Stellus Capital Investment Corporation (NYSE:SCM) Q2 2023 Earnings Call Transcript

Ryan Lynch: Hey, good morning. First question I had was you guys mentioned this in the press release about ArborWorks being placed on non-accrual at the beginning of the third quarter. Can you just describe exactly what that business does, provide a little background on it and what, I guess is going on with that business? And as well as does the market you guys currently have at the end of the second quarter sort of reflect the challenges that, that business is facing?

Robert Ladd: Yes. So this business is active principally in the Western part of the United States, including cleaning for power lines and activities related to storms. So that’s the general business, and we normally don’t talk more than that about it. And then in terms of the mark, we mark things as best we call them at each quarter, and that’s reviewed by our outside firm — valuation firm.

Ryan Lynch: Okay. The other question I had was, obviously, you de-levered a little bit this quarter. Is it the expectation that you guys want to get back up to a higher leverage level? If you look at just kind of like total leverage, gross leverage, including the SBA debentures, you guys were above 2x and now you got below that by a bit. Do you guys have an area that you guys would like to operate at? Or was this just opportunistic of the market being open and deleveraging a little bit to get more capital in a pretty favorable deployment environment?

Robert Ladd: Yes. Chris, good question — I’m sorry, Ryan, good question. So I’d say that we’re — our target leverage would continue to be 1:1 on the regulatory test and a little over 2:1, including the SBIC debentures. So that has not changed. This is really a reflection of the equity that’s been raised and then some repayments, but we’re still targeting the same leverage quotient.

Ryan Lynch: Okay, that’s all for me. I appreciate the time today.

Robert Ladd: Great, thank you.

Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to CEO Robert Ladd for closing remarks. Please go ahead.

Robert Ladd: Okay. Great. Thanks, everyone, for being on, being a supporter of the company. We look forward to giving you the third quarter results in November.

Operator: Thank you, everyone. This concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.