Stellus Capital Investment (NYSE:SCM) executives outlined fourth-quarter and full-year 2025 results, provided additional detail on portfolio credit trends and software exposure, and discussed a newly authorized share repurchase program and an upcoming change in ownership of its external manager during the company’s earnings call recorded March 12, 2026.
Fourth-quarter results and NAV movement
Chief Financial Officer Todd Huskinson said the company generated $0.29 per share of GAAP net investment income in the fourth quarter, with Core Net Investment Income also $0.29 per share (excluding excise taxes). During the quarter, Stellus realized $5.5 million of gains on five equity positions, resulting in total realized income of $0.48 per share for the period.
On the capital side, Huskinson said that on December 31 the company repaid the remaining $50 million of its $100 million 2026 Notes ahead of their March 2026 maturity.
Portfolio activity and asset quality
Stellus ended the fourth quarter with an investment portfolio at fair value of $1.01 billion across 115 portfolio companies, unchanged from September 30, 2025. During the quarter, the company invested $34.1 million in four new portfolio companies and had $18 million in other investment activity at par. It also received four full repayments totaling $37.9 million, five equity realizations totaling $7 million, and $9.1 million of other repayments at par.
At December 31, management said 99% of loans were secured and 92% were priced at floating rates. The average loan per company was $8.8 million and the largest overall investment was $19.2 million, both at fair value. Management said substantially all portfolio companies are backed by private equity sponsors.
In terms of credit performance, executives described asset quality as “slightly better than planned.” At fair value, 81% of the portfolio was rated one or two (on or ahead of plan), while 19% was rated three or below (not meeting expectations). The company added one new loan to non-accrual and removed another during the quarter. As of quarter-end, Stellus had loans to five portfolio companies on non-accrual, representing 7.5% of total cost and 4.1% of total fair value, which management said was a slight increase from the prior quarter.
Software and AI-related exposure
Addressing investor concerns about artificial intelligence disruption in the SaaS industry, Huskinson said Stellus does not have exposure to the large-scale SaaS software sector. Instead, the company has loans to a small number of software businesses described as “industry-specific tech-enabled solutions.” Management said this group includes five companies and represents 6.8% of the loan portfolio, with the largest position at 1.8% of the portfolio at fair value.
Management said these companies provide products and services that are embedded in their customers’ operations, often involving proprietary data, and are using AI to enhance their offerings. Huskinson said the risk ratings for these companies were either one or two, and executives added they would be “surprised” if AI had a material negative impact on recovery values for those loans.
2026 outlook: portfolio size, dividends, and non-accrual timeline
Chief Executive Officer Robert Ladd said the portfolio stood at approximately $996 million across 115 companies at the time of the call. With “turbulence” in markets and slower M&A activity following a robust fourth quarter, Stellus expects to end the first quarter of 2026 at the current portfolio level or “slightly less.” Ladd also said the company expects equity realizations in the first quarter of approximately $2 million, resulting in an expected $1 million realized gain.
On distributions, Ladd said the company declared first-quarter 2026 dividends totaling $0.34 per share in the aggregate, payable monthly, and expects to keep the dividend at the same $0.34 level for the second quarter, subject to board approval.
During Q&A, Ladd said there would be no change to leverage targets as a result of the planned external manager transaction or the share repurchase program. He reiterated targeted leverage of approximately 1:1 on the regulatory test and approximately 2:1 including SBIC debentures.
Asked about the timing for resolving non-accruals, Ladd said outcomes vary by company but characterized resolution as typically a “year to 18-month process,” with a “gradual resolution” expected through 2026 and into 2027.
Ridgepost transaction and $20 million buyback authorization
Ladd discussed the company’s February 5 announcement that its external manager, Stellus Capital Management, agreed to be purchased by Ridgepost Capital (formerly P10). He said Stellus would continue to be managed by its current partners, who would retain control of day-to-day operations and investment decision-making, and that he would remain chairman and CEO while Huskinson would remain CFO.
Management described Ridgepost as a private markets solutions provider with more than $43 billion in assets under management. Ladd said the company expects its advisor joining Ridgepost’s platform to expand investment opportunities, particularly through relationships tied to RCP Advisors, which he described as a lower middle-market private equity strategy with extensive LP relationships. The transaction is expected to close in mid-2026, subject to approvals and customary closing conditions. Ladd emphasized that Stellus Capital Investment Corporation would remain a publicly traded company.
Separately, Ladd said the board approved a share repurchase program of up to $20 million. He cited the stock’s trading level at approximately a 30% discount to the company’s reported net asset value as the rationale, adding that the authorization will remain in place for at least one year.
Additional Q&A touched on SBIC capacity, with Ladd noting additional debenture capacity following debenture repayments, and on the company’s approach to payment-in-kind (PIK) income. Ladd said Stellus does not originate loans with planned PIK features, and when PIK income rises it generally reflects borrowers receiving cash flow relief alongside new capital support from private equity sponsors. He also said improved earnings could be supported by factors including interest rate levels and additional leverage capacity tied to a potential third SBA license, while noting the company had spillover income from the prior year.
About Stellus Capital Investment (NYSE:SCM)
Stellus Capital Investment Corporation (NYSE: SCM) is a closed-end, externally managed business development company that provides debt and equity financing to middle market companies in the United States. As an investment vehicle specializing in private credit, Stellus focuses on originating and structuring senior secured loans, unitranche facilities, mezzanine debt, and equity co-investments tailored to the unique needs of growing businesses. Its flexible capital solutions are designed to support acquisitions, recapitalizations, growth initiatives, and balance sheet refinancings.
Operating under an evergreen structure, Stellus Capital Investment partners with a diverse group of portfolio companies across industries such as manufacturing, healthcare, business services, and specialty finance.
