has earned from portfolio companies for theyears ended December 31, 2025, 2024, and 2023 is as follows:
| | | | | | | | | | | |
| | | For the years ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| Loan interest | | $ | 88,285,712 | | $ | 92,316,007 | | $ | 93,976,863 | |
| PIK income | | | 5,756,272 | | | 3,310,111 | | | 3,801,637 | |
| Fee amortization income(1) | | | 3,186,846 | | | 3,074,492 | | | 2,954,512 | |
| Fee income acceleration(2) | | | 535,848 | | | 1,185,210 | | | 1,283,776 | |
| Total Interest Income | | $ | 97,764,678 | | $ | 99,885,820 | | $ | 102,016,788 | |
| (1) | Includes amortization of fees on unfunded commitments. | |
| (2) | Unamortized loan origination fees recognized upon full or partial realization of investment. | |
To maintain the Companys treatment as a RIC, substantially all of this income must be paid to stockholders in the form of distributions, even if the Company has not collected any cash.
Management considers portfolio company-specific circumstances as well as other economic factors in determining collectability of income. As of December 31, 2025, the Company had five loans on non-accrual status, which represented approximately 7.5% of the Companys total investments at cost and 4.1% at fair value. As of December 31, 2024, the Company had seven loans on non-accrual status, which represented approximately 8.3% of the Companys loan portfolio at cost and 5.4% at fair value. As of December 31, 2025 and 2024, $11,182,515 and $6,509,852 of income from investments on non-accrual has not been accrued, respectively. If a loan or debt securitys status significantly improves regarding the debtors ability to service the debt or other obligations, or if a loan or debt security is sold or written off, the Company will remove it from non-accrual status.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the repayment, sale or disposition and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Foreign currency amounts are translated into U.S. dollars (USD) on the following basis:
| | fair value of investment securities, other assets and liabilitiesat the spot exchange rate on the last business day of the period; and | |
| | purchases and sales of investment securities, income and expensesat the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses. | |
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Investment Transaction Costs
Costs that are material and associated with an investment transaction, including legal expenses, are included in the cost basis of purchases and deducted from the proceeds of sales unless such costs are reimbursed by the borrower.
Receivables and Payables for Unsettled Securities Transactions
The Company records all investments on a trade date basis.
U.S. Federal Income Taxes
The Company has elected and intends to qualify annually to be treated as a RIC under subchapter M of the Code. To qualify as a RIC, among other things, the Company generally is required to timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for eachyear. So long as the Company maintains its status as a RIC, it generally will not be subject to U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company represents obligations of the Companys investors and will not be reflected in the Consolidated Financial Statements of the Company.
The Company generally is subject to a nondeductible 4% U.S. federal excise tax if it does not distribute to its stockholders in a timely manner in each taxable year, an amount at least equal to the sum of (i)98% of its ordinary income for such calendaryear, (ii)98.2% the amount by which the Companys capital gain exceeds its capital loss (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year, and (iii)certain undistributed amounts from previous years on which the Company paid no U.S. federal income tax. The Company, at its discretion, may choose not to distribute all its taxable income for the calendaryear and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount of cash available to be distributed to stockholders. To the extent that the Company determines that its estimated currentyear annual taxable income will be in excess of estimated currentyear dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned. As of December 31, 2025, the Company had approximately $37,016,258 of undistributed taxable income that was carried forward toward distributions to be paid in 2026.
Current income tax expense for theyears ended December 31, 2025, 2024, and 2023 of $1,580,338, $1,808,838, and $1,333,452, respectively, is related to federal and state income taxes and federal excise taxes.
The Company evaluates tax positions taken or expected to be taken while preparing its tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax positions deemed to meet a more-likely-than-not threshold would be recorded as a tax benefit or expense in the applicable period.
As of December 31, 2025, the Company had not recorded a liability for any unrecognized tax positions. Managements evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. The Companys policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses. Any expenses for theyears ended December 31, 2025, 2024, and 2023 were de minimis.
The Taxable Subsidiaries are direct wholly owned subsidiaries of the Company that have elected to be treated as corporations for U.S. federal income tax purposes, 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 the Company to hold equity investments in portfolio companies that are pass through entities for tax purposes and continue to comply with the source-of-income requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and
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related tax assets and liabilities of the Taxable Subsidiaries are reflected in the Companys Consolidated Financial Statements.
The Taxable Subsidiaries use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for theyear in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
For theyears ended December 31, 2025, 2024, and 2023, the Company recorded deferred income tax benefit (provision) of $0, $188,893, and ($126,957), respectively, related to the Taxable Subsidiaries. For the years ended December 31, 2025, 2024, and 2023, the Company recorded income tax benefit on net realized loss on investments of $0, $2,221, and $2,987,847, respectively, related to the Taxable Subsidiaries. As of December 31, 2025 and 2024, the Company had a net deferred tax liability of $0 and $0, respectively.
Earnings per Share
Basic per share calculations are computed utilizing the weighted average number of shares of the Companys common stock outstanding for the period. The Company has no common stock equivalents. As a result, there is no difference between diluted earnings per share and basic per share amounts.
Paid-In Capital
The Company records the proceeds from the sale of shares of its common stock on a net basis to (i)capital stock and (ii)paid-in capital in excess of par value, excluding all commissions and marketing support fees.
Distributable Loss
The components that make up distributable loss on the Consolidated Statements of Assets and Liabilities as of December 31, 2025 and 2024 were as follows:
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| Accumulated net realized loss from investments, net of cumulative dividends of $30,352,761 for both periods | | $ | (39,963,218) | | $ | (41,267,707) | |
| Net realized loss on foreign currency translations | | | (282,145) | | | (213,301) | |
| Net unrealized depreciation on investments and cash equivalents, net of deferred tax liability of $0 for both periods | | | (18,419,231) | | | (7,312,300) | |
| Net unrealized appreciation (depreciation) on foreign currency translations | | | 17,854 | | | (15,219) | |
| Accumulated undistributed net investment income | | | 31,966,956 | | | 39,153,714 | |
| Total distributable loss | | $ | (26,679,784) | | $ | (9,654,813) | |
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2023-09 (ASU 2023-09), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 enhances income tax disclosures, including disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Companys adoption of ASU 2023-09 did not have a material impact on the consolidated financial statements.
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In November 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (ASU 2024-03), which requires disaggregated disclosure of certain costs and expenses, including purchases of inventory, employee compensation, depreciation, amortization and depletion, within relevant income statement captions. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning with the first quarter ended March 31, 2028. Early adoption and retrospective application is permitted. The Company is still assessing the impact of the new guidance.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. The Company believes the impact of the recently issued standards and any that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.
NOTE2RELATED PARTY ARRANGEMENTS
Investment Advisory Agreement
The Company has entered into an Investment Advisory Agreement (the Investment Advisory Agreement) with Stellus Capital, pursuant to which Stellus Capital serves as its investment adviser. Pursuant to this agreement, the Company has agreed to pay to Stellus Capital an annual base management fee of 1.75% of gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents, and an incentive fee.
For theyears ended December 31, 2025, 2024, and 2023, the Company recorded an expense for base management fees of $17,178,177, $15,698,129, and $15,452,347, respectively. As of December 31, 2025 and December 31, 2024, $4,442,705 and $4,034,109, respectively, was payable to Stellus Capital.
The incentive fee has two components, the investment income incentive fee and the capital gains incentive fee, as follows:
Investment Income Incentive Fee
The investment income component of the incentive fee (Income Incentive Fee) is calculated, and payable to the Advisor, quarterly in arrears based on the Companys pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a cumulative total return requirement and to deferral of non-cash amounts. The pre-incentive fee net investment income, which is expressed as a rate of return on the value of the Companys net assets attributable to the Companys common stock, for the immediately preceding calendar quarter, will have a 2.0% (which is 8.0% annualized) hurdle rate (also referred to as the Hurdle). Pre-incentive fee net investment income means interest income, dividend income and any other income accrued during the calendar quarter, minus the Companys operating expenses for the quarter excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. The Advisor receives no incentive fee for any calendar quarter in which the Companys pre-incentive fee net investment income does not exceed the Hurdle. Subject to the cumulative total return requirement described below, the Advisor receives 100% of the Companys pre-incentive fee net investment income for any calendar quarter with respect to that portion of the pre-incentive net investment income for such quarter, if any, that exceeds the Hurdle but is less than 2.5% (which is 10.0% annualized) of net assets (also referred to as the Catch-up) and 20.0% of the Companys pre-incentive fee net investment income for such calendar quarter, if any, greater than 2.5% (10.0% annualized) of net assets.
The foregoing Income Incentive Fee is subject to a total return requirement, which provides that no incentive fee in respect of the Companys pre-incentive fee net investment income is payable except to the extent 20.0% of the cumulative net increase in net assets resulting from operations over the then-current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any Income Incentive Fee that is payable in a calendar quarter is limited to the lesser of (i) 20% of the amount by which the Companys pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the
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Catch-up, and (ii) (x) 20% of the cumulative net increase in net assets resulting from operations for the then-current and 11 preceding quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the cumulative net increase in net assets resulting from operations is the amount, if positive, of the sum of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation of the Company for the then-current and 11 preceding calendar quarters. In addition, the Advisor is not paid the portion of such incentive fee that is attributable to deferred interest until the Company actually receives such interest in cash.
For theyears ended December 31, 2025, 2024, and 2023, the Company incurred $8,393,139, $10,045,966, $10,189,888, respectively, of Income Incentive Fees. As of December 31, 2025 and 2024, $2,317,429 and $3,109,560, respectively, of such incentive fees were payable to the Advisor, of which $1,539,724 and $2,351,703, respectively, were currently payable (as explained below). As of December 31, 2025 and 2024, $777,705 and $757,857, respectively, of Income Incentive Fees incurred but not paid by the Company were generated from deferred interest (i.e. PIK, certain discount accretion and deferred interest) and are not payable until such amounts are received by the Company in cash. For the years ended December 31, 2025 and 2024, $3,310,981 and $1,826,893, respectively, of Income Incentive Fees accrued but not paid by the Company were permanently written off due to the Cumulative Pre-Incentive Fee Net Return limitation.
Capital Gains Incentive Fee
The Company also pays the Advisor an incentive fee based on capital gains (the Capital Gains Incentive Fee). The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date). The Capital Gains Incentive Fee is equal to 20.0% of the Companys cumulative aggregate realized capital gains from Inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year. The aggregate amount of any previously paid Capital Gains Incentive Fees is subtracted from such Capital Gains Incentive Fee calculated.
U.S. GAAP requires that the Capital Gains Incentive Fee accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments and other financial instruments in the calculation, as an incentive fee would be payable if such unrealized capital appreciation or depreciation were realized, even though such unrealized capital appreciation or depreciation is not permitted to be considered in calculating the Capital Gains Incentive Fee actually payable under the Investment Advisory Agreement. There can be no assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued, may not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of incentive fees in subsequent periods. For theyears ended December 31, 2025, 2024, and 2023, the Company incurred (reversed) Capital Gains Incentive Fees of $0, $0, and ($569,528), respectively. As of both December 31, 2025 and December 31, 2024, $0 of Capital Gains Incentive Fees were accrued.
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The following tables summarize the components of the incentive fees discussed above:
| | | | | | | | | | | |
| | | For the years ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| Investment income incentive fees incurred | | $ | 8,393,139 | | $ | 10,045,966 | | $ | 10,189,888 | |
| Capital gains incentive fees incurred (reversed) | | | | | | | | | (569,528) | |
| Income incentive fees waived | | | (3,310,981) | | | (1,826,893) | | | (307,442) | |
| Incentive fees expense | | $ | 5,082,158 | | $ | 8,219,073 | | $ | 9,312,918 | |
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| Investment income incentive fee currently payable | | $ | 1,539,724 | | $ | 2,351,703 | |
| Investment income incentive fee deferred | | | 777,705 | | | 757,857 | |
| Incentive fee payable | | $ | 2,317,429 | | $ | 3,109,560 | |
Director Fees
For theyears ended December 31, 2025, 2024, and 2023, the Company recorded an expense relating to director fees of $409,000, $412,000, and $406,000, respectively. As of both December 31, 2025 and 2024, the Company owed its independent directors no unpaid director fees.
Co-Investments
On May9, 2022, the Company received a new exemptive order (the Order) that superseded prior co-investment exemptive relief orders and permits the Company to co-invest with additional types of private funds, other BDCs, and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital, subject to the conditions included therein. Pursuant to the Order, a required majority (as defined in Section 57(o) of the 1940 Act) of the Companys independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any person concerned; (2) the transaction is consistent with the interests of the Companys stockholders and is consistent with its investment objectives and strategies; (3) the investment by the Companys affiliates would not disadvantage the Company, and the Companys participation would not be on a basis different from or less advantageous than that on which the Companys affiliates are investing and (4) the proposed investment by the Company would not benefit the Advisor, the other affiliated funds that are participating in the investment, or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act.
The Company co-invests, subject to the conditions in the Order, with a private BDC and private credit funds managed by Stellus Capital or an affiliate thereof that have investment strategies that are similar or identical to the Companys investment strategy, and the Company may co-invest with other BDCs, registered investment companies and private credit funds managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital in the future. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.
Administrative Agent
The Company serves as the administrative agent on certain investment transactions, including co-investments with its affiliates under the Order. As of December 31, 2025 and 2024, there was no cash due to related parties or other investment funds related to interest paid by a borrower to the Company as administrative agent.
License Agreement
The Company has entered into a license agreement with Stellus Capital under which Stellus Capital has agreed to grant the Company a non-exclusive, royalty-free license to use the name Stellus Capital. Under this agreement, the
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Company has a right to use the Stellus Capital name for so long as Stellus Capital or one of its affiliates remains its investment adviser. Other than with respect to this limited license, the Company has no legal right to the Stellus Capital name. This license agreement will remain in effect for so long as Stellus Capital or one of its affiliates remains the Company's investment adviser.
Administration Agreement
The Company has entered into an administration agreement (the Administration Agreement) with Stellus Capital, pursuant to which Stellus Capital furnishes the Company with office facilities and equipment and provides the Company with the clerical, bookkeeping, recordkeeping and other administrative services necessary to conduct day-to-day operations. Under this Administration Agreement, Stellus Capital performs, or oversees the performance of, its required administrative services, which includes, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports to its stockholders and reports filed with the SEC.
For theyears ended December 31, 2025, 2024, and 2023, the Company recorded expenses of $1,789,018, $1,589,680, and $1,561,394, respectively, related to the Administration Agreement, which are included in administrative services expenses on the Consolidated Statement of Operations. As of December 31, 2025 and December 31, 2024, $530,739 and $389,502, respectively, remained payable to Stellus Capital relating to the Administration Agreement, which were included in administrative services payable on the Consolidated Statements of Assets and Liabilities.
Indemnification
The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Investment Advisory Agreement, Stellus Capital and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of Stellus Capitals services under the Investment Advisory Agreement or otherwise as the Companys investment adviser.
The Company has also entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the Companys directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shall indemnify the director who is a party to the agreement (an Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, other than a proceeding by or in the right of the Company.
NOTE3DISTRIBUTIONS
Distributions are generally declared by the Companys Board each calendar quarter and recognized as distribution liabilities on the declaration date. Stockholder distributions, if any, will be determined by the Board. Any distribution to stockholders will be declared out of assets legally available for distribution. The Company has declared distributions of $18.15 per share on its common stock from Inception through December 31, 2025.
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The following table reflects the Companys distributions declared and paid on its common stock since Inception:
| | | | | | | | | |
| Date Declared | | Record Date | | Payment Date | | Per Share(1) | |
| Fiscal 2012 | | | | | | $ | 0.18 | |
| Fiscal 2013 | | | | | | $ | 1.36 | |
| Fiscal 2014 | | | | | | $ | 1.42 | |
| Fiscal 2015 | | | | | | $ | 1.36 | |
| Fiscal 2016 | | | | | | $ | 1.36 | |
| Fiscal 2017 | | Various | | $ | 1.36 | |
| Fiscal 2018 | | | | | | $ | 1.36 | |
| Fiscal 2019 | | | | | | $ | 1.36 | |
| Fiscal 2020 | | | | | | $ | 1.15 | |
| Fiscal 2021 | | | | | | $ | 1.14 | |
| Fiscal 2022 | | | | | | $ | 1.30 | |
| Fiscal 2023 | | | | | | $ | 1.60 | |
| Fiscal 2024 | | | | | | $ | 1.60 | |
| Fiscal 2025 | | | | | | | | |
| January 9, 2025 | | January 31, 2025 | | February 14, 2025 | | $ | 0.1333 | |
| January 9, 2025 | | February 28, 2025 | | March 14, 2025 | | $ | 0.1333 | |
| January 9, 2025 | | March 31, 2025 | | April 15, 2025 | | $ | 0.1333 | |
| April 4, 2025 | | April 30, 2025 | | May 15, 2025 | | $ | 0.1333 | |
| April 4, 2025 | | May 30, 2025 | | June 13, 2025 | | $ | 0.1333 | |
| April 4, 2025 | | June 30, 2025 | | July 15, 2025 | | $ | 0.1333 | |
| July 2, 2025 | | July 31, 2025 | | August 15, 2025 | | $ | 0.1333 | |
| July 2, 2025 | | August 29, 2025 | | September 15, 2025 | | $ | 0.1333 | |
| July 2, 2025 | | September 30, 2025 | | October 15, 2025 | | $ | 0.1333 | |
| October 8, 2025 | | October 31, 2025 | | November 14, 2025 | | $ | 0.1333 | |
| October 8, 2025 | | November 28, 2025 | | December 15, 2025 | | $ | 0.1333 | |
| October 8, 2025 | | December 31, 2025 | | January 15, 2026 | | $ | 0.1333 | |
| Total | | | | | | $ | 18.15 | |
The Company has adopted an opt out dividend reinvestment plan (DRIP), pursuant to which a stockholder whose shares are held in their own name will receive distributions in shares of the Companys common stock under the Companys DRIP unless they elect to receive distributions in cash. Stockholders whose shares are held in the name of a broker or the nominee of a broker may have distributions reinvested only if such service is provided by the broker or the nominee, or if the broker of the nominee permits participation in the DRIP.
Although distributions paid in the form of additional shares of the Companys common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in the Companys DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. Any distributions reinvested through the issuance of shares through the Companys DRIP will increase the Companys gross assets on which the base management fee and the incentive fee are determined and paid to Stellus Capital. The Company did not issue any new shares in connection with the DRIP during theyears ended December 31, 2025 and December 31, 2024.
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NOTE4EQUITY OFFERINGS AND RELATED EXPENSES
The table below illustrates the number of shares of common stock the Company has issued since Inception through various equity offerings and pursuant to the Companys DRIP.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Average | |
| | | Number of | | Gross | | Underwriting | | Offering | | Fees Covered | | Net | | Offering | |
| Issuance of Common Stock | | Shares | | Proceeds(1)(2) | | Fees | | Expenses | | by Advisor | | Proceeds(3) | | Price | |
| Year ended December31,2012 | | 12,035,023 | | $ | 180,522,093 | | $ | 4,959,720 | | $ | 835,500 | | $ | | | $ | 174,726,873 | | $ | 14.90 | |
| Year ended December31,2013 | | 63,998 | | | 899,964 | | | | | | | | | | | | 899,964 | | | 14.06 | |
| Year ended December31,2014 | | 380,936 | | | 5,485,780 | | | 75,510 | | | 29,904 | | | | | | 5,380,366 | | | 14.47 | |
| Year ended December31,2017 | | 3,465,922 | | | 48,741,406 | | | 1,358,880 | | | 307,021 | | | | | | 47,075,505 | | | 14.06 | |
| Year ended December31,2018 | | 7,931 | | | 93,737 | | | | | | | | | | | | 93,737 | | | 11.85 | |
| Year ended December31,2019 | | 3,177,936 | | | 45,862,995 | | | 1,015,127 | | | 559,261 | | | 37,546 | | | 44,326,153 | | | 14.43 | |
| Year ended December31,2020 | | 354,257 | | | 5,023,843 | | | 5,680 | | | 84,592 | | | 66,423 | | | 4,999,994 | | | 14.40 | |
| Year ended December31,2021 | | 31,592 | | | 449,515 | | | 6,744 | | | 53,327 | | | 4,255 | | | 393,699 | | | 14.23 | |
| Year ended December31,2022 | | 149,174 | | | 2,070,935 | | | 31,066 | | | 530,842 | | | 87,605 | | | 1,596,632 | | | 13.88 | |
| Year ended December31,2023 | | 4,458,873 | | | 62,871,349 | | | 943,248 | | | 247,701 | | | 477,088 | | | 62,157,488 | | | 14.10 | |
| Year ended December31,2024 | | 3,355,476 | | | 46,494,756 | | | 698,166 | | | 435,390 | | | | | | 45,361,200 | | | 13.65 | |
| Year ended December31,2025 | | 1,466,136 | | | 20,588,960 | | | 308,998 | | | 606,848 | | | | | | 19,673,114 | | | 13.83 | |
| Total | | 28,947,254 | | $ | 419,105,333 | | $ | 9,403,139 | | $ | 3,690,386 | | $ | 672,917 | | $ | 406,684,725 | | | | |
| (1) | Net of partial share redemptions. Such share redemptions impacted gross proceeds by $94, $757, ($1,051), ($142), ($31) and ($29) for the years ended December 31, 2020, 2019, 2018, 2017, 2016 and 2015, respectively. | |
| (2) | Includes common shares issued under the DRIP of $228,943 and $94,788 during theyears ended December 31, 2020 and 2018, respectively; $0 for theyears ended December 31, 2025, 2024, 2023, 2021, 2019, 2017, 2016 and 2015, respectively; and $390,505, $938,385, and $113,000 for theyears ended December 31, 2014, 2013, and 2012, respectively. | |
| (3) | Net Proceeds per this equity table will differ from the Consolidated Statements of Assets and Liabilities as of December 31, 2025, 2024, and 2023 in the amount of $8,825,985, $7,434,858 and $5,707,301, respectively, which represents a tax reclassification of stockholders equity in accordance with U.S. GAAP. This reclassification reduces paid-in capital and increases distributable earnings (increasing accumulated undistributed net investment income). | |
On November 16, 2021, the Company entered into an equity distribution agreement, as amended and restated on August 29, 2023 (the 2021 Equity Distribution Agreement) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 2021 Equity Distribution Agreement, the Company was permitted to issue and sell, from time to time, up to $50,000,000 in aggregate offering price of shares of 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.
On August 11, 2023, the Company entered into an equity distribution agreement (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, the Company was permitted to issue and sell, from time to time, up to $100,000,000 in aggregate offering price of shares of 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. Upon execution of the 2023 Equity Distribution Agreement, the Company no longer sold any shares under the 2021 Equity Distribution Agreement.
On September 9, 2025, the Company entered into an equity distribution agreement (the 2025 Equity Distribution Agreement and together with the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement, the Equity Distribution Agreements) with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 2025 Equity Distribution Agreement, the Company may issue and sell, from time to time, up to $100,000,000 in aggregate offering price of shares of 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.
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Upon execution of the 2025 Equity Distribution Agreement, the Company no longer sold any shares under the 2023 Equity Distribution Agreement. The Company refers to its issuance and sale of shares under the Equity Distribution Agreements as the ATM Program.
The Company issued 1,466,136 shares during theyear ended December 31, 2025 under the ATM Program, for gross proceeds of $20,588,960 and underwriting fees and other expenses of $915,846. The average per share offering price of shares issued in the ATM Program during the year ended December 31, 2025 was $14.04. The Company issued 3,355,476 shares during the year ended December 31, 2024 under the ATM Program, for gross proceeds of $46,494,756 and underwriting fees and other expenses of $1,133,556. The average per share offering price of shares issued in the ATM Program during the year ended December 31, 2024 was $13.86. The Advisor agreed to reimburse the Company for underwriting fees and expenses incurred in connection with the ATM Program to the extent the per share price of the shares to the public, less underwriting fees, was less than the then-current net asset value per share. For both the fiscal years ended December 31, 2025 and 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value.
The Company did not issue any new shares of common stock through the DRIP for theyears ended December 31, 2025 and 2024.
NOTE5NET INCREASE IN NET ASSETS PER COMMON SHARE
The following information sets forth the computation of net increase in net assets resulting from operations per common share for theyears ended December 31, 2025, 2024, and 2023.
| | | | | | | | | | | |
| | | For the years ended | |
| | | December31,2025 | | December31,2024 | | December31,2023 | |
| Net increase in net assets resulting from operations | | $ | 27,045,329 | | $ | 45,844,627 | | $ | 17,533,167 | |
| Weighted average common shares | | | 28,364,809 | | | 25,596,593 | | | 22,004,648 | |
| Net increase in net assets resulting from operations per common share | | $ | 0.95 | | $ | 1.79 | | $ | 0.80 | |
NOTE6PORTFOLIO INVESTMENTS AND FAIR VALUE
In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Level1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level2Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly; and
Level3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by management.
The Board considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Board determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis
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and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.
At December 31, 2025, the Company had investments in 115 portfolio companies. The total cost and fair value of the investments were $1,026,139,686 and $1,007,623,395, respectively. The composition of the Companys investments as of December 31, 2025 was as follows:
| | | | | | | | |
| | | Cost | | Fair Value | |
| Senior SecuredFirst Lien(1) | | $ | 951,615,061 | | $ | 908,669,800 | |
| Senior SecuredSecond Lien | | | 12,111,653 | | | 12,025,000 | |
| Unsecured Debt | | | 318,425 | | | 123,789 | |
| Equity | | | 62,094,547 | | | 86,804,806 | |
| Total Investments | | $ | 1,026,139,686 | | $ | 1,007,623,395 | |
| (1) | Includes unitranche investments, which accounted for 4.0% of the Companys portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured loans as well as second lien and/or subordinated loans. The Companys unitranche loans will expose it to the risks associated with the second lien and subordinated loans to the extent it invests in the last-out tranche. | |
At December 31, 2024, the Company had investments in 105 portfolio companies. The total cost and fair value of the investments were $961,788,706 and $953,497,688, respectively. The composition of the Companys investments as of December 31, 2024 was as follows:
| | | | | | | | |
| | | Cost | | Fair Value | |
| Senior SecuredFirst Lien(1) | | $ | 884,322,462 | | $ | 856,096,255 | |
| Senior SecuredSecond Lien | | | 12,073,732 | | | 11,948,850 | |
| Unsecured Debt | | | 6,755,866 | | | 6,612,493 | |
| Equity | | | 58,636,646 | | | 78,840,090 | |
| Total Investments | | $ | 961,788,706 | | $ | 953,497,688 | |
| (1) | Includes unitranche investments, which accounted for 2.0% of the Companys portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured loans as well as second lien and/or subordinated loans. The Companys unitranche loans will expose it to the risks associated with second lien and subordinated loans to the extent it invests in the last-out tranche. | |
The Companys investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2025 and December 31, 2024, the Company had 77 and 71 such investments with aggregate unfunded commitments of $53,380,015 and $41,286,752, respectively. The Company maintains sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.
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The fair values of the Companys investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2025 were as follows:
| | | | | | | | | | | | | | |
| | | Quoted Prices | | | | | | | | | | |
| | | in Active | | | | | | | | | | |
| | | Markets | | Significant Other | | Significant | | | | |
| | | for Identical | | Observable | | Unobservable | | | | |
| | | Securities | | Inputs | | Inputs | | | | |
| | | (Level 1) | | (Level 2) | | (Level 3) | | Total | |
| Senior SecuredFirst Lien | | $ | | | $ | | | $ | 908,669,800 | | $ | 908,669,800 | |
| Senior SecuredSecond Lien | | | | | | | | | 12,025,000 | | | 12,025,000 | |
| Unsecured Debt | | | | | | | | | 123,789 | | | 123,789 | |
| Equity | | | | | | | | | 86,804,806 | | | 86,804,806 | |
| Total Investments | | $ | | | $ | | | $ | 1,007,623,395 | | $ | 1,007,623,395 | |
The fair values of the Companys investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2024 were as follows:
| | | | | | | | | | | | | | |
| | | Quoted Prices | | | | | | | | | | |
| | | in Active | | | | | | | | | | |
| | | Markets | | Significant Other | | Significant | | | | |
| | | for Identical | | Observable | | Unobservable | | | | |
| | | Securities | | Inputs | | Inputs | | | | |
| | | (Level 1) | | (Level 2) | | (Level 3) | | Total | |
| Senior SecuredFirst Lien | | $ | | | $ | | | $ | 856,096,255 | | $ | 856,096,255 | |
| Senior SecuredSecond Lien | | | | | | | | | 11,948,850 | | | 11,948,850 | |
| Unsecured Debt | | | | | | | | | 6,612,493 | | | 6,612,493 | |
| Equity | | | | | | | | | 78,840,090 | | | 78,840,090 | |
| Total Investments | | $ | | | $ | | | $ | 953,497,688 | | $ | 953,497,688 | |
The aggregate values of Level3 portfolio investments changed during theyear ended December 31, 2025 as follows:
| | | | | | | | | | | | | | | | | |
| | | Senior Secured | | Senior Secured | | | | | | | | | | |
| | | Loans-First | | Loans-Second | | Unsecured | | | | | | | |
| | | Lien | | Lien | | Debt | | Equity | | Total | |
| Fair value at beginning of period | | $ | 856,096,255 | | $ | 11,948,850 | | $ | 6,612,493 | | $ | 78,840,090 | | $ | 953,497,688 | |
| Purchases of investments | | | 186,821,022 | | | | | | 9,454 | | | 8,904,074 | | | 195,734,550 | |
| PIK interest | | | 5,188,864 | | | | | | 561,606 | | | 5,802 | | | 5,756,272 | |
| Sales and redemptions | | | (121,906,047) | | | | | | (7,021,819) | | | (12,566,138) | | | (141,494,004) | |
| Realized (losses) gains | | | (5,651,690) | | | | | | | | | 7,114,167 | | | 1,462,477 | |
| Change in unrealized (depreciation) appreciation included in earnings(1) | | | (15,593,776) | | | 38,229 | | | (53,944) | | | 4,502,560 | | | (11,106,931) | |
| Change in unrealized appreciation on foreign currency included in earnings | | | 874,729 | | | | | | 2,680 | | | 4,251 | | | 881,660 | |
| Amortization of premium and accretion of discount, net | | | 2,840,443 | | | 37,921 | | | 13,319 | | | | | | 2,891,683 | |
| Fair value at end of period | | $ | 908,669,800 | | $ | 12,025,000 | | $ | 123,789 | | $ | 86,804,806 | | $ | 1,007,623,395 | |
| (1) | Includes reversal of positions during the year ended December 31, 2025. | |
There were no Level3 transfers during the year ended December 31, 2025.
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The aggregate values of Level3 portfolio investments changed during theyear ended December 31, 2024 as follows:
| | | | | | | | | | | | | | | | | |
| | | Senior Secured | | Senior Secured | | | | | | | | | | |
| | | Loans-First | | Loans-Second | | Unsecured | | | | | | | |
| | | Lien | | Lien | | Debt | | Equity | | Total | |
| Fair value at beginning of period | | $ | 774,789,320 | | $ | 21,957,500 | | $ | 5,956,280 | | $ | 71,757,583 | | $ | 874,460,683 | |
| Purchases of investments | | | 213,545,132 | | | | | | 117,066 | | | 7,492,735 | | | 221,154,933 | |
| PIK interest | | | 2,824,403 | | | | | | 485,708 | | | | | | 3,310,111 | |
| Sales and redemptions | | | (126,924,841) | | | (9,782,348) | | | | | | (14,985,096) | | | (151,692,285) | |
| Realized (losses) gains | | | (1,580,768) | | | (20,475,000) | | | | | | 6,212,362 | | | (15,843,406) | |
| Change in unrealized (depreciation) appreciation included in earnings(1) | | | (9,026,597) | | | 20,187,185 | | | 40,312 | | | 8,369,509 | | | 19,570,409 | |
| Change in unrealized depreciation on foreign currency included in earnings | | | (169,778) | | | | | | (1,778) | | | (7,003) | | | (178,559) | |
| Amortization of premium and accretion of discount, net | | | 2,639,384 | | | 61,513 | | | 14,905 | | | | | | 2,715,802 | |
| Fair value at end of period | | $ | 856,096,255 | | $ | 11,948,850 | | $ | 6,612,493 | | $ | 78,840,090 | | $ | 953,497,688 | |
| (1) | Includes reversal of positions during the yearended December 31, 2024. | |
There were no Level3 transfers during the yearended December 31, 2024.
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The following is a summary of geographical concentration of the Companys investment portfolio as of December 31, 2025:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments at | | |
| | | Cost | | Fair Value | | Fair Value | |
| California | | $ | 199,175,312 | | $ | 192,583,333 | | 19.12 | % | |
| Texas | | | 149,955,251 | | | 147,396,649 | | 14.63 | % | |
| Florida | | | 102,086,659 | | | 96,730,609 | | 9.60 | % | |
| New York | | | 59,320,592 | | | 59,952,294 | | 5.95 | % | |
| Illinois | | | 69,282,731 | | | 55,796,619 | | 5.54 | % | |
| Pennsylvania | | | 47,721,299 | | | 49,296,019 | | 4.89 | % | |
| Colorado | | | 41,413,399 | | | 39,386,741 | | 3.91 | % | |
| Arizona | | | 34,208,744 | | | 37,526,211 | | 3.72 | % | |
| Ohio | | | 35,249,934 | | | 36,769,186 | | 3.65 | % | |
| Canada | | | 36,116,171 | | | 36,140,789 | | 3.59 | % | |
| North Carolina | | | 31,163,913 | | | 32,456,489 | | 3.22 | % | |
| Massachusetts | | | 24,283,990 | | | 25,043,277 | | 2.49 | % | |
| Iowa | | | 22,351,338 | | | 22,467,248 | | 2.23 | % | |
| New Jersey | | | 19,768,069 | | | 19,924,612 | | 1.98 | % | |
| Tennessee | | | 20,495,678 | | | 18,827,946 | | 1.87 | % | |
| Virginia | | | 17,506,416 | | | 17,764,137 | | 1.76 | % | |
| Georgia | | | 5,876,197 | | | 17,168,351 | | 1.70 | % | |
| District of Columbia | | | 10,685,508 | | | 14,469,710 | | 1.44 | % | |
| Michigan | | | 12,060,200 | | | 12,255,578 | | 1.22 | % | |
| Minnesota | | | 11,769,582 | | | 11,916,373 | | 1.18 | % | |
| Missouri | | | 10,898,062 | | | 11,109,063 | | 1.10 | % | |
| Idaho | | | 9,479,007 | | | 9,517,417 | | 0.94 | % | |
| Louisiana | | | 9,153,384 | | | 9,297,784 | | 0.92 | % | |
| Oregon | | | 8,860,277 | | | 9,202,699 | | 0.91 | % | |
| Maryland | | | 7,530,655 | | | 7,549,733 | | 0.75 | % | |
| Wisconsin | | | 21,458,139 | | | 7,360,720 | | 0.73 | % | |
| South Carolina | | | 4,847,580 | | | 4,966,273 | | 0.49 | % | |
| Washington | | | 1,273,384 | | | 2,605,719 | | 0.26 | % | |
| United Kingdom | | | 2,148,215 | | | 2,141,816 | | 0.21 | % | |
| Total Investments | | $ | 1,026,139,686 | | $ | 1,007,623,395 | | 100.00 | % | |
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The following is a summary of geographical concentration of the Companys investment portfolio as of December 31, 2024:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments | | |
| | | Cost | | Fair Value | | at Fair Value | | |
| Texas | | $ | 159,028,754 | | $ | 154,041,942 | | 16.15 | % | |
| California | | | 160,285,777 | | | 152,583,692 | | 16.00 | % | |
| Florida | | | 108,434,730 | | | 104,718,969 | | 10.98 | % | |
| Illinois | | | 66,486,029 | | | 56,591,435 | | 5.94 | % | |
| Pennsylvania | | | 53,271,774 | | | 54,438,594 | | 5.71 | % | |
| Arizona | | | 43,552,887 | | | 46,839,063 | | 4.91 | % | |
| New York | | | 36,116,358 | | | 36,306,098 | | 3.81 | % | |
| Ohio | | | 33,645,676 | | | 35,847,804 | | 3.76 | % | |
| Canada | | | 32,107,256 | | | 32,375,749 | | 3.40 | % | |
| Colorado | | | 31,283,806 | | | 28,218,186 | | 2.96 | % | |
| Wisconsin | | | 27,935,159 | | | 23,352,084 | | 2.45 | % | |
| District of Columbia | | | 22,711,852 | | | 26,654,283 | | 2.80 | % | |
| Georgia | | | 12,391,680 | | | 23,345,077 | | 2.45 | % | |
| North Carolina | | | 20,946,327 | | | 22,314,018 | | 2.34 | % | |
| Tennessee | | | 20,490,429 | | | 20,703,772 | | 2.17 | % | |
| Massachusetts | | | 19,965,590 | | | 20,559,398 | | 2.16 | % | |
| Missouri | | | 18,590,476 | | | 18,712,569 | | 1.96 | % | |
| Iowa | | | 13,486,486 | | | 13,486,486 | | 1.41 | % | |
| Idaho | | | 11,763,648 | | | 11,830,192 | | 1.24 | % | |
| New Jersey | | | 11,181,815 | | | 11,754,323 | | 1.23 | % | |
| Michigan | | | 11,389,446 | | | 11,510,608 | | 1.21 | % | |
| Louisiana | | | 9,216,389 | | | 9,371,830 | | 0.98 | % | |
| Virginia | | | 9,293,896 | | | 9,373,367 | | 0.98 | % | |
| Washington | | | 8,193,234 | | | 8,216,962 | | 0.86 | % | |
| Maryland | | | 7,529,294 | | | 7,526,300 | | 0.79 | % | |
| Minnesota | | | 6,448,091 | | | 6,452,144 | | 0.68 | % | |
| South Carolina | | | 4,836,178 | | | 4,984,667 | | 0.52 | % | |
| Indiana | | | 743,770 | | | 920,343 | | 0.10 | % | |
| United Kingdom | | | 461,899 | | | 467,733 | | 0.05 | % | |
| Total Investments | | $ | 961,788,706 | | $ | 953,497,688 | | 100.00 | % | |
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The following is a summary of industry concentration of the Companys investment portfolio as of December 31, 2025:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments at | | |
| | | Cost | | Fair Value | | Fair Value | | |
| Services: Business | | $ | 265,116,204 | | $ | 266,803,107 | | 26.48 | % | |
| High Tech Industries | | | 103,212,518 | | | 106,937,496 | | 10.61 | % | |
| Healthcare & Pharmaceuticals | | | 92,736,458 | | | 92,182,392 | | 9.15 | % | |
| Media: Advertising, Printing & Publishing | | | 78,965,841 | | | 79,030,004 | | 7.84 | % | |
| Capital Equipment | | | 61,644,736 | | | 65,191,527 | | 6.47 | % | |
| Beverage & Food | | | 54,323,129 | | | 58,129,551 | | 5.77 | % | |
| Consumer Goods: Non-Durable | | | 61,701,885 | | | 53,502,252 | | 5.31 | % | |
| Services: Consumer | | | 42,793,668 | | | 40,569,003 | | 4.03 | % | |
| Construction & Building | | | 36,950,838 | | | 37,219,214 | | 3.69 | % | |
| Consumer Goods: Durable | | | 35,569,885 | | | 31,655,077 | | 3.14 | % | |
| Aerospace & Defense | | | 28,192,548 | | | 25,968,951 | | 2.58 | % | |
| Environmental Industries | | | 20,190,193 | | | 22,323,773 | | 2.22 | % | |
| Chemicals, Plastics, & Rubber | | | 20,054,202 | | | 19,792,281 | | 1.96 | % | |
| Transportation & Logistics | | | 16,593,938 | | | 16,791,026 | | 1.67 | % | |
| Media: Broadcasting & Subscription | | | 12,057,869 | | | 15,196,592 | | 1.51 | % | |
| Retail | | | 14,715,878 | | | 14,756,518 | | 1.46 | % | |
| Energy: Oil & Gas | | | 11,802,297 | | | 11,077,160 | | 1.10 | % | |
| Hotel, Gaming, & Leisure | | | 9,181,622 | | | 9,331,063 | | 0.93 | % | |
| Wholesale | | | 8,900,149 | | | 8,921,351 | | 0.89 | % | |
| FIRE: Real Estate | | | 18,419,200 | | | 8,379,604 | | 0.83 | % | |
| Media: Diversified & Production | | | 7,495,599 | | | 7,566,694 | | 0.75 | % | |
| Containers, Packaging, & Glass | | | 20,714,369 | | | 6,360,684 | | 0.63 | % | |
| Finance | | | - | | | 6,187,401 | | 0.61 | % | |
| Education | | | 4,806,660 | | | 3,750,674 | | 0.37 | % | |
| Total Investments | | $ | 1,026,139,686 | | $ | 1,007,623,395 | | 100.00 | % | |
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The following is a summary of industry concentration of the Companys investment portfolio as of December 31, 2024:
| | | | | | | | | | | |
| | | | | | | | | % of Total | | |
| | | | | | | | | Investments | | |
| | | Cost | | Fair Value | | at Fair Value | | |
| Services: Business | | $ | 219,665,133 | | $ | 234,908,112 | | 24.64 | % | |
| High Tech Industries | | | 91,135,577 | | | 93,468,792 | | 9.81 | % | |
| Healthcare & Pharmaceuticals | | | 85,300,317 | | | 85,478,418 | | 8.97 | % | |
| Media: Advertising, Printing & Publishing | | | 71,318,416 | | | 72,291,584 | | 7.58 | % | |
| Beverage & Food | | | 64,052,951 | | | 68,902,142 | | 7.23 | % | |
| Consumer Goods: Non-Durable | | | 67,123,135 | | | 54,473,282 | | 5.71 | % | |
| Services: Consumer | | | 49,388,222 | | | 46,066,301 | | 4.83 | % | |
| Capital Equipment | | | 41,322,214 | | | 43,647,466 | | 4.58 | % | |
| Consumer Goods: Durable | | | 43,393,413 | | | 42,094,390 | | 4.41 | % | |
| Chemicals, Plastics, & Rubber | | | 36,693,101 | | | 36,907,602 | | 3.87 | % | |
| Construction & Building | | | 32,374,992 | | | 32,979,859 | | 3.46 | % | |
| Aerospace & Defense | | | 26,014,106 | | | 21,624,091 | | 2.27 | % | |
| Environmental Industries | | | 18,903,681 | | | 18,282,056 | | 1.92 | % | |
| Transportation & Logistics | | | 17,244,131 | | | 17,532,488 | | 1.84 | % | |
| Retail | | | 14,799,085 | | | 14,723,620 | | 1.54 | % | |
| Media: Broadcasting & Subscription | | | 12,170,577 | | | 14,314,711 | | 1.50 | % | |
| Containers, Packaging, & Glass | | | 18,007,571 | | | 12,911,794 | | 1.35 | % | |
| Energy: Oil & Gas | | | 11,353,959 | | | 10,728,031 | | 1.13 | % | |
| Hotel, Gaming, & Leisure | | | 7,113,661 | | | 8,142,050 | | 0.85 | % | |
| FIRE: Real Estate | | | 17,934,808 | | | 7,652,436 | | 0.80 | % | |
| Media: Diversified & Production | | | 5,822,637 | | | 5,934,853 | | 0.62 | % | |
| Education | | | 10,537,738 | | | 5,341,151 | | 0.56 | % | |
| Finance | | | 119,281 | | | 5,092,459 | | 0.53 | % | |
| Total Investments | | $ | 961,788,706 | | $ | 953,497,688 | | 100.00 | % | |
The following provides quantitative information about Level3 fair value measurements as of December 31, 2025. During the year ended December 31, 2025, investments valued at $81,810,288 changed valuation methods from
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transaction value to the income and market approaches due to the transaction price no longer being reflective of current market conditions.
| | | | | | | | | | | |
| Description: | | FairValue | | ValuationTechnique | | UnobservableInputs | | Range(Weighted Average) | |
| First lien debt | | $ | 788,539,535 | | Income approach(1)(2) | | HY credit spreads | | -1.89% to 11.20% (-0.14%) | |
| | | | | | | | Risk free rates | | -2.03% to 1.73% (-0.33%) | |
| | | $ | 87,821,690 | | Market approach(1) | | EBITDA multiple | | 4.4x to 10.1x (6.8x)(3) | |
| | | $ | 32,308,575 | | Transaction value | | Transaction price | | N/A | |
| | | | | | | | | | | |
| Second lien debt | | $ | 12,025,000 | | Income approach(1)(2) | | HY credit spreads | | -0.17% to 2.35% (0.75%) | |
| | | | | | | | Risk free rates | | -0.16% to -0.10% (-0.14%) | |
| | | | | | | | | | | |
| Unsecured debt | | $ | 10,380 | | Income approach(1)(2) | | HY credit spreads | | -0.59% to -0.59% (-0.59%) | |
| | | | | | | | Risk free rates | | -0.31% to -0.31% (-0.31%) | |
| | | $ | 113,409 | | Market approach(1) | | EBITDA multiple | | 4.4x to 8.7x (8.5x)(3) | |
| | | | | | | | | | | |
| Equity investments | | $ | 66,907,041 | | Market approach(4) | | EBITDA multiple | | 3.2x to 18.2x (10.2x) | |
| | | | | | | | Revenue multiple | | 7.0x to 9.0x (7.7x) | |
| | | $ | 19,897,765 | | Transaction value | | Transaction price | | N/A | |
| | | | | | | | | | | |
| Total Long Term Level 3 Investments | | $ | 1,007,623,395 | | | | | | | |
| (1) | Inclusive of but not limited to (a)the market approach, which is used to determine sufficient enterprise value, and (b)the income approach, which is based on discounting future cash flows using an appropriate market yield. | |
| (2) | The Company calculates the price of the loan by discounting future cash flows, which include forecasted future BSBY, SOFR, or SONIA rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loans yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value measurement. As an example, the Range (Average) for a first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from (1.89)% ( (189) basis points) to 11.20% (1,120 basis points). The weighted average of all changes was (0.14)% ((14) basis points). | |
| (3) | Median of LTM (last twelvemonths) EBITDA multiples of comparable companies. | |
| (4) | The primary significant unobservable input used in the fair value measurement of the Companys equity investments is the EBITDA multiple (the Multiple). Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach. | |
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The following provides quantitative information about Level3 fair value measurements as of December 31, 2024:
| | | | | | | | | | | |
| Description: | | FairValue | | ValuationTechnique | | UnobservableInputs | | Range(Weighted Average) | |
| First lien debt | | $ | 778,177,769 | | Income approach(1)(2) | | HY credit spreads | | -3.39% to 8.32% (-0.54%) | |
| | | | | | | | Risk free rates | | -1.18% to 2.44% (0.19%) | |
| | | | | | Market approach(1) | | EBITDA multiple | | 4.6x to 26.3x (13.3x)(3) | |
| | | $ | 77,918,486 | | Transaction value | | Transaction price | | N/A | |
| | | | | | | | | | | |
| Second lien debt | | $ | 11,948,850 | | Income approach(1)(2) | | HY credit spreads | | -0.72% to -0.32% (-0.46%) | |
| | | | | | | | Risk free rates | | -0.35% to 0.14% (-0.04%) | |
| | | | | | Market approach(1) | | EBITDA multiple | | 5.3 to 11.8x (9.4x)(3) | |
| | | | | | | | | | | |
| Unsecured debt | | $ | 6,581,668 | | Income approach(1)(2) | | HY credit spreads | | 0.18% to 0.18% (0.18%) | |
| | | | | | | | Risk free rates | | -0.18% to -0.18% (-0.18%) | |
| | | $ | 30,825 | | Transaction value | | Transaction price | | N/A | |
| | | | | | | | | | | |
| Equity investments | | $ | 64,002,282 | | Market approach(4) | | EBITDA multiple | | 3.5x to 18.3x (10.4x) | |
| | | $ | 14,837,808 | | Transaction value | | Transaction price | | N/A | |
| | | | | | | | | | | |
| Total Long Term Level 3 Investments | | $ | 953,497,688 | | | | | | | |
| (1) | Inclusive of but not limited to (a)the market approach, which is used to determine sufficient enterprise value, and (b)the income approach, which is based on discounting future cash flows using an appropriate market yield. | |
| (2) | The Company calculates the price of the loan by discounting future cash flows, which include forecasted future SOFR rates based on the published forward SOFR curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loans yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value measurement. As an example, the Range (Average) for a first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from (3.39)% ( (339) basis points) to 8.32% (832 basis points). The average of all changes was (0.54)% ( (54) basis points). | |
| (3) | Median of LTM (last twelvemonths) EBITDA multiples of comparable companies. | |
| (4) | The primary significant unobservable input used in the fair value measurement of the Companys equity investments is the Multiple. Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach. | |
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NOTE7COMMITMENTS AND CONTINGENCIES
The Company is currently not subject to any material legal proceedings, nor, to its knowledge, is any material legal proceeding threatened against it. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its business, financial condition or results of operations.
As of December 31, 2025, the Company had $52,991,159 in unfunded debt commitments and $388,856 in unfunded equity commitments to 77 existing portfolio companies. As of December 31, 2024, the Company had $40,989,533 in unfunded debt commitments and $297,219 in unfunded equity commitments to 71 existing portfolio companies. As of both December 31, 2025 and 2024, the Company did not record any fair value adjustments that resulted in any unrealized gains (losses) on these positions. As of December 31, 2025, the Company had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.
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NOTE8FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | |
| | | | For the years ended | | |
| | | | December31, | | December31, | | December31, | | December31, | | December31, | | |
| | | | 2025 | | 2024 | | 2023 | | 2022 | | 2021 | | |
| | | | | | | | | | | | | | | | | | | |
| Per Share Data:(1) | | | | | | | | | | | | | | | | | | |
| Net asset value at beginning of period | | | $ | 13.46 | | $ | 13.26 | | $ | 14.02 | | $ | 14.61 | | $ | 14.03 | | |
| Net investment income | | | | 1.30 | | | 1.64 | | | 1.92 | | | 1.46 | | | 1.01 | | |
| Change in unrealized (depreciation) appreciation on investments | | | | (0.39) | | | 0.76 | | | 0.13 | | | (0.90) | | | (0.36) | | |
| Net realized gain (loss) | | | | 0.05 | | | (0.62) | | | (1.38) | | | 0.19 | | | 1.22 | | |
| Loss on debt extinguishment | | | | (0.01) | | | | | | | | | | | | (0.03) | | |
| Benefit (provision) for taxes on net realized losses (gains) on investments | | | | | | | | | | 0.14 | | | | | | (0.15) | | |
| Benefit (provision) for taxes on net unrealized depreciation (appreciation) on investments | | | | | | | 0.01 | | | (0.01) | | | (0.01) | | | 0.03 | | |
| Total from operations | | | | 0.95 | | | 1.79 | | | 0.80 | | | 0.74 | | | 1.72 | | |
| Sales load | | | | (0.01) | | | (0.03) | | | (0.04) | | | | | | | | |
| Offering costs | | | | (0.02) | | | (0.02) | | | (0.01) | | | (0.03) | | | | | |
| Stockholder distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | | | (1.60) | | | (1.59) | | | (1.59) | | | (1.11) | | | (1.09) | | |
| Net realized capital gains | | | | | | | (0.02) | | | (0.02) | | | (0.19) | | | (0.05) | | |
| Accretive effect of stock offerings (issuing shares above net asset value per share) | | | | 0.02 | | | 0.03 | | | 0.09 | | | | | | | | |
| Other(3) | | | | 0.02 | | | 0.04 | | | 0.01 | | | | | | | | |
| Net asset value at end of period | | | $ | 12.82 | | $ | 13.46 | | $ | 13.26 | | $ | 14.02 | | $ | 14.61 | | |
| Per share market value at end of period | | | $ | 12.68 | | $ | 13.76 | | $ | 12.85 | | $ | 13.26 | | $ | 13.02 | | |
| Total return based on market value(4) | | | | 3.63 | % | | 18.89 | % | | 8.72 | % | | 12.32 | % | | 30.78 | % | |
| Weighted average shares outstanding for the period | | | | 28,364,809 | | | 25,596,593 | | | 22,004,648 | | | 19,552,931 | | | 19,489,750 | | |
| Ratio/Supplemental Data: | | | | | | | | | | | | | | | | | | |
| Net assets at end of period | | | $ | 371,178,956 | | $ | 369,921,940 | | $ | 319,939,788 | | $ | 275,776,613 | | $ | 285,111,233 | | |
| Weighted average net assets | | | $ | 375,498,196 | | $ | 343,272,777 | | $ | 301,285,626 | | $ | 281,745,332 | | $ | 274,188,692 | | |
| Annualized ratio of gross operating expenses to net assets(7) | | | | 18.26 | % | | 18.77 | % | | 21.27 | % | | 16.59 | % | | 16.90 | % | |
| Annualized ratio of net operating expenses to net assets(7) | | | | 17.38 | % | | 18.24 | % | | 21.16 | % | | 16.59 | % | | 16.90 | % | |
| Annualized ratio of interest expense and other fees to net assets(2) | | | | 9.31 | % | | 9.18 | % | | 10.62 | % | | 8.68 | % | | 6.83 | % | |
| Annualized ratio of net investment income before fee waiver to net assets(7) | | | | 8.94 | % | | 11.68 | % | | 13.91 | % | | 8.68 | % | | 6.83 | % | |
| Annualized ratio of net investment income to net assets(7) | | | | 9.82 | % | | 12.21 | % | | 14.01 | % | | 10.15 | % | | 7.21 | % | |
| Portfolio turnover(5) | | | | 14.11 | % | | 16.82 | % | | 15.38 | % | | 15.26 | % | | 39.11 | % | |
| Notes payable | | | $ | 125,000,000 | | $ | 100,000,000 | | $ | 100,000,000 | | $ | 100,000,000 | | $ | 100,000,000 | | |
| Credit Facility payable | | | $ | 236,649,288 | | $ | 175,386,301 | | $ | 160,085,705 | | $ | 199,200,425 | | $ | 177,340,000 | | |
| SBA-guaranteed debentures | | | $ | 299,000,000 | | $ | 325,000,000 | | $ | 325,000,000 | | $ | 313,600,000 | | $ | 250,000,000 | | |
| Asset coverage ratio(6) | | | | 2.03 | x | | 2.34 | x | | 2.23 | x | | 1.92 | x | | 2.03 | x | |
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| | | | | | | | | | | | | | | | | | | |
| | | | For the years ended | | |
| | | | December31, | | December31, | | December31, | | December31, | | December31, | | |
| | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | |
| | | | | | | | | | | | | | | | | | | |
| Per Share Data:(1) | | | | | | | | | | | | | | | | | | |
| Net asset value at beginning of period | | | $ | 14.14 | | $ | 14.09 | | $ | 13.81 | | $ | 13.69 | | $ | 13.19 | | |
| Net investment income | | | | 1.13 | | | 1.23 | | | 1.42 | | | 1.21 | | | 1.39 | | |
| Change in unrealized appreciation (depreciation) on investments | | | | 0.44 | | | (0.85) | | | (0.11) | | | | | | 1.49 | | |
| Net realized (loss) gain | | | | (0.52) | | | 1.07 | | | 0.35 | | | 0.31 | | | (1.05) | | |
| (Provision) benefit for taxes on net unrealized (appreciation) depreciation on investments | | | | (0.01) | | | | | | (0.02) | | | | | | 0.03 | | |
| Total from investment operations | | | | 1.04 | | | 1.45 | | | 1.64 | | | 1.52 | | | 1.86 | | |
| Sales Load | | | | | | | (0.06) | | | | | | (0.09) | | | | | |
| Offering Costs | | | | | | | (0.03) | | | | | | (0.02) | | | | | |
| Stockholder distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | | | (1.15) | | | (0.54) | | | (1.03) | | | (1.20) | | | (1.36) | | |
| Net realized capital gains | | | | | | | (0.82) | | | (0.33) | | | (0.16) | | | | | |
| Accretive effect of stock offerings (issuing shares above net asset value per share) | | | | | | | 0.05 | | | | | | | | | | | |
| Other(3) | | | | | | | | | | | | | 0.07 | | | | | |
| Net asset value at end of period | | | $ | 14.03 | | $ | 14.14 | | $ | 14.09 | | $ | 13.81 | | $ | 13.69 | | |
| Per share market value at end of period | | | $ | 10.88 | | $ | 14.23 | | $ | 12.95 | | $ | 13.14 | | $ | 12.06 | | |
| Total return based on market value(4) | | | | (13.73) | % | | 21.97 | % | | 8.68 | % | | 20.29 | % | | 42.83 | % | |
| Weighted average shares outstanding for the period | | | | 19,471,500 | | | 18,275,696 | | | 15,953,571 | | | 14,870,981 | | | 12,479,959 | | |
| Ratio/Supplemental Data: | | | | | | | | | | | | | | | | | | |
| Net assets at end of period | | | $ | 273,360,649 | | $ | 270,571,173 | | $ | 224,845,007 | | $ | 220,247,242 | | $ | 170,881,785 | | |
| Weighted average net assets | | | $ | 253,034,571 | | $ | 259,020,507 | | $ | 223,750,302 | | $ | 195,211,550 | | $ | 165,189,142 | | |
| Annualized ratio of gross operating expenses to net assets(7)(8) | | | | 13.75 | % | | 14.11 | % | | 13.72 | % | | 11.10 | % | | 13.20 | % | |
| Annualized ratio of net operating expenses to net assets(7)(8) | | | | 13.75 | % | | 14.11 | % | | 13.72 | % | | 11.10 | % | | 13.20 | % | |
| Annualized ratio of interest expense and other fees to net assets(2) | | | | 6.29 | % | | 5.78 | % | | 5.51 | % | | 4.02 | % | | 4.84 | % | |
| Annualized ratio of net investment income before fee waiver to net assets(7) | | | | 6.29 | % | | 5.78 | % | | 10.09 | % | | 9.21 | % | | 10.71 | % | |
| Annualized ratio of net investment income to net assets(7) | | | | 8.58 | % | | 8.64 | % | | 10.09 | % | | 9.21 | % | | 10.71 | % | |
| Portfolio Turnover(5) | | | | 21.27 | % | | 23.17 | % | | 32.29 | % | | 48.31 | % | | 15.80 | % | |
| Notes payable | | | $ | 48,875,000 | | $ | 48,875,000 | | $ | 48,875,000 | | $ | 48,875,000 | | $ | 25,000,000 | | |
| Credit Facility payable | | | $ | 174,000,000 | | $ | 161,550,000 | | $ | 99,550,000 | | $ | 40,750,000 | | $ | 116,000,000 | | |
| SBA-guaranteed debentures | | | $ | 176,500,000 | | $ | 161,000,000 | | $ | 150,000,000 | | $ | 90,000,000 | | $ | 65,000,000 | | |
| Asset coverage ratio(6) | | | | 2.23 | x | | 2.29 | x | | 2.51 | x | | 3.46 | x | | 2.21 | x | |
| (1) | Based on weighted-average number of common shares outstanding for the period. | |
| (2) | Excludes debt extinguishment costs of $539,250 and $416,725 for theyears ended December 31, 2021 and 2017, respectively. Including these costs, this ratio would be 7.02% and 4.24% for theyears ended December 31, 2021 and 2017, respectively. | |
| (3) | Includes the impact of different share amounts as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of the period end. | |
| (4) | Total return on market value is based on the change in market price per share since the end of the prior quarter and includes dividends paid, which are assumed to be reinvested. The total returns are not annualized. | |
| (5) | Calculated as the lesser of purchases or paydowns divided by average fair value of investments for the period and is not annualized. | |
| (6) | Asset coverage ratio is equal to total assets less all liabilities and indebtedness not represented by senior securities over the aggregate amount of the senior securities. SBA-guaranteed debentures are excluded from the numerator and denominator. | |
| (7) | These ratios include the impact of the benefit (provision) for income taxes related to net unrealized depreciation (appreciation) on certain investments of $188,893, ($126,957), ($213,214), $510,868, ($224,877), ($66,760) and $373,131 for theyears ended December 31, 2024, 2023, 2022, 2021, 2020, 2019 and 2016, respectively, as well as $2,221, $2,987,847 and ($2,957,220) of benefit (provision) for taxes on realized gains on investments for theyears ended December 31, 2024, 2023 and 2021, respectively, which are not reflected in net investment income, gross operating expenses or net operating expenses. The provision for income taxes related to net realized gain (loss) or unrealized depreciation (appreciation) on investments at Taxable Subsidiaries to net assets for theyears ended December 31, 2024, 2023, 2022, 2021, 2020, 2019 and 2016 is 0.05%, (0.04%), (0.08%), (0.89%), (0.09%), (0.03%) and (0.16%), respectively. These ratios exclude debt extinguishment costs of ($539,250) and ($416,275) for theyears ended December 31, 2021 and 2017, respectively. | |
| (8) | Deferred offering costs of $261,761 for theyear ended December31, 2016 are not annualized. | |
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NOTE9CREDIT FACILITY
The Company entered into a senior secured revolving credit agreement, dated as of October 10, 2017, with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (as amended and restated on September 18, 2020 and subsequently amended on December 22, 2021, February 28, 2022, May 13, 2022, November 21, 2023, October 30, 2024 and September 11, 2025, the Credit Facility).
The Credit Facility provides for borrowings up to a maximum of $335,000,000on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $365,000,000, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.
Pursuant to its terms, the Credit Facility will bear interest, subject to the Companys election, on a per annum basis equal to (i) term SOFR plus 2.25% (or 2.50% during certain periods in which the Companys asset coverage ratio is equal to or below 1.90 to 1.00) with a 0.25% SOFR floor, or (ii) 1.25% (or 1.50% during certain periods in which the Companys 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%. The Company pays unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. The commitment to fund the revolver expires on September 11, 2029, after which the Company 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 September 11, 2030.
The Companys obligations to the lenders are secured by a first priority security interest in its 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 $10,000,000, 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 stockholders equity, and (iv)maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2025, the Company was in compliance with these covenants.
As of December 31, 2025 and December 31, 2024, the outstanding balance under the Credit Facility was $236,649,288 and $175,386,301, 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. The Company has incurred costs of $8,944,051 in connection with the current Credit Facility, which are being amortized over the life of the facility. Additionally, $341,979 of costs from a prior credit facility will continue to be amortized over the life of the Credit Facility. As of December 31, 2025 and 2024, $3,481,928 and $3,071,986 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following is a summary of the Credit Facility, net of prepaid loan structure fees:
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| Credit Facility payable | | $ | 236,649,288 | | $ | 175,386,301 | |
| Prepaid loan structure fees | | | (3,481,928) | | | (3,071,986) | |
| Credit Facility payable, net of prepaid loan structure fees | | $ | 233,167,360 | | $ | 172,314,315 | |
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Interest is paidmonthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for theyears ended December 31, 2025, 2024, and 2023:
| | | | | | | | | | | | |
| | | For the year ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 12,953,758 | | $ | 13,561,089 | | $ | 14,723,463 | | |
| Loan fee amortization | | | 1,212,581 | | | 1,140,079 | | | 657,323 | | |
| Total interest and financing expenses | | $ | 14,166,339 | | $ | 14,701,168 | | $ | 15,380,786 | | |
| Weighted average interest rate | | | 7.2 | % | | 8.3 | % | | 7.9 | % | |
| Effective interest rate (including fee amortization) | | | 7.9 | % | | 8.9 | % | | 8.3 | % | |
| Average debt outstanding | | $ | 180,241,351 | | $ | 164,265,069 | | $ | 186,144,622 | | |
| Cash paid for interest and unused fees | | $ | 12,870,599 | | $ | 13,548,076 | | $ | 14,523,350 | | |
NOTE10SBA-GUARANTEED DEBENTURES
Due to the SBIC subsidiaries status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of regulatory capital, as such term is defined by the SBA. SBA-guaranteed debentures have fixed interest rates that equal prevailing 10 year U.S. Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount 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 SBICs at the time such debentures are drawn. SBA-guaranteed debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 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.
As of both December 31, 2025 and 2024, the SBIC I subsidiary had $75,000,000 in regulatory capital and $124,000,000 and $150,000,000 of SBA-guaranteed debentures outstanding, respectively. During the year ended December 31, 2025, the SBIC I subsidiary repaid $26,000,000 of SBA-guaranteed debentures that matured during the period. As of both December 31, 2025 and 2024, the SBIC II subsidiary had $87,500,000 in regulatory capital and $175,000,000 of SBA-guaranteed debentures outstanding.
On August12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the SBA-guaranteed debentures of the SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act. The exemptive relief provides the Company with increased flexibility under the asset coverage requirement by permitting it to borrow up to $325,000,000 more than it would otherwise be able to absent the receipt of this exemptive relief.
On a stand-alone basis, the SBIC subsidiaries collectively held $492,710,365 and $510,105,270 in assets at December 31, 2025 and 2024, respectively, which accounted for approximately 47.3% and 52.0% of the Companys total consolidated assets at December 31, 2025 and 2024, respectively.
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The following table summarizes the SBIC I subsidiarys SBA-guaranteed debentures as of December 31, 2025:
| | | | | | | | | | | | | | |
| Issuance Date | | Licensee | | MaturityDate | | DebentureAmount | | InterestRate | | SBAAnnualCharge | | |
| October 22, 2015 | | SBIC I subsidiary | | March 1, 2026 | | $ | 6,500,000 | | 2.51 | % | 0.36 | % | |
| October 22, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 1,500,000 | | 2.51 | % | 0.74 | % | |
| November 10, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 8,800,000 | | 2.51 | % | 0.74 | % | |
| November 18, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 1,500,000 | | 2.51 | % | 0.74 | % | |
| November 25, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 8,800,000 | | 2.51 | % | 0.74 | % | |
| December 16, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 2,200,000 | | 2.51 | % | 0.74 | % | |
| December 29, 2015 | | SBIC I subsidiary | | March 1, 2026 | | | 9,700,000 | | 2.51 | % | 0.74 | % | |
| November 28, 2017 | | SBIC I subsidiary | | March 1, 2028 | | | 25,000,000 | | 3.19 | % | 0.22 | % | |
| April 27, 2018 | | SBIC I subsidiary | | September 1, 2028 | | | 40,000,000 | | 3.55 | % | 0.22 | % | |
| July 30, 2018 | | SBIC I subsidiary | | September 1, 2028 | | | 17,500,000 | | 3.55 | % | 0.22 | % | |
| September 25, 2018 | | SBIC I subsidiary | | March 1, 2029 | | | 2,500,000 | | 3.11 | % | 0.22 | % | |
| Total SBIC I subsidiary SBA-guaranteed Debentures | | | | | | $ | 124,000,000 | | | | | | |
The following table summarizes the SBIC II subsidiarys SBA-guaranteed debentures as of December 31, 2025:
SBIC II SBA-guaranteed Debentures
| | | | | | | | | | | | | | |
| Issuance Date | | Licensee | | Maturity Date | | DebentureAmount | | InterestRate | | SBAAnnualCharge | | |
| October 17, 2019 | | SBIC II subsidiary | | March 1, 2030 | | $ | 6,000,000 | | 2.08 | % | 0.09 | % | |
| November 15, 2019 | | SBIC II subsidiary | | March 1, 2030 | | | 5,000,000 | | 2.08 | % | 0.09 | % | |
| December 17, 2020 | | SBIC II subsidiary | | March 1, 2031 | | | 9,000,000 | | 1.67 | % | 0.09 | % | |
| December 17, 2020 | | SBIC II subsidiary | | March 1, 2031 | | | 6,500,000 | | 1.67 | % | 0.27 | % | |
| February 16, 2021 | | SBIC II subsidiary | | March 1, 2031 | | | 13,500,000 | | 1.67 | % | 0.27 | % | |
| February 26, 2021 | | SBIC II subsidiary | | March 1, 2031 | | | 10,000,000 | | 1.67 | % | 0.27 | % | |
| March 2, 2021 | | SBIC II subsidiary | | March 1, 2031 | | | 10,000,000 | | 1.67 | % | 0.27 | % | |
| April 21, 2021 | | SBIC II subsidiary | | September 1, 2031 | | | 10,000,000 | | 1.30 | % | 0.27 | % | |
| May 14, 2021 | | SBIC II subsidiary | | September 1, 2031 | | | 6,700,000 | | 1.30 | % | 0.27 | % | |
| May 28, 2021 | | SBIC II subsidiary | | September 1, 2031 | | | 7,300,000 | | 1.30 | % | 0.27 | % | |
| July 23, 2021 | | SBIC II subsidiary | | September 1, 2031 | | | 16,000,000 | | 1.30 | % | 0.27 | % | |
| February 25, 2022 | | SBIC II subsidiary | | March 1, 2032 | | | 10,000,000 | | 2.94 | % | 0.27 | % | |
| March 29, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 10,000,000 | | 4.26 | % | 0.27 | % | |
| April 1, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 6,670,000 | | 4.26 | % | 0.27 | % | |
| April 12, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 6,665,000 | | 4.26 | % | 0.27 | % | |
| April 21, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 6,665,000 | | 4.26 | % | 0.27 | % | |
| June 30, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 3,600,000 | | 4.26 | % | 0.27 | % | |
| July 28, 2022 | | SBIC II subsidiary | | September 1, 2032 | | | 6,400,000 | | 4.26 | % | 0.27 | % | |
| September 9, 2022 | | SBIC II subsidiary | | March 1, 2033 | | | 6,000,000 | | 5.17 | % | 0.27 | % | |
| November 9, 2022 | | SBIC II subsidiary | | March 1, 2033 | | | 7,600,000 | | 5.17 | % | 0.27 | % | |
| August 8, 2023 | | SBIC II subsidiary | | September 1, 2033 | | | 9,120,000 | | 5.69 | % | 0.27 | % | |
| September 19, 2023 | | SBIC II subsidiary | | March 1, 2034 | | | 2,280,000 | | 5.04 | % | 0.27 | % | |
| Total SBIC II subsidiary SBA-guaranteed Debentures | | | | | | $ | 175,000,000 | | | | | | |
| Total SBA-guaranteed Debentures | | | | | | $ | 299,000,000 | | | | | | |
The fair values of the SBA-guaranteed debentures are 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
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at the measurement date under current market conditions. The fair values of the SBA-guaranteed debentures are estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of December 31, 2025, the estimated fair values of the SBA-guaranteed debentures as prepared for disclosure purposes was $290,359,247. As of December 31, 2024, the carrying amount of the SBA-guaranteed debentures approximated their fair value. At December 31, 2025 and 2024, the SBA-guaranteed debentures would be deemed to be Level3, as defined in Note6.
As of December 31, 2025, the Company has incurred $11,148,750 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees. As of December 31, 2025 and 2024, $3,015,937 and $3,748,061 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following is a summary of the SBA-guaranteed debentures, net of prepaid loan fees:
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| SBA-guaranteed Debentures payable | | $ | 299,000,000 | | $ | 325,000,000 | |
| Prepaid loan fees | | | (3,015,937) | | | (3,748,061) | |
| SBA-guaranteed Debentures, net of prepaid loan fees | | $ | 295,984,063 | | $ | 321,251,939 | |
The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for theyears ended December 31, 2025, 2024, and 2023:
| | | | | | | | | | | | |
| | | Fortheyear ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 9,968,297 | | $ | 10,497,375 | | $ | 10,047,058 | | |
| Debenture fee amortization | | | 732,124 | | | 978,582 | | | 1,255,753 | | |
| Total interest and financing expenses | | $ | 10,700,421 | | $ | 11,475,957 | | $ | 11,302,811 | | |
| Weighted average interest rate | | | 3.2 | % | | 3.2 | % | | 3.2 | % | |
| Effective interest rate (including fee amortization) | | | 3.5 | % | | 3.5 | % | | 3.5 | % | |
| Average debt outstanding | | $ | 308,224,658 | | $ | 325,000,000 | | $ | 318,847,123 | | |
| Cash paid for interest | | $ | 10,228,054 | | $ | 10,470,211 | | $ | 9,646,849 | | |
NOTE11NOTES
The Notes Payableare institutional, non-traded notes. The Notes Payableare carried at cost. At the measurement date, the estimated fair value of the Notes Payable as prepared for disclosure purposes was $126,000,000. See Note1 to the Consolidated Financial Statements for further discussion regarding the fair value measurements and hierarchy.
In connection with the issuance and maintenance of the Notes Payable, the Company incurred $2,327,835 of fees, which are being amortized over the term of the Notes Payable, of which $0 and $555,645 remains to be amortized as of December 31, 2025 and 2024, respectively. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
On January 14, 2021, the Company issued $100,000,000 in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the 2026 Notes Payable). On September 30, 2025, the Company prepaid $50,000,000 in aggregate principal of the 2026 Notes Payable. On December 31, 2025, the Company prepaid the remaining $50,000,000 in aggregate principal of the 2026 Notes Payable in full. For the year ended December 31, 2025, the Company recorded a make-whole payment of $54,000 and accelerated $172,095 of unamortized upfront fees which are recognized as a loss on debt extinguishment in the Consolidated Statemements of Operations.
The 2026 Notes Payable were redeemable in whole or in part at any time or from time to time at the Companys option on or after December 31, 2025, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2026 Notes Payable was payable semi-annually beginning September 30, 2021.
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The Company used the net proceeds from the 2026 Notes Payable offering to fully redeem the Companys 5.75% fixed-rate notes due September 15, 2022 (the 2022 Notes Payable) and repay a portion of the amount outstanding under the Credit Facility.
On April 1, 2025 and September 25, 2025, the Company issued $75,000,000 and $50,000,000, respectively, in aggregate principal amount of 7.250% fixed-rate notes due 2030 (the 2030 Notes Payable and together with the 2026 Notes Payable, the Notes Payable). The 2030 Notes Payable will mature on April 1, 2030 and may be redeemed in whole or in part at any time or from time to time at the Companys option on or after October 1, 2029, at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest on the 2030 Notes Payable is payable semi-annually beginning October 1, 2025. As of December 31, 2025, the aggregate carrying amount of the 2030 Notes Payable was approximately $122,671,409.
In connection with the issuance and maintenance of the 2030 Notes Payable, the Company incurred $2,696,803 of fees, which are being amortized over the term of the 2030 Notes Payable. As of December 31, 2025, $2,328,591 of prepaid financing costs had yet to be amortized. These financing costs are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following is a summary of the 2026 NotesPayable, net of deferred financing costs:
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| 2026 Notes Payable | | $ | | | $ | 100,000,000 | |
| Deferred financing costs | | | | | | (555,645) | |
| 2026 Notes Payable, net of deferred financing costs and discount | | $ | | | $ | 99,444,355 | |
The following table summarizes the interest expense and deferred financing costs on the 2026 Notes Payablefor theyears ended December 31, 2025, 2024, and 2023:
| | | | | | | | | | | | |
| | | Fortheyear ended | | |
| | | December31,2025 | | December31,2024 | | December31,2023 | | |
| Interest expense | | $ | 4,258,083 | | $ | 4,881,000 | | $ | 4,881,000 | | |
| Deferred financing costs | | | 390,420 | | | 447,943 | | | 446,720 | | |
| Total interest and financing expenses | | $ | 4,648,503 | | $ | 5,328,943 | | $ | 5,327,720 | | |
| Weighted average interest rate | | | 5.7 | % | | 4.9 | % | | 4.9 | % | |
| Effective interest rate (including fee amortization) | | | 6.2 | % | | 5.3 | % | | 5.3 | % | |
| Average debt outstanding | | $ | 74,657,534 | | $ | 100,000,000 | | $ | 100,000,000 | | |
| Cash paid for interest | | $ | 5,490,375 | | $ | 4,881,000 | | $ | 4,881,000 | | |
The following is a summary of the 2030 NotesPayable, net of deferred financing costs:
| | | | | |
| | | December31,2025 | |
| 2030 Notes Payable | | $ | 125,000,000 | |
| Deferred financing costs | | | (2,272,580) | |
| Premium on 2030 Notes Payable | | | 618,145 | |
| Discount on 2030 Notes Payable | | | (674,156) | |
| 2030 Notes Payable, net of deferred financing costs and discount | | $ | 122,671,409 | |
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The following table summarizes the interest expense and deferred financing costs on the 2030 Notes Payablefor theyear ended December 31, 2025:
| | | | | | |
| | | Fortheyear ended | |
| | | December31,2025 | | |
| Interest expense | | $ | 5,059,792 | | |
| Deferred financing costs | | | 301,973 | | |
| Discount amortization | | | 96,093 | | |
| Premium amortization | | | (29,856) | | |
| Total interest and financing expenses | | $ | 5,428,002 | | |
| Weighted average interest rate | | | 7.2 | %(1) | |
| Effective interest rate (including fee amortization) | | | 7.8 | %(1) | |
| Average debt outstanding | | $ | 92,818,182 | (1) | |
| Cash paid for interest | | $ | 2,794,167 | | |
| (1) | Calculated for the period from April 1, 2025, the date of the first issuance of the 2030 Notes Payable, through December 31, 2025. | |
The indenture and supplements thereto relating to the Notes Payablecontain certain covenants, including but not limited to (i)a requirement that the Company comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii)a requirement to provide financial information to the holders of the notes and the trustee under the indenture if the Company should no longer be subject to the reporting requirements under the Exchange Act. As of December 31, 2025, the Company was in compliance with these covenants.
NOTE12INCOME TAXES
As of December 31, 2025 and December 31, 2024, the Company had $37,016,258 and $44,184,991, respectively, of undistributed ordinary income. (1) Undistributed capital gains were $0 and $0 for the periods ended December 31, 2025 and December 31, 2024, respectively. Undistributed qualified dividends were $0 and $1,256,046 for the periods ended December 31, 2025 and December 31, 2024, respectively. All of the undistributed ordinary income as of December 31, 2025 will have been distributed within the required period of time such that the Company will not be subject to U.S. federal income tax related to 2025 taxable income. The Company will be subject to a 4% nondeductible U.S. federal excise tax on its undistributed income to the extent it did not distribute an amount equal to at least 98% of its net ordinary income plus 98.2% of its capital gain net income attributable to the period. As a result, the Companys effective U.S. federal income tax rate is expected to be 0%, exclusive of any excise taxes and income taxes incurred by any taxable subsidiaries. Accordingly, a reconciliation of the differences between the Companys reported income tax expense and the U.S. federal statutory income tax rate of 21% is not considered meaningful.
The Company has accrued $1,450,802 and $1,743,964 of U.S. federal excise tax for the taxyears ended December 31, 2025 and December 31, 2024, respectively, independent of prioryear adjustments. See Note1 for further discussion of tax expense in eachyear.
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Ordinary dividend distributions from a RIC do not qualify for the reduced maximum tax rate on qualified dividend income from domestic corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax character(2) of distributions paid in theyears ended December 31, 2025 and 2024 was as follows:
| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| Ordinary income | | $ | 44,255,588 | | $ | 40,674,964 | |
| Qualified dividends | | | 1,205,839 | | | 4,344 | |
| Distributions of long-term capital gains(2) | | | | | | 544,367 | |
| Total distributions paid to common stockholders | | $ | 45,461,427 | | $ | 41,223,675 | |
| (1) | The Companys taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for eachyear. Therefore, final taxable income earned in each period, and the undistributed ordinary income and capital gains for each period carried forward for distribution in the following period, may be different than this estimate. | |
| (2) | Distributions of long-term capital gains of $0 and $544,367 as of December 31, 2025 and December 31, 2024, respectively, may differ from distributions of net capital gains on the Consolidated Statement of Changes in Net Assets because certain prepayment gains are characterized differently for tax reporting purposes. The qualified dividend amount in 2025 and 2024, respectively, represents the completion of a distribution of qualified dividends derived from qualified dividends received by the Company from a portfolio company in 2024 and 2023, respectively, for tax purposes. | |
Listed below is a reconciliation of Net increase in net assets resulting from operations to taxable income and total distributions declared to common stockholders for theyears ended December 31, 2025, 2024, and 2023:
| | | | | | | | | | | |
| | | 2025 | | 2024 | | 2023 | |
| Net increase in net assets resulting from operations (includes net investment income, realized gain (loss), unrealized appreciation (depreciation) and taxes) | | $ | 27,045,329 | | $ | 45,844,627 | | $ | 17,533,167 | |
| Net change in unrealized depreciation (appreciation) | | | 11,073,858 | | | (19,555,654) | | | (2,785,648) | |
| Income tax provision | | | 1,580,338 | | | (191,114) | | | (2,860,890) | |
| Loss on debt extinguishment | | | 226,095 | | | | | | | |
| Pre-tax expense, loss reported at Taxable Subsidiaries, not consolidated for tax purposes | | | 2,120,912 | | | 1,810,914 | | | 20,172,550 | |
| (Decrease) increase in long term capital loss carryover | | | (1,988,306) | | | 20,257,106 | | | | |
| Book income and tax income differences, including debt origination, interest accrual, income from pass-through investments, dividends, realized gains (losses) and changes in estimates | | | (3,021,577) | | | 1,501,004 | | | 11,860,086 | |
| Estimated taxable income(1) | | $ | 37,036,649 | | $ | 49,666,883 | | $ | 43,919,265 | |
| Taxable income earned in prior year and carried forward for distribution in current year | | | 45,441,036 | | | 36,997,828 | | | 28,606,043 | |
| Adjustment for cumulative effect of distributions carried forward | | | | | | | | | | |
| Taxable income earned prior to period end and carried forward | | | (40,874,927) | | | (49,104,269) | | | (36,997,828) | |
| Distribution payable as of period end and paid in following period | | | 3,858,669 | | | 3,663,233 | | | | |
| Total distributions accrued or paid to common stockholders | | $ | 45,461,427 | | $ | 41,223,675 | | $ | 35,527,480 | |
| (1) | The Companys taxable income for each period represents a preliminary estimate and will not be finalized until the applicable federal income tax return is filed. Accordingly, the actual taxable income for each period, including amounts available to be carried forward for distribution in subsequent periods, may differ from these estimates. | |
The aggregate gross unrealized appreciation and depreciation, the net unrealized appreciation, and the aggregate cost of the Companys portfolio company securities for U.S. federal income tax purposes as of December 31, 2025 and December 31, 2024 were as follows:
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| | | | | | | | |
| | | December31,2025 | | December31,2024 | |
| Aggregate cost of portfolio company securities | | $ | 1,026,139,686 | | $ | 961,788,706 | |
| Gross unrealized appreciation of portfolio company securities | | | 59,298,870 | | | 47,590,719 | |
| Gross unrealized depreciation of portfolio company securities | | | (77,718,103) | | | (54,903,019) | |
| Gross unrealized appreciation on foreign currency translations of portfolio company securities | | | 26,900 | | | 3,973 | |
| Gross unrealized depreciation on foreign currency translations of portfolio company securities | | | (123,958) | | | (982,691) | |
| Aggregate fair value of portfolio company securities | | $ | 1,007,623,395 | | $ | 953,497,688 | |
As of December 31, 2025 and 2024, the Taxable Subsidiaries had unrealized losses in investments and NOL carryovers creating a deferred tax asset equal to $6,631,206 and $5,520,821, respectively, as reflected below. As of December 31, 2025, for U.S. federal income tax purposes, the Taxable Subsidiaries had net operating loss carryforwards totaling $19,265,177, of which $918,232 will expire during the tax years 2034 through 2037 if unused. Due to the nature of the Taxable Subsidiaries holdings, a valuation allowance was established as the Company determined it is more likely than not that some of the deferred tax assets will not be realized prior to expiration. Although the Companys future projections indicate that it may be able to realize a portion of these deferred tax assets, due to the degree of uncertainty of these projections, management has recorded a deferred tax asset valuation allowance of $6,631,206 and $5,520,821 as of December 31, 2025 and 2024, respectively.
| | | | | | | | |
| | | 2025 | | 2024 | |
| Deferred tax asset | | $ | 6,631,206 | | $ | 5,520,821 | |
| Deferred tax liability | | | | | | | |
| Total deferred tax asset before valuation allowance | | $ | 6,631,206 | | $ | 5,520,821 | |
| Deferred tax valuation allowance | | $ | (6,631,206) | | $ | (5,520,821) | |
| Net deferred tax asset (liability) | | $ | | | $ | | |
The Company has recorded a tax reclassification of stockholders equity in accordance with U.S. GAAP to reduce paid-in capital and to increase distributable earnings (increasing accumulated undistributed investment income) for book to tax differences that it has determined to be permanent. For theyears ended December 31, 2025 and 2024, this reclassification was $1,391,127 and $1,727,556, respectively. The total adjustment on the Consolidated Statements of Assets and Liabilities as of December 31, 2025 and 2024 was $8,825,985 and $7,434,858, respectively.
The Company remains subject to examination by the IRS for tax years 2022 through 2024.
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NOTE13SENIOR SECURITIES
Information about the Companys senior securities is shown in the following table for the fiscal years ended December31, 2016 through 2025.
| | | | | | | | | | | | | |
| | | Outstanding | | | | | Involuntary | | | | |
| | | Exclusiveof | | Asset | | Liquidating | | Average | |
| | | Treasury | | Coverageper | | Preference | | MarketValue | |
| Class and Year | | Securities(1) | | Unit(2) | | perUnit(3) | | perUnit(4) | |
| |
| | | (Inthousands,exceptperunitamounts) | |
| SBA-guaranteed debentures | | | | | | | | | | | | |
| Fiscal 2016 | | $ | 65,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2017 | | $ | 90,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2018 | | $ | 150,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2019 | | $ | 161,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2020 | | $ | 176,500 | | | N/A | (5) | | | | N/A | |
| Fiscal 2021 | | $ | 250,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2022 | | $ | 313,600 | | | N/A | (5) | | | | N/A | |
| Fiscal 2023 | | $ | 325,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2024 | | $ | 325,000 | | | N/A | (5) | | | | N/A | |
| Fiscal 2025 | | $ | 299,000 | | | N/A | (5) | | | | N/A | |
| Original Credit Facility(6) | | | | | | | | | | | | |
| Fiscal 2015 | | $ | 109,500 | | $ | 2,220 | (5) | | | | N/A | |
| Fiscal 2016 | | $ | 116,000 | | $ | 2,210 | (5) | | | | N/A | |
| Credit Facility | | | | | | | | | | | | |
| Fiscal 2017 | | $ | 40,750 | | $ | 3,460 | (5) | | | | N/A | |
| Fiscal 2018 | | $ | 99,550 | | $ | 2,520 | (5) | | | | N/A | |
| Fiscal 2019 | | $ | 161,550 | | $ | 2,286 | (5) | | | | N/A | |
| Fiscal 2020 | | $ | 174,000 | | $ | 2,230 | (5) | | | | N/A | |
| Fiscal 2021 | | $ | 177,340 | | $ | 2,030 | (5) | | | | N/A | |
| Fiscal 2022 | | $ | 199,200 | | $ | 1,920 | (5) | | | | N/A | |
| Fiscal 2023 | | $ | 160,086 | | $ | 2,230 | (5) | | | | N/A | |
| Fiscal 2024 | | $ | 175,386 | | $ | 2,340 | (5) | | | | N/A | |
| Fiscal 2025 | | $ | 236,649 | | $ | 2,030 | (5) | | | | N/A | |
| 2030 Notes Payable | | | | | | | | | | | | |
| Fiscal 2025 | | $ | 125,000 | | $ | 2,030 | (5) | | | | N/A | |
| 2026 Notes Payable(9) | | | | | | | | | | | | |
| Fiscal 2021 | | $ | 100,000 | | $ | 2,030 | (5) | | | | N/A | |
| Fiscal 2022 | | $ | 100,000 | | $ | 1,920 | (5) | | | | N/A | |
| Fiscal 2023 | | $ | 100,000 | | $ | 2,230 | (5) | | | | N/A | |
| Fiscal 2024 | | $ | 100,000 | | $ | 2,340 | (5) | | | | N/A | |
| 2022 Notes Payable(8) | | | | | | | | | | | | |
| Fiscal 2017 | | $ | 48,875 | | $ | 3,460 | (5) | | | $ | 25.34 | |
| Fiscal 2018 | | $ | 48,875 | | $ | 2,520 | (5) | | | $ | 25.18 | |
| Fiscal 2019 | | $ | 48,875 | | $ | 2,286 | (5) | | | $ | 24.43 | |
| Fiscal 2020 | | $ | 48,875 | | $ | 2,230 | (5) | | | $ | 23.64 | |
| 6.50% Notes due 2019(7) | | | | | | | | | | | | |
| Fiscal 2016 | | $ | 25,000 | | $ | 2,210 | (5) | | | $ | 25.11 | |
| (1) | Total amount of senior securities outstanding at the end of the period presented. | |
| (2) | Asset coverage per unit is the ratio of the carrying value of the Companys total assets, less all liabilities and indebtedness not represented by senior securities, in relation to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. | |
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| (3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities. | |
| (4) | Average market value per unit for the 2022 Notes Payable and the 6.50% Notesdue 2019 represents the average of the daily closing prices as reported on the New York Stock Exchange during the period presented. Average market value per unit for the Companys SBA-guaranteed Debentures, the Original Credit Facility (as defined below), the Credit Facility, and the Notes Payableare not applicable because these securities are not registered for public trading. | |
| (5) | The Company has excluded its SBA-guaranteed debentures from the asset coverage calculation every year since exemptive relief was granted by the SEC in August2014 that permits it to exclude such SBA-guaranteed debentures from the definition of senior securities in the 150% asset coverage ratio it is required to maintain under the 1940 Act. | |
| (6) | On November13, 2012, the Company entered into a senior secured revolving credit agreement, by and among the Company, as the borrower, SunTrust Bank, as the administrative agent, various lenders that are parties thereto from time to time (the Original Credit Facility). The Company terminated the Original Credit Facility on October11, 2017. | |
| (7) | On September20, 2017, the Company redeemed all of the issued and outstanding 6.50% Notesdue 2019. | |
| (8) | On February12, 2021, the Company redeemed all of the issued and outstanding 2022 Notes Payable. | |
| (9) | On December 31, 2025, the Company redeemed all of the issued and outstanding 2026 Notes Payable. | |
NOTE14REPORTABLE SEGMENTS
An operating segment is defined as a component of a public entity that engages in business activities from which it may recognize revenues and incur expenses, has operating results that are regularly reviewed by the public entitys chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and has discrete financial information available. The Company operates under one operating segment and reporting unit, investment management. The CODM is the Chief Executive Officer of the Company, who is responsible for determining the Companys investment strategy, capital allocation, expense structure, and significant transactions impacting the Company. The operating expenses as disclosed on the consolidated statement of operations represent the significant expense categories that are provided to the CODM. Key metrics considered by the CODM in making decisions on the allocation of invested capital include, but are not limited to, net investment income and net increase in net assets resulting from operations that is reported on the Consolidated Statement of Operations, fair value of Investments as disclosed on the Consolidated Schedule of investments, as well as distributions made to the Companys shareholders.
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NOTE15SUBSEQUENT EVENTS
Investment Portfolio
The Company invested in the following portfolio companies subsequent to December 31, 2025:
| c | | | | | | | | | | | | |
| Activity Type | | Date | | Company Name | | Company Description | | Investment Amount | | Instrument Type | |
| Add-On Investment | | January 2, 2026 | | Bart & Associates, LLC* | | Provider of content, information, tech-enabled services, and hosts competitions for the U.S. equine industry | | $ | 2,000,000 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 43,413 | | Equity | |
| New Investment | | January 9, 2026 | | Silver Parent, LLC | | Senior-care focused placement platform | | $ | 7,130,301 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| | | | | | | | | $ | 498,641 | | Equity | |
| Add-On Investment | | January 15, 2026 | | GRC Java Holdings, LLC* | | Specialty coffee platform | | $ | 42,783 | | Equity | |
| Add-On Investment | | January 20, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 380,186 | | Senior SecuredFirst Lien | |
| Add-On Investment | | January 21, 2026 | | evolv Holdco, LLC* | | Digital transformation consulting firm | | $ | 8,036 | | Equity | |
| Add-On Investment | | February 2, 2026 | | BI Investors, LLC* | | Provider of center-based applied behavioral analysis therapyservices | | $ | 5,743 | | Equity | |
| Add-On Investment | | February 3, 2026 | | Green Topco Holdings, LLC* | | Cyber-security focused value-added reseller and associated service provider | | $ | 16,598 | | Equity | |
| Add-On Investment | | February 3, 2026 | | Venbrook Buyer, LLC* | | An independent insurance services broker | | $ | 628,201 | | Senior SecuredFirst Lien | |
| Add-On Investment | | February 6, 2026 | | SP MWM Holdco LLC* | | Provider of test and measurement services and equipment | | $ | 194,667 | | Equity | |
| Add-On Investment | | February 18, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 190,093 | | Senior SecuredFirst Lien | |
| Add-On Investment | | February 25, 2026 | | Venbrook Buyer, LLC* | | An independent insurance services broker | | $ | 1,256,415 | | Senior SecuredFirst Lien | |
| Add-On Investment | | March 3, 2026 | | EH Real Estate Services, LLC* | | Offers residential property brokerage, title & settlement, and property and casualty insurance brokerage services to home buyersand sellers | | $ | 190,093 | | Senior SecuredFirst Lien | |
| New Investment | | March 3, 2026 | | Precision Strategies, LLC | | Strategic communications and marketing agency | | $ | 6,176,011 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| New Investment | | March 6, 2026 | | Synergy Health Partners | | Provider of orthopedic and musculoskeletal care | | $ | 4,000,000 | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 500,000 | | Delayed Draw Term Loan Commitment | |
| | | | | | | | | $ | 100,000 | | Revolver Commitment | |
| | | | | | | | | $ | 136,634 | | Equity | |
| * | Existing portfolio company | |
The Company realized the following portfolio companies subsequent to December 31, 2025:
| | | | | | | | | | | | | | | | |
| c | | | | | | | | | | | | | | | |
| Activity Type | | Date | | Company Name | | Company Description | | Proceeds Received | | Realized Gain | | Instrument Type | |
| Full Repayment | | January 30, 2026 | | Luxium Solutions, LLC | | Manufacturer and distributor of high-performance advanced materials and assemblies | | $ | 8,169,324 | | $ | | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 1,182,247 | | $ | | | Delayed Draw Term Loan | |
| Full Repayment | | January 30, 2026 | | Camp Profiles LLC | | Provider of digital marketing services to small and medium-sized businesses | | $ | 12,041,875 | | $ | | | Senior SecuredFirst Lien | |
| Full Realization | | | | | | | | $ | 969,138 | | $ | 719,138 | | Equity | |
| Full Repayment | | February 3, 2026 | | Arctiq, Inc. | | Cyber-security focused value-added reseller and associated service provider | | $ | 12,202,671 | | $ | | | Senior SecuredFirst Lien | |
| | | | | | | | | $ | 399,965 | | $ | | | Delayed Draw Term Loan | |
Credit Facility
The outstanding balance under the Credit Facility as of March 11, 2026 was $253,900,000.
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SBA-guaranteed debentures
On February 27, 2026, the SBIC I subsidiary repaid $39,000,000 of SBA-guaranteed debentures and related accrued interest related to SBA-guaranteed debentures maturing on March 1, 2026. The outstanding balance of SBA-guaranteed debentures as of March 11, 2026 was $260,000,000.
Distributions Declared
On January16, 2026, the Companys Board declared a regularmonthly distribution for each of January, Februaryand March2026 as follows:
| | | | | | | | | | | |
| | | Ex-Dividend | | Record | | Payment | | Amountper | |
| Declared | | Date | | Date | | Date | | Share | |
| 1/16/2026 | | 1/30/2026 | | 1/30/2026 | | 2/13/2026 | | $ | 0.1133 | |
| 1/16/2026 | | 2/27/2026 | | 2/27/2026 | | 3/13/2026 | | $ | 0.1133 | |
| 1/16/2026 | | 3/31/2026 | | 3/31/2026 | | 4/15/2026 | | $ | 0.1133 | |
Acquisition of Stellus Capital
On February 5, 2026, the Company announced that Stellus Capital entered into a definitive agreement with P10 Intermediate Holdings, LLC, an affiliate of Ridgepost Capital, Inc. (formerly known as P10, Inc.) (Ridgepost), pursuant to which Ridgepost will acquire Stellus Capital (the Transaction).
Pursuant to the terms of the Transaction, Stellus Capital will continue to be managed by its current partners, who will retain control of its day-to-day operations, including investment decisions and investment committee processes, and Stellus Capital will continue to serve as the Companys external investment adviser. Consummation of the Transaction will result in a change of control of Stellus Capital, which will result in an assignment and corresponding termination of the Investment Advisory Agreement under the 1940 Act. The Board and stockholders will therefore be asked to approve a new investment advisory agreement with Stellus Capital (the New Investment Advisory Agreement), the terms of which are expected to remain the same as the Investment Advisory Agreement, other than the initial term of the New Investment Advisory Agreement. Closing of the Transaction is expected to occur mid-2026 and is subject to customary conditions for a transaction of this nature. If approved, the New Investment Advisory Agreement will take effect following the closing of the Transaction.
Stock Repurchase Program
On March 3, 2026, our Board authorized a program for the purpose of repurchasing up to $20,000,000 of our shares of common stock. The shares may be purchased from time to time at prevailing market prices, through open market transactions. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by the Board, the stock repurchase program will terminate on March 12, 2027 and may be modified or terminated at any time for any reason without prior notice. We will retire all such shares of common stock that we purchase in connection with the stock repurchase program immediately.
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**Item9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**
None.
Item9A.Controls and Procedures.
(a)Evaluation of Disclosure Controls and Procedures
As of December 31, 2025 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule13a-15(e)of the Exchange Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SECs rulesand forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
(b)Managements Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2025. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the company; (ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2025 based upon the criteria set forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management determined that our internal control over financial reporting was effective as of December 31, 2025.
(c)Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the effectiveness of our internal control over financial reporting, which is set forth under the heading Report of Independent Registered Public Accounting Firm on page F-101.
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(d)Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financing reporting that occurred during the calendaryear 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item9B.Other Information.
Fees and Expenses
The following table is intended to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. We caution you that some of thepercentages indicated in the table below are estimates and may vary. The footnotes to the fee table state which items are estimates. The following table should not be considered a representation of our future expenses; actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this Annual Report on Form10-K contains a reference to fees or expenses paid by you, us, the Company or Stellus, or that we will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.
| | | | | | |
| Stockholder transaction expenses: | | | | | |
| Sales load (aspercentage of offering price) | | | (1) | | |
| Offering expenses born by us (as apercentage of offering price) | | | (2) | | |
| Dividend reinvestment plan expenses | | | (3) | | |
| Total stockholder transaction expenses paid by us (as apercentage of offering price) | | | | | |
| Annual expenses (as a percentage of net assets attributable to common stock)(5): | | | | | |
| Base management fee | | 4.79 | % (6) | | |
| Incentive fees payable under Investment Advisory Agreement | | 1.36 | % (7) | | |
| Interest payments on borrowed funds | | 9.75 | % (8) | | |
| Other expenses | | 2.22 | % (9) | | |
| Total annual expenses | | 18.12 | % (10) | | |
| (1) | In the event that securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load. | |
| (2) | In the event that we conduct an offering of any of our securities, a corresponding prospectus will disclose the estimated offering expenses because they will be ultimately borne by us (and indirectly by our stockholders). | |
| (3) | The expenses of administering our DRIP are included in other expenses. | |
| (4) | Total stockholder transaction expenses may include a sales load and will be disclosed in a future prospectus supplement, if any. | |
| (5) | Net assets attributable to common stock equals average net assets, which is calculated as the average of the net assets balances as of each quarter-end during theyear ended December 31, 2025 and the prioryear-end. | |
| (6) | Our base management fee is 1.75% of the average value of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts). This item represents actual base management fees incurred for theyear ended December 31, 2025. We may from time to time decide it is appropriate to change the terms of the Investment Advisory Agreement. Under the 1940 Act, any material change to our Investment Advisory Agreement must be submitted to stockholders for approval. The 4.79% reflected in the table is calculated on our net assets (rather than our total assets). See Item 1. Business Management and Other AgreementsInvestment Advisory Agreement. | |
| (7) | This item represents actual fees incurred on pre-incentive fee net investment income (income incentive fees) for theyear ended December 31, 2025. The incentive fee consists of two parts. See Item1. Business Management and Other AgreementsInvestment Advisory Agreement Incentive Fee for additional information on the ordinary income and capital gains components of our incentive fee. | |
| (8) | As of March 11, 2026, we had outstanding SBA-guaranteed debentures of $260.0million; we had $253.9million of outstanding balance under our Credit Facility, which has a total commitment of $335.0million. | |
| (9) | Other expenses represent our estimated annual operating expenses, as apercentage of net assets attributable to common shares estimated for the currentyear, including professional fees, directors fees, insurance costs, expenses | |
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| of our dividend reinvestment plan and payments under the Administration Agreement based on our allocable portion of overhead and other expenses incurred by our administrator. See Item 1. Business Management and Other AgreementsAdministration Agreement. Other expenses exclude interest payments on borrowed funds, and if we issue debt securities or preferred stock, interest payments on debt securities and distributions with respect to preferred stock. Other expenses are based on actual other expenses for theyear ended December 31, 2025. | |
| (10) | Total annual expenses as apercentage of consolidated net assets attributable to common stock are higher than the total annual expensespercentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the total annual expensespercentage be calculated as apercentage of net assets (defined as total assets less total liabilities), rather than the total assets, including assets that have been purchased with borrowed amounts. If the total annual expensespercentage were calculated instead as apercentage of average consolidated total assets, our total annual expenses would be 6.46% of average consolidated total assets. | |
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we have assumed we would have no additional leverage, that none of our assets are cash or cash equivalents and that our annual operating expenses would remain at the levels set forth in the table above. Transaction expenses are not included in the following example.
| | | | | | | | | | | | | | |
| | | 1 year | | | 3 years | | | 5 years | | | 10 years | |
| You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return | | $ | 182 | | $ | 453 | | $ | 657 | | $ | 975 | |
| You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return resulting entirely from net realized capital gains (all of which is subject to our incentive fee on capital gains) | | $ | 187 | | $ | 463 | | $ | 668 | | $ | 981 | |
The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. Assuming a 5.0% annual return, the incentive fee under the Investment Advisory Agreement would either not be payable or have an insignificant impact on the expense amounts shown above. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all distributions at net asset value, if our Board authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution.
This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.
Rule 10b5-1 Trading Plans
During the fiscal year ended December 31, 2025, none of the our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
**Item 9C. Disclosure Regarding Foreign Jurisdictions that P****revent Inspections**
Not applicable.
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PARTIII
We will file with the SEC a definitive Proxy Statement for our 2026 Annual Meeting of Stockholders, pursuant to Regulation14A, not later than 120days after the end of our fiscalyear. Accordingly, certain information required by PartIII has been omitted under General Instruction G(3)to the Annual Report on Form10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.
**Item10.**Directors, Executive Officers and Corporate Governance
The information required by Item10 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to our 2026 Annual Meeting of Stockholders, to be filed with the SEC within 120days following the end of the Companys fiscalyear.
We have adopted a code of business conduct and ethics that applies to our directors, officers and employees. This code of ethics is published on our website at *www.stelluscapital.com*. We intend to disclose any future amendments to, or waivers from, this code of conduct within four businessdays of the waiver or amendment through a website posting.
We have adopted an insider trading policy that applies to our directors and officers. This insider trading policy can be found as Exhibit 19.1 to this Annual Report on Form 10-K.
**Item11.**Executive Compensation
The information required by Item11 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2026 Annual Meeting of Stockholders, to be filed with the SEC within 120days following the end of the Companys fiscalyear.
Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item12 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2026 Annual Meeting of Stockholders, to be filed with the SEC within 120days following the end of the Companys fiscalyear.
**Item13.**Certain Relationships and Related Transactions, and Director Independence
The information required by Item13 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2026 Annual Meeting of Stockholders, to be filed with the SEC within 120days following the end of the Companys fiscalyear.
**Item14.**Principal Accountant Fees and Services
The information required by Item14 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2026 Annual Meeting of Stockholders, to be filed with the SEC within 120days following the end of the Companys fiscalyear.
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PARTIV
Item15.Exhibits, Financial Statement Schedules
a. Documents Filed as Partof this Report
The following financial statements are set forth in Item8:
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| Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP, Houston, Texas, PCAOB ID Number 34 and Grant Thornton LLP, Dallas, Texas, PCAOB ID Number 248) | 99 | |
| Statements of Assets and Liabilities as of December 31, 2025 and December 31, 2024 | 104 | |
| Statements of Operations for the years ended December 31, 2025, 2024, and 2023 | 105 | |
| Statements of Changes in Net Assets for the years ended December 31, 2025, 2024, and 2023 | 106 | |
| Statements of Cash Flows for the years ended December 31, 2025, 2024, and 2023 | 107 | |
| Schedule of Investments as of December 31, 2025 and December 31, 2024 | 108 | |
| Notes to Financial Statements | 142 | |
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b. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| 3.1 | | Articles of Amendment and Restatement (Incorporated by reference to Exhibit(a)(1)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 3.3 | | Bylaws (Incorporated by reference to Exhibit(b)(1)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 4.1 | | Formof Stock Certificate (Incorporated by reference to Exhibit(d)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 4.2 | | Formof Indenture (Incorporated by reference to Exhibit(d)(2)to the Registrants Registration Statement on FormN-2 (File No.333-189938), filed January29, 2014). | |
| 4.3 | | Fourth Supplemental Indenture, dated as of April 1, 2025, by and between Stellus Capital Investment Corporation and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee (Incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K (File No. 814-00971), filed on April 2, 2025). | |
| 4.4 | | Form of Global Note with respect to the 7.250% Notes due 2030 (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K (File No. 814-00971), filed on April 2, 2025). | |
| 4.5 | | Description of Securities (Incorporated by reference to Exhibit 4.8 to the Registrants Annual Report on Form 10-K (File No. 814-00971), filed on March 1, 2023). | |
| 10.1 | | Formof Investment Advisory Agreement between Registrant and Stellus Capital Management, LLC (Incorporated by reference to Exhibit(g)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 10.2 | | Custody Agreement between Registrant and ZB, National Association (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on November7, 2017). | |
| 10.3 | | Administration Agreement between Registrant and Stellus Capital Management, LLC (Incorporated by reference to Exhibit(k)(1)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 10.4 | | Dividend Reinvestment Plan (Incorporated by reference to Exhibit(e)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 10.5 | | Formof License Agreement between the Registrant and Stellus Capital Management (Incorporated by reference to Exhibit(k)(2)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 10.6 | | Formof Indemnification Agreement between the Registrant and the directors (Incorporated by reference to Exhibit(k)(3)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 10.7 | | Formof Guarantee and Security Agreement, the Registrant, ZB, N.A., dba Amegy Bank, as administrative agent, and ZB, N.A. dba Amegy Bank, as collateral agent (Incorporated by reference to Exhibit10.2 to the Registrants Current Report on Form8-K (File No.814-00971), filed on October13, 2017). | |
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| 10.8 | | Senior Secured Revolving Credit Agreement, dated October10, 2017, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on October13, 2017). | |
| 10.9 | | Consent and Waiver, dated March28, 2018, between the Registrant, as a borrower, the lenders party hereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Quarterly Report on Form10-Q (File No.814-00971), filed on May8, 2018). | |
| 10.10 | | First Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated August2, 2018, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Quarterly Report on Form10-Q (File No.814-00971), filed on August8, 2018). | |
| 10.11 | | Second Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated September13, 2019, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on September18, 2019). | |
| 10.12 | | Increase Agreement, dated December27, 2019, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.12 to the Registrants Annual Report on Form10-K (File No.814-00971), filed on March3, 2020). | |
| 10.13 | | Third Amendment to Senior Secured Revolving Credit Agreement and Commitment Increase, dated May15, 2020, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on May18, 2020). | |
| 10.14 | | Amended and Restated Senior Secured Revolving Credit Agreement, dated September18, 2020, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on September21, 2020). | |
| 10.15 | | First Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement, dated December22, 2021, between the Registrant, as a borrower, the lenders party thereto and ZB, N.A. dba Amegy Bank, as administrative agent (Incorporated by reference to Exhibit10.1 to the Registrants Current Report on Form8-K (File No.814-00971), filed on December22, 2021). | |
| 10.16 | | Third Amendment and Commitment Increase to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of May 13, 2022, between the Registrant, as borrower, the lenders party thereto, and Zions Bancorporation, N.A. dba Amegy Bank, as the administrative agent. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 814-00971), filed on May 19, 2022). | |
| 10.17 | | Custody Agreement, dated November 2, 2022, by and among Stellus Capital SBIC LP and Frost Bank, as custodian. (Incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q (File No. 814-00971), filed on November 3, 2022). | |
| 10.18 | | Fourth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of November 21, 2023, among Stellus Capital Investment Corporation, the lenders party thereto, and Zions Bancorporation, N.A. dba Amegy Bank, as the administrative agent (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 814-00971), filed on November 22, 2023. | |
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| 10.19 | | Increase Agreement, dated October 30, 2024, between the Company, as a borrower, Zions Bancorporation, N.A. dba Amegy Bank, as the administrative agent, and the lenders that are party thereto (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 814-00971), filed on November 1, 2024). | |
| 10.20 | | Equity Distribution Agreement, dated September 9, 2025, by and among Stellus Capital Investment Corporation and Stellus Capital Management, LLC, on the one hand, and Keefe, Bruyette & Woods, Inc. and Raymond James & Associates, Inc., on the other hand (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No.814-00971), filed on September 10, 2025). | |
| 10.21 | | Sixth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of September 11, 2025, between Stellus Capital Investment Corporation, the lenders party thereto, and Zions Bancorporation, N.A., d/b/a Amegy Bank, as Administrative Agent, Swingline Lender, Issuing Bank and Multicurrency Lender (Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No.814-00971), filed on September 15, 2025). | |
| 14.1 | | Code of Ethics (Incorporated by reference to Exhibit(r)(1)to the Registrants Registration Statement on FormN-2 (File No.333-184195), filed on October23, 2012). | |
| 19.1* | | Insider Trading Policy | |
| 21.1 | | Subsidiaries of the Registrant and jurisdiction of incorporation/organizations:Stellus Capital SBIC, LPDelawareStellus Capital SBIC GP, LLCDelawareStellus Capital SBIC II, LPDelawareStellus Capital SBIC III, LPDelawareSCIC-SKP Blocker 1,Inc.DelawareSCIC-ERC Blocker 1,Inc.DelawareSCIC-Consolidated Blocker,Inc.DelawareSCIC-CC Blocker 1,Inc.DelawareSCIC-APE Blocker 1,Inc.DelawareSCIC-Hollander Blocker 1,Inc.DelawareSCIC-Invincible Blocker 1,Inc.DelawareSCIC-Venbrook Blocker,Inc.Delaware | |
| 23.1* | | Consent of Deloitte & Touche LLP | |
| 23.2* | | Consent of Grant Thornton LLP | |
| 31.1* | | Certification of Chief Executive Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 31.2* | | Certification of Chief Financial Officer pursuant to Rule13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 32.1* | | Certification of Chief Executive Officer pursuant to Section906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | | Certification of Chief Financial Officer pursuant to Section906 of the Sarbanes-Oxley Act of 2002. | |
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| 97.1 | | Dodd-Frank Compensation Recoupment Policy (Incorporated by reference to Exhibit 97.1 to the Registrants Annual Report on Form 10-K (File No. 814-00971), filed on March 4, 2025). | |
| 101.INS* | | XBRL Instance Document the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| Exhibit 104 | | Cover Page Interactive Data File The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| * | Filed herewith. | |
**c. Financial statement schedules**
No financial statement schedules are filed herewith because (1)such schedules are not required or (2)the information has been presented in the aforementioned financial statements.
**Item 16.Form 10-K Summary**
None.
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SIGNATURES
Pursuant to the requirements of Section13 or 15(d)of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | STELLUS CAPITAL INVESTMENT CORPORATION | |
| | | |
| Date: March 11, 2026 | /s/ Robert T. Ladd | |
| | Robert T. Ladd | |
| | Chief Executive Officer and President | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
| Date: March 11, 2026 | /s/ Robert T. Ladd | |
| | Robert T. Ladd | |
| | Chief Executive Officer, President andChairman of the Board of Directors | |
| Date: March 11, 2026 | /s/ W. Todd Huskinson | |
| | W. Todd Huskinson | |
| | Chief Financial Officer, Chief Compliance Officerand Secretary | |
| | (Principal Accounting and Financial Officer) | |
| Date: March 11, 2026 | /s/ Dean DAngelo | |
| | Dean DAngelo | |
| | Director | |
| Date: March 11, 2026 | /s/ J. Tim Arnoult | |
| | J. Tim Arnoult | |
| | Director | |
| Date: March 11, 2026 | /s/ Bruce R. Bilger | |
| | Bruce R. Bilger | |
| | Director | |
| Date: March 11, 2026 | /s/ William C. Repko | |
| | William C. Repko | |
| | Director | |
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