Stellus Capital Investment Corporation (NYSE:SCM) Q2 2020 Earnings Conference Call - Final Transcript

Jul 31, 2020 • 11:00 am ET

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Stellus Capital Investment Corporation (NYSE:SCM) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Analyst
Ryan Lynch

Executive
Robert Ladd

Todd, why don't you cover that, please?

Executive
W. Todd Huskinson

Sure. Sure, Ryan. Yes. I think with the hurdle where we're set today and LIBOR where it is as well, as I mentioned earlier, the rotation to more senior debt, so the yield is a bit lower for those two reasons. And that's right. I think for now, we'll be operating at the lower end of the incentive fee range. That could change somewhat over time to the extent we further deploy primarily SBIC debentures from our second SBIC license, which are at a -- in a really low rate right now. So that would help some in terms of just getting over the hurdle, but that's correct in terms of where we feel like we'll operate for the time being.

Analyst
Ryan Lynch

Okay. And then just one last one, if I could, just kind of generally on the market. You mentioned, you guys are starting to see some more opportunities come through, you expect some more refinancing. Can you just talk about from your opinion, what's it going to take before we start seeing some more deal activity. Obviously, there's a great uncertainty about the economy going forward and when things will start to really reopen. I know there's difficult discussions as far as pricing in the market today, both on -- from interest rates and purchase price multiples. So just what do you think needs to happen before we start seeing some increased deal activity in your opinion?

Executive
Robert Ladd

Yeah, Ryan. So this is a general matter that -- and just to address current investing and then longer term, I'd say, in the current environment, we continue to be cautious for the reasons that we all know and continue to be very selective in the investing. So if you see us making a new investment, we certainly think that it endures even if the pandemic also endures for some period of time. So that's the approach we're taking. And then separately, because of maintaining good liquidity, you'll see those investments principally coming out of our SBIC capital where we have a capacity.

In terms of longer-term of -- or pricing, maybe, we are seeing roughly 50 to 100 basis points higher pricing than we might have seen six months ago or so. It depends certainly on the credit and the leverage. But I think there's a fair amount of private capital available, which certainly in the credit world as well as the private equity world. And so, we are seeing some loosening up, principally starting with the add-on acquisitions, where a company has already bought -- private equity firms already invested and they have an add on one or two acquisitions that they might have been looking at pre-COVID. So that's what we're seeing first, but we're starting to see more activity generally.

So I think values have held up pretty well overall. And then, of course, if you're involved in an industry sector that's been directly impacted by COVID, that's quite a different