Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to the Stellus Capital Investment Corporation First Quarter 2022 Results Conference Call. At this time, all participants have been placed on a listen-only mode. The call will be open for a question-and-answer session following the speaker's remarks. Today's conference is being recorded this date, May 12, 2022. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.
Okay. Thank you, Kyle, and good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter ended March 31st, 2022. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information.
Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation, and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and PIN provided in our press release announcing this call. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update our forward-looking statements unless required by law.
To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link, or call us at 713-292-5400. At this time, I'd like to turn the call back over to our Chief Executive Officer, Rob Ladd.
Thank you, Todd. I'm pleased to report solid results in the first quarter in which we grew our investment portfolio, maintained at net asset value, covered the dividend, and generated $3.5 million of realized gains. We've continued to see many interesting opportunities, and as a result have funded $75 million on a cost basis during the first quarter. Our portfolio at fair value increased by $65 million, ending the quarter at $854 million on a cost basis. We will begin by discussing our operating results, followed by a review of the portfolio, including asset quality, our dividend strategy, and then the outlook. Todd will now cover our operating results.
Thank you, Rob. For the quarter ended March 31st, 2022, we covered our regular dividends of $0.28 per share with core net investment income of $0.29 per share. GAAP net investment income was $0.28 per share, which includes income tax expense related to our spillover income. We generated net realized gains of $3.5 million related to the realization of an equity investment. Our portfolio valuation, excluding unrealized gain reversals related to our realized gains, was effectively unchanged, declining $1.3 million quarter-over-quarter. We continue to recycle capital in our first SBIC license and deploy the low cost of debentures in our second license. To date, we've committed the full $87.5 million of equity to SBIC two and have funded $70 million.
We have drawn down $140 million of the $175 million in debentures that will be available when the equity is fully funded. With that, I'll turn it back over to Rob.
Okay. Thank you, Todd. I'd like to cover the following areas now. Year-to-date review, a portfolio and asset quality review, our dividend strategy, and then outlook. Year-to-date review. Since our IPO in November 2012, we have invested approximately $2.1 billion over 160 companies and have received approximately $1.3 billion of repayments while maintaining a stable asset quality. We have paid over $186 million of dividends to our investors, which represents $12.22 per share to an investor in our IPO in November 2012. Now turning to portfolio and asset quality. We ended the quarter with an investment portfolio at fair value of $838 million across 78 portfolio companies.
This was up from $773 million across 73 companies at December 31st, 2021. During the first quarter, we invested $74.5 million in 6 new and 7 existing portfolio companies and received just $10 million growth at cost of $68.8 million for the quarter. Overall, our asset quality is stable at 2.03 on our investment rating system, or effectively on plan. 86% of our portfolio is rated at two or higher, meaning at or above plan. Thus, 14% of the portfolio is marked at an investment category of three or below. In total, we have three loans on nonaccrual, which comprise 0.7% of fair value of the total loan portfolio. Now turning to dividends.
In addition to our regular dividend of $0.28 per share in the aggregate, for the second quarter, our board declared an additional dividend for that quarter of $0.06 per share in the aggregate, or $0.02 paid per month. As we discussed last quarter, this additional dividend is based on the significant realized gains we are generating. $23.7 million before tax in 2021, or $1.22 per share, and then $3.5 million in Q1 and expected additional realized gains in Q2.
In fact, we have generated net realized gains of $2.8 million since quarter end. Looking forward, of course, subject to board approval, we expect to continue this combined $0.34 dividend each quarter for the foreseeable future, which I'd note represents, at least based on yesterday's stock price of $13.09, an annualized yield of 10.4%. Now turning to outlook, I'd like to note a few things. First, relative to interest rates. The forward curve for 90-day LIBOR, which remains our principal benchmark rate for this year, reflects an excess of 3% by early next year. This is approximately 2% higher than the LIBOR rate that most of our loans were priced at March 31st.
Since 97% of our loan portfolio is floating and only 34% of our funded liabilities are at a floating rate, we should be a significant beneficiary of this phenomenon. In any event, if LIBOR holds at a current level, our portfolio yield should reprice at about 8.2% versus 8%, that it was at 8% at 3/31. Now, inflation, rising labor costs, supply chain constraints. Our country is of course facing many headwinds which have been well-publicized and which will likely lead to a slowdown in our economy. Our portfolio is well-positioned for this eventuality. Over 97% of our loan portfolio companies are backed by a private equity firm.
The average contributed and rollover equity in our companies is approximately 50%, meaning that our debt is 50% of the capital structure and the owners below us have the other 50%. 84% of the loan portfolio is first lien unitranche, and all loans have covenants. Now, equity gains. Notwithstanding a slowdown in the economy, we expect the equity gains we've been receiving will continue as private equity firms find opportunities to achieve realizations. As noted earlier, we've had $6.3 million of equity gains so far this year. Then finally, now to turn to new investments and repayments. We funded $29 million since quarter end and have one repayment for $14 million since quarter end. We have the potential to increase the portfolio additionally by $20 million-$30 million over the balance of the quarter.
I would note that we are expecting repayments to be slower this year, at least based on the first four months of the year so far. With that, I'll open it up for questions. Thank you. Kyle, you may begin the Q&A session, please.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We take our first question from Paul Johnson with KBW.
Yeah, good morning, guys. Thanks for taking my questions today.
Good morning, Paul.
Good morning. My first question is just on the pace of deployment. It sounds like you have some net deployment here quarter- to- date, and I believe your regulatory leverage, you know, not including the SBA debt, is a little around 1.0x or 1.1x or so. But gross leverage is much higher. Just hoping to get, you know, maybe a little bit of color on how you guys consider that while you're, you know, making deployments into the quarter, if that factors into potentially pulling back on new originations or, you know, any sort of insight you might even have into realizations within the portfolio, if that helps.
Yeah, sure. Sure, Paul, be glad to. You're right, the target leverage from a regulatory standpoint is one or a little bit over one to one . On a combined GAAP basis, it's roughly two to one, which includes the SBIC debentures. It's our plan to fully deploy the debentures this year, again based on activity. You could see the portfolio in total approach $900 million from roughly $850 million today. It would be our expectation to fully deploy those debentures, so the leverage would tick up, but it would come from SBIC leverage, not bank leverage.
Got it. Appreciate it.
Again, ultimately, that goal is to be low 2 .0x. Again, given the portfolio is also principally first lien unitranche, we're quite comfortable with that. As you know, the SBIC debentures are 10-year interest-only debentures. As an example, those that we took out recently in April will not be due until April of 2032.
Got it. Yeah, I know those are very beneficial, you know, sources of funding and, that's very good color on that. I appreciate that. My last question is just on, just the slight drop quarter-over-quarter in interest income. Just wondering if anything particular drove that, with rates obviously being higher. I think nonaccruals dropped a little bit. Is there anything higher yielding that paid off during the quarter? And those are all my questions. Thanks.
Yeah, sure, Paul. I'd say the delta between the first quarter of this year versus the fourth quarter of last year was just driven by much fewer repayments, so at very little fee acceleration in the first quarter versus the fourth quarter of last year. Again, it's likely with slower repayments that may continue at least for another quarter or so. So that's the explanation. In terms of the yield, we're still holding. As you see, we reported a debt yield of 8%, though we have average LIBOR floors of 1.12%. At March 31, when most of the loans repriced, LIBOR was just under 1%. Now it's about 1.4%, so through the floors, many of the floors.
If that holds, as I say, you should see an uptick at the repricing of June 30, but that won't flow through until the third quarter as the loans reprice on, say, June 30 and then get the impact in the third quarter of this year.
Appreciate it. Thank you very much.
Okay. Thank you.
Thank you. We take our next question from Christopher Nolan with Ladenburg Thalmann.
Hey, good morning, Chris.
Hey, guys. Hey, Rob. I know you mentioned you expect slowing prepayments in the quarter. What are your assumptions in terms of asset quality, given the rise in interest rate and the incrementally higher interest burden on your portfolio companies?
We don't expect the rising interest rate environment to have a material impact on asset quality. Again, as I said earlier, if you take the forward curve and LIBOR goes from what had been 1% at March 31 to, say, 3% in January or March of a year from now, we don't think that's material. You know, what would be material would be 500 basis point increase. We don't expect that to impact asset quality. Again, there's no question given the headwinds that we've all been talking about, and I mentioned earlier, that this, you know, will have an impact on the economy and will impact a number of companies. As I said, I think we're well positioned to weather it.
I don't think the near term interest rate forecast is sufficient to have a material impact.
Great. I guess as a follow-up, what are your private equity partners doing to position themselves for the changing interest rate environment?
I'm sorry, the changing interest rate environment?
Yeah, the slowing economy and the rising interest rates. Are the private equity partners actually doing anything that you might notice that to position themselves for the changing environment?
Sure. Well, a few thoughts. One, you know, the good news is that as you know almost all of our companies are owned by private equity firms, so you know very smart investment professionals in all cycles, and certainly we're preparing and thinking through you know the headwinds ahead. I think that would be normal, and it's why we have this strategy overall. We've seen a little bit of a slowdown in activity in the first quarter. There's substantial dry powder in private equity firms, so we do expect there'll continue to be acquisitions occurring throughout the year. You would think that again, with these headwinds, that there'll be even more selectivity and perhaps you'll see lower multiples paid for companies. You know, we're still waiting to observe that.
Again, I'd say the most important point about your question, Chris, is how, you know, it's very positive for our portfolio to have such smart, able investors backing the companies.
Great. Thank you.
Thank you.
We take our next question from Robert Dodd with Raymond James. Your line is open.
Good morning, Robert.
Hi, guys. Good morning. On the expectations for lower prepayments or repayments to persist, is that primarily a function of, you know, what you're hearing from the companies? Or is it that, you know, in this kind of market environment, you don't necessarily see a lot of repayments or a lot of M&A activity? It kind of relates to-
Yeah.
If the market normalizes in the second half, maybe, would you expect them to ramp up? Is it just you expect it to be low all year just because of what?
Yeah.
You've heard from portfolio companies?
Yeah. Yeah, Robert. It's a really good question. Allow me to elaborate on what I've said earlier. I'm basing it just at this point on what we're observing. At the same time, history would tell us that we're running lower, much lower than normal on repayments. They were unusually higher in the third and fourth quarters of last year and are now unusually low in the first and second quarters of this year. In a reversion to the mean, we should see some pickup in the third and fourth quarters, but there's only one that we're aware of currently. I just wanted to make sure everyone had a sense of that. Could very well pick up, but it's not as obvious at this point.
I appreciate that comment. Maybe related, right? I mean, you've had equity gains, I mean already, you know, $6 million this year. Since a disproportionate number of repayments are usually driven by M&A, which may tie to an equity. If repayments are low, equity gains aren't, right? I mean, they're not zero. Should we-
Yeah.
Yeah. Is there a connection? What are your thoughts on that front?
Yes. In contrast, because we have a number of equity co-investments positions where the loan has previously been repaid, I'm really flagging more that those could start to come to fruition. Even though the repayments may slow or are slowing, we have a number of equity co-investments that do not have debt associated at this point, and that they are reaching the point where those companies will be sold. That would be the distinction.
I appreciate that. Thank you. Then one more if I can. Obviously, on the rate sensitivity, what is your the feel so far that you have on pricing in your market? I mean, obviously you're not the end of the market you're in with, you know, a lot of SBA-eligible assets, et cetera, you're not bumping up against the BSL market that much. I mean, what are you seeing on pricing discussions? Do you think, you know, rates are gonna have a the base rate is gonna have an influence on that? Do you think that's not gonna be a huge factor in impacting the spread on your first lien?
Sure. The first point is you're right, we do not compete with or tie at all to the BSL market. It's competitive, but our pricing continues to hold where it is currently and have not seen any issues there. You can make an argument if LIBOR then becomes 3% and your spread is 6% and the rate is 9%, could you see some impact on the spread? So far we've not seen that. At you know, LIBOR moving up, it's just started to happen above 1%. Pretty much the market floor right now has been a LIBOR floor of 1%, and so now we're at 1.40% or so. So far, no impact on what we're able to charge.
It's very competitive, but the pricing has held stable.
Got it. Thank you.
Yeah. Thank you, Robert.
That concludes today's question- and- answer session, and I'd like to turn it back to Mr. Ladd for any additional closing remarks.
Okay. Thank you everyone for, of course, your support and, for being on the call today. We look forward to speaking again with you. We'll likely report in late July or early August for the second quarter. Thanks again.
Thank you. That concludes today's call. Thank you for your participation. You may now disconnect.