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As filed with the Securities and Exchange Commission on August 19, 2022

Securities Act File No. 333-265695

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. 1

Post-Effective Amendment No. 

STELLUS CAPITAL INVESTMENT
CORPORATION

(Exact Name of Registrant as Specified in Charter)

4400 Post Oak Parkway, Suite 2200

Houston, TX 77027

(Address of Principal Executive Offices)
(713) 292-5400

(Registrant’s Telephone Number, including Area Code)

Robert T. Ladd

Chief Executive Officer and President
Stellus Capital Investment Corporation
4400 Post Oak Parkway, Suite 2200

Houston, TX 77027

(Name and Address of Agent for Service)

WITH COPIES TO:

Steven B. Boehm, Esq.

Stephani M. Hildebrandt, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street, NW
Washington, DC 20001

Tel: (202) 383-0100

Fax: (202) 637-3593

Approximate date of commencement of proposed public offering: As soon as practicable after the effective date of this Registration Statement.

Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans.

Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (Securities Act), other than securities offered in connection with a dividend reinvestment plan.

Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post- effective amendment thereto.

Check box if this Form is a registration statement pursuant to General Instruction B or a post- effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act.

Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act.

It is proposed that this filing will become effective (check appropriate box):

when declared effective pursuant to Section 8(c) of the Securities Act.

If appropriate, check the following box:

This [post-effective] amendment designates a new effective date for a previously filed [post- effective amendment] [registration statement].

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This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: .

This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is:.

This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is:.

Check each box that appropriately characterizes the Registrant:

Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (Investment Company Act)).

Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act).

Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).

A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).

Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).

Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (Exchange Act).

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 Section 7(a)(2)(B) of Securities Act.

New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

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SUBJECT TO COMPLETION, DATED AUGUST 19, 2022

PROSPECTUS

$300,000,000

STELLUS CAPITAL INVESTMENT CORPORATION

Common Stock
Preferred Stock
Warrants
Subscription Rights
Debt Securities

Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation. 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 below investment grade (i.e., below BBB or Baa), which are often referred to as “junk”.

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. We have elected to be treated, qualify and intend to qualify annually, as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes. As a BDC and a RIC, we are required to comply with certain regulatory requirements.

We may offer, from time to time, in one or more offerings or series, up to $300,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock, and/or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities (collectively, the “securities”). The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus. You should read this prospectus and the applicable prospectus supplement carefully before you invest in our securities.

In the event we offer common stock, the offering price per share of our common stock less any underwriting discounts or commissions will generally not be less than the net asset value per share of our common stock at the time we make the offering. However, we may issue shares of our common stock pursuant to this prospectus at a price per share that is less than our net asset value per share if our board of directors determines that such sale is in our best interests, and if our stockholders approve such sale. At our 2022 annual meeting of stockholders, our stockholders voted to allow to issue common stock at a price below net asset value per share for the period ending on the earlier of one-year anniversary of the date of the 2022 annual meeting of stockholders which was held on June 23, 2022 or our 2023 annual meeting of shareholders. 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 immediately prior to such sale. We expect to seek similar approval at our 2023 annual meeting of stockholders which we expect to be held in June 2023. We cannot issue shares of our common stock below net asset value unless our board of directors 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. See “Sales of Common Stock Below Net Asset Value.”

The securities may be offered directly to one or more purchasers, through agents designated from time to time by us, or to or through underwriters or dealers. Each prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of the securities, and will disclose any applicable purchase price, fee, discount or commissions arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.” We may not sell any of the securities pursuant to this registration statement through agents, underwriters or dealers without delivery of this prospectus and a prospectus supplement describing the method and terms of the offering of such securities.

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “SCM.” On August 18, 2022, the last reported sales price of our common stock on NYSE was $13.83 per share. The net asset value per share of our common stock at June 30, 2022 (the last date prior to the date of this prospectus for which we reported net asset value) was $14.32.

Investing in our securities involves a high degree of risk, including credit risk, the risk of the use of leverage and the risk of dilution, and is highly speculative. In addition, shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset values. If our shares of our common stock trade at a discount to our net asset value, it will likely increase the risk of loss for purchasers in an offering made pursuant to this prospectus or any related prospectus supplement. Before investing in our securities, you should read the discussion of the material risks of investing in our securities, including the risk of leverage and dilution, in “Risk Factors” beginning on page 13 of this prospectus or otherwise incorporated by reference herein and included in, or incorporated by reference into, the applicable prospectus supplement and in any free writing prospectuses we have authorized for use in connection with a specific offering, and under similar headings in the other documents that are incorporated by reference into this prospectus.

This prospectus describes some of the general terms that may apply to an offering of our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The accompanying prospectus supplement and any related free writing prospectus may also add, update, or change information contained in this prospectus. You should carefully read this prospectus, the accompanying prospectus supplement, any related free writing prospectus and the documents incorporated by reference herein, before investing in our securities and keep them for future reference. We also file periodic and current reports, proxy statements and other information about us with the SEC. This information is available free of charge by contacting us at 4400 Post Oak Parkway, Suite 2200, Houston, TX 77027, Attention: Investor Relations, or by calling us at (713) 292-5400 or visiting our corporate website located at www.stelluscapital.com (under the Public (SCIC) section). The SEC also maintains a website at http://www.sec.gov that contains this information. Information on our website or the SEC’s website is not incorporated into or a part of this prospectus, and you should not consider that information to be part of this prospectus or the accompanying prospectus supplement.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.

The date of this prospectus is, 2022.

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TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY

2

FEES AND EXPENSES

7

FINANCIAL HIGHLIGHTS

8

SUPPLEMENTARY FINANCIAL DATA

12

RISK FACTORS

13

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

14

USE OF PROCEEDS

16

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

20

BUSINESS

21

SENIOR SECURITIES

22

PORTFOLIO COMPANIES

23

MANAGEMENT

45

MANAGEMENT AND OTHER AGREEMENTS

46

RELATED-PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS

47

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

48

DETERMINATION OF NET ASSET VALUE

49

SALES OF COMMON STOCK BELOW NET ASSET VALUE

50

DIVIDEND REINVESTMENT PLAN

55

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

56

DESCRIPTION OF OUR SECURITIES

64

DESCRIPTION OF OUR CAPITAL STOCK

64

DESCRIPTION OF OUR PREFERRED STOCK

70

DESCRIPTION OF OUR SUBSCRIPTION RIGHTS

71

DESCRIPTION OF OUR WARRANTS

73

DESCRIPTION OF OUR DEBT SECURITIES

75

REGULATION

90

PLAN OF DISTRIBUTION

91

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR

93

BROKERAGE ALLOCATION AND OTHER PRACTICES

93

LEGAL MATTERS

93

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

93

AVAILABLE INFORMATION

93

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

94

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we have filed with the SEC, using the “shelf” registration process. Under this shelf registration statement, we may offer, from time to time, in one or more offerings, up to $300,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock, and/or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, on terms to be determined at the time of the offering. See “Plan of Distribution” for more information.

This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings. In a prospectus supplement or free writing prospectus, we may also add, update, or change any of the information contained in this prospectus or in the documents we have incorporated by reference into this prospectus. This prospectus, together with the applicable prospectus supplement, any related free writing prospectus, and the documents incorporated by reference into this prospectus and the applicable prospectus supplement, will include all material information relating to the applicable offering. Before buying any of the securities being offered, please carefully read this prospectus, any accompanying prospectus supplement, any free writing prospectus and the documents incorporated by reference in this prospectus and any accompanying prospectus supplement.

This prospectus may contain estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and other third-party reports. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. However, we acknowledge our responsibility for all disclosures in this prospectus. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described or referenced in the section titled “Risk Factors,” that could cause results to differ materially from those expressed in these publications and reports.

This prospectus includes summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed or incorporated by reference, or will be filed or incorporated by reference, as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described in the section titled “Available Information.”

You should rely only on the information included or incorporated by reference in this prospectus, any prospectus supplement or in any free writing prospectus prepared by us or on our behalf or to which we have referred you. We have not authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus, in any accompanying prospectus supplement or in any free writing prospectus prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus, any accompanying prospectus supplement and any free writing prospectus prepared by us or on our behalf or to which we have referred you do not constitute an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. You should not assume that the information included or incorporated by reference in this prospectus, in any accompanying prospectus supplement or in any such free writing prospectus is accurate as of any date other than their respective dates. Our financial condition, results of operations and prospects may have changed since any such date. To the extent required by law, we will amend or supplement the information contained or incorporated by reference in this prospectus and any accompanying prospectus supplement to reflect any material changes to such information subsequent to the date of the prospectus and any accompanying prospectus supplement and prior to the completion of any offering pursuant to the prospectus and any accompanying prospectus supplement.

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PROSPECTUS SUMMARY

This summary highlights some of the information included elsewhere in this prospectus or incorporated by reference. It is not complete and may not contain all of the information that you may want to consider before investing in our securities. You should carefully read the entire prospectus, the applicable prospectus supplement, and any related free writing prospectus, including the risks of investing in our securities discussed in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and under similar headings in the other documents that are incorporated by reference into this prospectus and the applicable prospectus supplement. Before making your investment decision, you should also carefully read the information incorporated by reference into this prospectus, including our financial statements and related notes, and the exhibits to the registration statement of which this prospectus is a part. Throughout this prospectus we refer to Stellus Capital Investment Corporation as “we,” “us,” “our” or the “Company,” and to Stellus Capital Management, our investment adviser, as “Stellus Capital Management” or “Adviser.”

Stellus Capital Investment Corporation

We are externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or “BDC”, under the Investment Company Act of 1940, or the “1940 Act.” We originate and invest primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. Unitranche debt is typically structured as first lien loans with certain risk characteristics of mezzanine debt. Mezzanine 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 senior investment professionals of Stellus Capital Management have developed with financial sponsor firms, financial institutions, 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 below investment grade (i.e., Baa or BBB), which 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. We seek to achieve our investment objective by:

accessing the extensive origination channels that have been developed and established by the Stellus Capital Management investment professionals that 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 middle-market company focus;
focusing on a variety of industry sectors, including business services, energy, 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 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.

We previously received exemptive orders (the “Prior Orders”) from the Securities and Exchange Commission (the “SEC”) to co-invest with private funds managed by Stellus Capital Management where doing so is consistent with our investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). On May 9, 2022, we received a new exemptive order (the “Order”) that supersedes the Prior Orders and permits us greater flexibility to enter into co-investment

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transactions. Pursuant to the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our directors who are not “interested persons,” as such term is defined in Section 2(a)(19) of the 1940 Act (the “independent directors”) must make certain conclusions in connection with a co-investment transaction, including (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 or its stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies. We co-invest, subject to the conditions in the Order, with private credit funds managed by Stellus Capital Management that have an investment strategy that is similar or identical to our investment strategy, and the we may co-invest with other BDCs and registered investment companies 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 regulatory requirements, including limitations on our use of debt. Prior to June 28, 2018, we were only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, was equal to at least 200% after giving effect to such leverage. On March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement to 150% from 200% under certain circumstances. On April 4, 2018, our board of directors, or “the Board”, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act’) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. The Board also approved the submission of a proposal to approve the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, which was approved by shareholders at the Company’s 2018 annual meeting of stockholders. As a result, the asset coverage ratio test applicable to the Company was decreased from 200% to 150%, effective June 28, 2018. In other words, prior to the enactment of the SBCAA, a BDC could borrow $1.00 for investment purposes for every $1.00 of investor equity. Now, for those BDCs, like the Company, that satisfy the Act’s approval and disclosure requirements, the BDC can borrow $2.00 for investment purposes for every $1.00 of investor equity.

The SBCA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% Asset Coverage, the BDC must either obtain: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal, which would become effective one year after the date of such approval (the “Board Effective Date”), or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meeting in which quorum is present), which would become effective on the first day after the date of such stockholder approval.

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 our securities 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 borrowings. For more information about the expected amount of and costs associated with our borrowings, see “Fees and Expenses” in this prospectus.

We have elected and qualified to be treated for federal income tax purposes as a regulated investment company, or “RIC,” under Subchapter M of the Internal Revenue Code, or the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders as dividends if we meet certain source-of-income, distribution and asset diversification requirements.

Our Adviser

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 31 years 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 middle-market investing, including originating, structuring and managing loans and debt securities through market cycles. The Stellus Capital Management 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”) with respect to an approximately $17.6 million investment portfolio (as of June 30, 2022) in middle-market companies pursuant to sub-advisory arrangements.

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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 several private credit funds which have an investment strategy that is similar or identical to our investment strategy. We received exemptive relief from the SEC 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 exemptive order issued by the SEC). We believe that such co-investments may afford us additional investment opportunities and an ability to achieve greater diversification. In addition, we will not co-invest with D.E. Shaw group funds.

Stellus Capital Management is registered as an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Advisers Act”). Subject to the overall supervision of our board of directors (the “Board”), our Adviser manages our day-to-day operations and provides us with investment advisory services pursuant to the investment advisory agreement, dated September 24, 2012 (the “Advisory Agreement”). Pursuant to the Advisory Agreement, we pay Stellus Capital Management a fee for its investment advisory and management services consisting of two components: a base management fee and an incentive fee. The cost of the base management fee and incentive fee are each borne by our stockholders. See “Management and Other Agreements.”

Stellus Capital Management is headquartered in Houston, Texas, and also maintains offices in the Washington, D.C. area and Charlotte, North Carolina.

Our Administrator

We have entered into an administration agreement, dated October 26, 2012 (the “Administration Agreement”) with Stellus Capital Management (the “Administrator”), pursuant to which our Administrator is responsible for furnishing us with office facilities and equipment and provides us with clerical, bookkeeping, recordkeeping and other administrative services at such facilities. For more information, see “Management and Other Agreements.”

Market Opportunity

We originate and invest primarily in private 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 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 several years, which should, in turn, create lending opportunities for us.

Attractive Environment to Lend To Middle-Market Companies. The current strength of the U.S. economy provides an attractive environment to lend to middle-market companies. The U.S. services and manufacturing sector continues to show strong growth and profitability, allowing 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 middle market companies, is creating a large population of credit worthy companies looking for debt capital.

Attractive Deal Pricing and Structures. We believe that the pricing of 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, 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 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 middle-market companies. For example, based on the experience of Stellus Capital Management’s investment professionals, lending to 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

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monitoring by the lender. We believe that, through Stellus Capital Management, we have the experience and expertise to meet these specialized lending requirements.

Competitive Advantages

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 investment professionals, including its senior investment professionals who have an average of over 32 years 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 middle-market investing, including originating, structuring and managing loans and debt securities through market cycles. We believe the members of Stellus Capital Management’s 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 the experience and demonstrated ability of the Stellus Capital Management investment team to complete transactions enhances 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. Stellus Capital Management’s investment and monitoring process and the depth and experience of its investment professionals should 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 company’s 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, original issue discounts, early redemption premiums, payment-in-kind, or “PIK,” interest or some form 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 D’Angelo, Joshua T. Davis and Todd A. Overbergen, who are supported by eight managing directors, two vice presidents and three analysts. These individuals have developed long-term relationships with 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 Management’s due diligence, credit analysis, origination and transaction execution experience and capabilities, including the support provided with respect to those functions by Mr. Huskinson, who serves as our chief financial officer and chief compliance officer, and his staff of ten finance and operations professionals.

Use of Leverage

Credit Facility. We have entered into an Amended and Restated Senior Secured Revolving Credit Agreement, dated September 18, 2020, and amended December 22, 2021, February 28, 2022, and May 13, 2022 with Zions Bancorporation, N.A., dba Amegy Bank, as administrative agent and lender, and various other lenders (the “Credit Facility”). The Credit Facility, as amended, provides for borrowings up to a maximum of $265 million on a committed basis. Borrowings under the Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) term SOFR plus 2.50% (or 2.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus a SOFR credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or (ii) 1.50% (or 1.75% during certain periods in which the Company’s 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. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on September 18, 2024, 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

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borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 18, 2025. 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. As of June 30, 2022, we had approximately $203.5 million outstanding under the Credit Facility.

4.875% Notes. On January 14, 2021, we issued $100 million in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the “2026 Notes”). The 2026 Notes will mature on March 30, 2026, and may be redeemed in whole or in part at any time on or after December 31, 2025 or from time to time at the Company’s option at a redemption price equal to the greater of the following amounts, plus, in each case, accrued and unpaid interest to, but excluding, the redemption date: (1) 100% of the principal amount of the 2026 Notes to be redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) of the 2026 Notes to be redeemed, discounted to the redemption date on a semi-annual basis plus 50 basis points; provided, however that if we redeem any 2026 Notes on or after December 31, 2025, the redemption price of the 2026 Notes will be 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. As of June 30, 2022, we had $100 million of 2026 Notes outstanding.

SBA-guaranteed Debentures. Due to the SBIC subsidiary’s status as a licensed SBIC, we have the ability to issue debentures guaranteed by the SBA at favorable interest rates. As of June 30, 2022, the SBIC I subsidiary had $150.0 million of SBA-guaranteed debentures outstanding and the SBIC II subsidiary had $143.6 million of SBA-guaranteed debentures outstanding.

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FEES AND EXPENSES

Information regarding our fees and expenses is incorporated by reference herein from our most recent Annual Report on Form 10-K and our most recent Quarterly Report on Form 10-Q.

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FINANCIAL HIGHLIGHTS

Information regarding the following financial highlights for the years ended December 31, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013 and 2012 are derived from our consolidated financial statements, which have been audited by Grant Thornton, LLP an independent registered public accounting firm whose reports thereon are incorporated by reference in this prospectus.

    

For the year

    

For the year

    

For the year

    

For the year

    

For the year

 

 ended 

 ended 

 ended 

 ended 

 ended 

December 31,

December 31,

December 31,

December 31,

December 31,

    

2021

    

2020

    

2019

    

2018

    

2017

 

Per Share Data:(1)

  

  

  

  

  

 

Net asset value at beginning of period

$

14.03

$

14.14

$

14.09

$

13.81

$

13.69

Net investment income

 

1.01

 

1.13

 

1.23

 

1.42

 

1.21

Change in unrealized (depreciation) appreciation

 

(0.36)

 

0.44

 

(0.85)

 

(0.11)

 

Net realized gain (loss)

 

1.22

 

(0.52)

 

1.07

 

0.35

 

0.31

Loss on debt extinguishment

 

(0.03)

 

 

 

 

Provision for taxes on realized gains

 

(0.15)

 

 

 

(0.02)

 

Benefit (provision) for taxes on unrealized depreciation (appreciation)

0.03

(0.01)

  

Total from investment operations

 

1.72

 

1.04

 

1.45

 

1.64

 

1.52

Sales Load

 

 

 

(0.06)

 

 

(0.09)

Offering Costs

 

 

 

(0.03)

 

 

(0.02)

Stockholder distributions from:

 

  

 

  

 

  

 

  

 

  

Net investment income

 

(1.09)

 

(1.15)

 

(0.54)

 

(1.03)

 

(1.20)

Net realized capital gains

 

(0.05)

 

 

(0.82)

 

(0.33)

 

(0.16)

Other(3)

0.05

0.07

Net asset value at the end of period

$

14.61

$

14.03

$

14.14

$

14.09

$

13.81

Per share market value at end of period

$

13.02

$

10.88

$

14.23

$

12.95

$

13.14

Total return based on market value(4)

 

30.78

%  

 

(13.73)

%  

 

21.97

%  

 

8.68

%  

 

20.29

%

Weighted average shares outstanding at the end of period

 

19,489,750

 

19,471,500

 

18,275,696

 

15,953,571

 

14,870,981

Ratio/Supplemental Data:

 

  

 

  

 

  

 

  

 

  

Net assets at the end of period

$

285,111,233

$

273,360,649

$

270,571,173

$

224,845,007

$

220,247,242

Weighted average net assets

$

274,188,692

$

253,034,571

$

259,020,507

$

223,750,302

$

195,211,550

Annualized ratio of operating expenses to net assets(7)

 

16.90

%  

 

13.75

%  

 

14.11

%  

 

13.72

%  

 

11.10

%

Annualized ratio of interest expense and other fees to net assets(2)

 

6.83

%  

 

6.29

%  

 

5.78

%  

 

5.51

%  

 

4.02

%

Annualized ratio of net investment income to net assets

 

7.21

%  

 

8.58

%  

 

8.64

%  

 

10.09

%  

 

9.21

%

Portfolio turnover(5)

 

39

%  

 

21

%  

 

23

%  

 

32

%  

 

48

%

Notes payable

$

100,000,000

$

48,875,000

$

48,875,000

$

48,875,000

$

48,875,000

Credit Facility payable

$

177,340,000

$

174,000,000

$

161,550,000

$

99,550,000

$

40,750,000

SBA-guaranteed debentures

$

250,000,000

$

176,500,000

$

161,000,000

$

150,000,000

$

90,000,000

Asset coverage ratio(6)

 

2.03x

 

2.23x

 

2.29x

 

2.51x

 

3.46x

(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 the years ended December 31, 2021 and 2017, respectively. Including these costs, this ratio would be 7.02% and 4.24% for the years 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.

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(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 $510,868, $(224,877), and $(66,760) for the years ended December 31, 2021, 2020 and 2019 respectively, as well as, $(2,957,220) of provision for taxes on realized gains on investments for the year ended December 31, 2021 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 the years ended December 31, 2021, 2020 and 2019 is less than (0.89)%, (0.09)% and (0.03)%, respectively. These ratios excludes debt extinguishment costs of $(539,250) for the year ended December 31, 2021.

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For the period

 

from Inception

For the year  

For the year  

For the year  

For the year  

(May 18, 2012)

ended

ended

ended

ended

through

December 31,

December 31,

December 31,

December 31,

December 31,

    

2016

    

2015

    

2014

    

2013

    

2012

 

Per Share Data:(1)

 

Net asset value at beginning of year/period

$

13.19

$

13.94

$

14.54

$

14.45

$

15.00

 

Net investment income

 

1.39

 

1.33

 

1.34

 

1.33

 

0.11

Change in unrealized appreciation (depreciation)

 

1.49

 

(0.74)

 

(0.53)

 

0.03

 

(0.01)

Realized gain (loss)

 

(1.05)

 

0.03

 

0.04

 

0.09

 

Benefit (Provision) for taxes on unrealized appreciation

0.03

 

(0.01)

 

(0.02)

 

 

Total from investment operations

 

1.86

 

0.61

 

0.83

 

1.45

 

0.10

Issuance of common shares

 

 

 

 

 

0.01

Reinvestments of stockholder distributions(2)

 

 

 

 

(0.41)

Sales Load

 

 

 

(0.01)

 

 

(0.07)

Stockholder distributions from:

Net investment income

 

(1.36)

 

(1.33)

 

(1.31)

 

(1.36)

 

(0.18)

Net realized capital gains

 

 

(0.03)

 

(0.12)

 

 

Other(3)

 

 

 

0.01

 

 

Net asset value at the end of year/period

$

13.69

$

13.19

$

13.94

$

14.54

$

14.45

Per share market value at end of year/period

$

12.06

$

9.64

$

11.78

$

14.95

$

16.38

Total return based on market value(4)

42.83

%  

 

(7.76)

%  

 

(13.09)

%  

 

0.42

%  

 

10.48

%

Weighted average shares outstanding at the end of period

 

12,479,959

 

12,479,961

 

12,281,178

 

12,059,293

 

12,035,023

Ratio/Supplemental Data:

Net assets at the end of year/period

$

170,881,785

$

164,651,104

$

173,949,452

$

175,891,514

$

173,845,955

Weighted average net assets

$

165,189,142

$

173,453,813

$

176,458,141

$

175,398,660

$

173,845,955

Annualized ratio of gross operating expenses to net assets(7)(8)

 

13.20

%  

 

11.16

%  

 

9.92

%  

 

8.65

%  

 

5.49

%

Annualized ratio of net operating expenses to net assets(7)(8)

 

13.20

%  

 

10.78

%  

 

9.12

%  

 

7.63

%  

 

5.50

%

Annualized ratio of interest expense and other fees to net assets

 

4.84

%  

 

3.56

%  

 

3.01

%  

 

1.78

%  

 

0.26

%

Annualized ratio of net investment income before fee waiver to net assets(7)

 

10.71

%  

 

9.11

%  

 

8.40

%  

 

8.11

%  

 

4.99

%

Annualized ratio of net investment income to net assets(7)

 

10.71

%  

 

9.49

%  

 

9.19

%  

 

9.13

%  

 

4.99

%

Portfolio Turnover(5)

 

16

%  

 

29

%  

 

19

%  

 

41

%  

 

35

%

Notes Payable

 

25,000,000

 

25,000,000

 

25,000,000

 

110,000,000

 

38,000,000

Credit Facility Payable

 

116,000,000

 

109,500,000

 

106,500,000

 

9,000,000

 

45,000,943

SBA Debentures

 

65,000,000

 

65,000,000

 

16,250,000

 

 

Asset Coverage Ratio(6)

 

2.21x

 

2.22x

 

2.32x

 

2.48x

 

4.57x

(1)Financial highlights are based on weighted average shares outstanding as of year/period ended.
(2)The per share impact of the Company’s reinvestment of stockholder distributions has an impact to net assets of less than $0.01 per share during the applicable period.
(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.

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(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. The total returns are not annualized.
(5)Calculated as the lesser of purchases or paydowns divided by average portfolio balance and is not annualized.
(6)Asset coverage ratio is equal to (i) the sum of (a) net assets at the end of the period and (b) total debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period. 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 loss (gain) on certain investments of $373,131, ($93,601) and ($288,122) for the years ended December 31, 2016, 2015 and 2014 respectively, which are not reflected in net investment income, gross operating expenses or net operating expenses. The benefit (provision) for income taxes related to net realized loss or unrealized loss (gain) on investments at taxable subsidiaries to net assets for the years ended December 31, 2016 and 2015 is (0.16)%, 0.05% and 0.17%, respectively.
(8)Deferred offering costs of $261,761 for the year ended December 31, 2016 are not annualized.

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SUPPLEMENTARY FINANCIAL DATA

The information in “Item 8. Audited Financial Statements and Supplementary Data,” including the financial notes related thereto, of our most recent Annual Report on Form 10-K, and in “Item 1. Statements of Assets and Liabilities” and “Item 1. Financial Statements,” including the financial notes related thereto, of our most recent Quarterly Report on Form 10-Q are incorporated by reference herein.

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RISK FACTORS

Investing in our securities involves a number of significant risks. Before you invest in our securities, you should be aware of and carefully consider the various risks associated with the investment, including those described in this prospectus, any accompanying prospectus supplement, any related free writing prospectus we may authorize in connection with a specific offering, “Part I, Item IA. Risk Factors” in our most recent Annual Report on Form 10-K, which is incorporated by reference herein in their entirety, “Part II, Item 1A. Risk Factors” in our most recent Quarterly Report on Form 10-Q, which is incorporated by reference herein in their entirety, and any document incorporated by reference herein. You should carefully consider these risk factors, together with all of the other information included in this prospectus, any accompanying prospectus supplement and any related free writing prospectus we may authorize in connection with a specific offering, before you decide whether to make an investment in our securities. The risks set out and described in these documents are not 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 business, operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, you may lose all or part of your investment. Please also read carefully the section titled “Special Note Regarding Forward-Looking Statements.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, any accompanying prospectus supplement, any related free writing prospectus and any documents we may incorporate by reference herein contain forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the Company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

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 or potential conflicts of interest with Stellus Capital Management
the dependence of our future success on the general economy and its effects on the industries in which we invest;
the impact of interest rate volatility, including the decommissioning of London Interbank Offered Rate (“LIBOR”) and rising interest rates, on our business and our portfolio companies;
the ability of our portfolio companies to achieve their objectives;
the use of borrowed money and enhanced leverage 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 our external investment adviser, 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 qualify and maintain our qualification as a RIC under Subchapter M of the Code, and as a BDC;
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;
other risks, uncertainties and other factors previously identified elsewhere in this prospectus.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus, the prospectus supplement, any documents we may incorporate by reference herein, and any related free writing prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements apply only as of the dates of this prospectus, the prospectus supplement, any documents we may incorporate by reference herein, and any related free

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writing prospectus. Moreover, we assume no duty and do not undertake to update the forward-looking statements. Because we are an investment company, the forward-looking statements and projections contained in this prospectus are excluded from the safe harbor protection provided by Section 21E of the Securities Act of 1934 Act, as amended (the “Exchange Act”).

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USE OF PROCEEDS

Unless otherwise specified in any applicable prospectus supplement or in any free writing prospectus we have authorized for use in connection with a specific offering, we intend to use the net proceeds from the sale of our securities pursuant to this prospectus for general corporate purposes, which may include, among other things, investing in accordance with our investment objective and strategy, repayment of any outstanding indebtedness, paying operating expenses and other general corporate purposes.

We anticipate that substantially all of the net proceeds of an offering of securities pursuant to this prospectus and any applicable prospectus supplement or free writing prospectus will be used for the above purposes within three months of any such offering, depending on the availability of appropriate investment opportunities consistent with our investment objective, but no longer than within six months of any such offerings. However, we can offer no assurance that we will be able to achieve this goal.

Pending such uses and investments, we intend to invest the net proceeds primarily in high quality, short-term debt securities consistent with our BDC election and our election to be taxed as a RIC. We do not intend to use any portion of net proceeds of this offering to fund distribution to our stockholders. Proceeds not immediately used for new investments or the temporary repayment of debt will be invested primarily in cash, cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less from the date of investment. These securities may have lower yields than the types of investments we would typically make in accordance with our investment objective and, accordingly, may result in lower distributions, if any, during such period. Our ability to achieve our investment objective may be limited to the extent that the net proceeds from an offering, pending full investment, are held in interest- bearing deposits or other short-term instruments. The prospectus supplement relating to an offering will more fully identify the use of proceeds from any offering.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

The following information is qualified by reference to, and should be read in conjunction with, the information in our most recent Annual Report on Form 10-K and in our most recent Quarterly Report on Form 10-Q regarding the price range of our common stock, distributions and stockholders of record, which is incorporated by reference herein, including, for example, the risk factors, the description of our dividend reinvestment plan and certain U.S. federal income tax considerations.

Market Information

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “SCM”. Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value (“NAV”) per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below NAV per share. See “Item 1A. Risk Factors — Risks Relating to Our Common Stock” in our most recent annual report on Form 10-K. On August 18, 2022, the last reported closing sales price of our common stock on the NYSE was $13.83 per share, which represented a discount of approximately 96.6% to our NAV per share of $14.32 as of June 30, 2022.

The following table sets forth for the first quarter of the year ending December 31, 2022 and each fiscal quarter for the years ended December 31, 2019, 2020 and 2021, the NAV per share of our common stock, the high and low closing sales prices of our common stock and such sales prices as a percentage of NAV per share.

    

    

    

    

High

    

Low

 

Sales Price

Sales Price

 

Premium

Premium

 

(Discount)

(Discount)

 

Net Asset

Price Range

to Net Asset

to Net Asset

 

Class and Period

    

Value(1)

    

High

    

Low

    

Value(2)

    

Value(2)

 

Year ending December 31, 2022

 

  

 

  

 

  

 

  

 

  

Third Quarter (through August 18, 2022)

 

*

$

14.08

$

11.44

 

*

*

Second Quarter

$

14.32

$

14.20

$

11.25

 

-0.84

%

-21.44

%

First Quarter

$

14.59

$

14.15

$

13.08

 

-3.02

%  

-10.35

%

Year ending December 31, 2021

Fourth Quarter

$

14.61

$

14.65

$

12.38

 

0.27

%  

-15.26

%

Third Quarter

$

14.15

$

13.61

$

12.45

 

-3.82

%  

-12.01

%

Second Quarter

$

14.07

$

13.66

$

12.40

 

-2.91

%  

-11.87

%

First Quarter

$

14.03

$

12.70

$

10.18

 

-9.48

%  

-27.44

%

Year ending December 31, 2020

 

  

 

  

 

  

 

  

 

  

Fourth Quarter

$

14.03

$

12.07

$

8.04

 

-13.97

%  

-42.69

%

Third Quarter

$

13.17

$

8.94

$

7.22

 

-32.12

%  

-45.18

%

Second Quarter

$

13.34

$

8.75

$

5.58

 

-34.41

%  

-58.17

%

First Quarter

$

11.55

$

15.03

$

5.06

 

30.13

%  

-56.19

%

Year ending December 31, 2019

 

  

 

  

 

  

 

  

 

  

Fourth Quarter

$

14.14

$

14.46

$

13.02

 

2.26

%  

-7.92

%

Third Quarter

$

14.40

$

14.62

$

12.80

 

1.53

%  

-11.11

%

Second Quarter

$

14.29

$

14.58

$

13.49

 

2.03

%  

-5.60

%

First Quarter

$

14.32

$

15.20

$

13.27

 

6.15

%  

-7.33

%

*

Not determinable at the time of filing.

(1)NAV per share is generally determined as of the last day 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)Calculated as the respective high or low closing sales price less net asset value, divided by net asset value (in each case, as of the applicable quarter).

17

Table of Contents

Distribution Policy

To the extent that we have income available, we intend to make quarterly distributions to our stockholders. Our quarterly stockholder distributions, if any, will be determined by our Board Any stockholder distribution to our stockholders will be declared out of assets legally available for distribution.

We have elected to be treated as a RIC under the Code. To maintain RIC tax treatment, we must distribute at least 90% of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of: (a) 98% of our net ordinary income for such calendar year; (b) 98.2% of our capital gain net income for the one- year period ending on October 31 of the calendar year; and (c) any net ordinary income and capital gain net income for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax. See Item 1A. Risk Factors — Risks Relating to our Business and Structure — We will be subject to corporate-level income tax and may default under our revolving Credit Facility if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code in our most recent Annual Report on Form 10-K.

We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or in certain circumstances a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. See “Certain U.S. Federal Income Tax Considerations” We cannot assure you that we will achieve results that will permit us to pay any cash distributions, and if we issue senior securities, we may be prohibited from making distributions if doing so would cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if such distributions are limited by the terms of any of our borrowings.

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. Unless you elect to receive your distributions in cash, we intend to make such distributions in additional shares of our common stock under our dividend reinvestment plan. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, investors participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. If you hold shares of our common stock in the name of a broker or financial intermediary, you should contact such broker or financial intermediary regarding your election to receive distributions in cash in lieu of shares of our common stock. Any distributions reinvested through the issuance of shares through our dividend reinvestment plan will increase our gross assets on which the base management fee and the incentive fee are determined and paid to Stellus Capital Management. See “Dividend Reinvestment Plan.”

18

Table of Contents

Dividends Declared

The following table reflects the distributions declared on shares of our common stock during the years ended December 31, 2019, 2020 and 2021 and the quarter ended June 30, 2022:

Per

Date Declared

    

Record Date

    

Payment Date

    

Share

Fiscal 2019

 

  

 

  

 

  

January 11, 2019

January 31, 2019

February 15, 2019

$

0.1133

January 11, 2019

February 28, 2019

March 15, 2019

$

0.1133

January 11, 2019

March 29, 2019

April 15, 2019

$

0.1133

April 11, 2019

April 30, 2019

May 15, 2019

$

0.1133

April 11, 2019

May 31, 2019

June 14, 2019

$

0.1133

April 11, 2019

June 28, 2019

July 15, 2019

$

0.1133

July 3, 2019

July 31, 2019

August 15, 2019

$

0.1133

July 3, 2019

August 30, 2019

September 13, 2019

$

0.1133

July 3, 2019

September 30, 2019

October 15, 2019

$

0.1133

October 15, 2019

October 31, 2019

November 15, 2019

$

0.1133

October 15, 2019

November 29, 2019

December 13, 2019

$

0.1133

October 15, 2019

December 31, 2019

January 15, 2020

$

0.1133

Fiscal 2020

  

 

  

January 10, 2020

January 31, 2020

February 14, 2020

$

0.11

January 10, 2020

February 28, 2020

March 13, 2020

$

0.11

January 10, 2020

March 31, 2020

April 15, 2020

$

0.11

June 30, 2020

July 15, 2020

July 31, 2020

$

0.25

July 29, 2020

September 15, 2020

September 30, 2020

$

0.25

September 13, 2020

December 15, 2020

December 29, 2020

$

0.25

September 13, 2020

December 15, 2020

December 29, 2020

$

0.06

Fiscal 2021

  

  

 

  

January 15, 2021

January 29, 2021

February 16, 2021

$

0.08

January 15, 2021

February 26, 2021

March 15, 2021

$

0.08

January 15, 2021

March 31, 2021

April 15, 2021

$

0.08

April 19, 2021

April 30, 2021

May 14, 2021

$

0.08

April 19, 2021

May 28, 2021

June 15, 2021

$

0.08

April 19, 2021

June 30, 2021

July 15, 2021

$

0.08

July 19, 2021

July 30, 2021

August 13, 2021

$

0.10

July 19, 2021

August 31, 2021

September 15, 2021

$

0.10

July 19, 2021

September 30, 2021

October 15, 2021

$

0.10

September 14, 2021

October 29, 2021

November 15, 2021

$

0.09

September 14, 2021

November 30, 2021

December 15, 2021

$

0.09

September 14, 2021

December 16, 2021

December 31, 2021

$

0.09

October 29, 2021

January 28, 2022

February 15, 2022

$

0.02

October 29, 2021

February 25, 2022

March 15, 2022

$

0.02

October 29, 2021

March 31, 2022

April 15, 2022

$

0.02

Fiscal 2022

  

  

 

  

January 13, 2022

January 28, 2022

February 15, 2022

$

0.0933

January 13, 2022

February 25, 2022

March 15, 2022

$

0.0933

January 13, 2022

March 31, 2022

April 15, 2022

$

0.0933

April 19, 2022

April 29, 2022

May 13, 2022

$

0.0933

April 19, 2022

May 27, 2022

June 15, 2022

$

0.0933

April 19, 2022

June 30, 2022

July 15, 2022

$

0.0933

April 19, 2022

April 29, 2022

May 13, 2022

$

0.02

April 19, 2022

May 27, 2022

June 15, 2022

$

0.02

April 19, 2022

June 30, 2022

July 15, 2022

$

0.02

July 13, 2022

July 29, 2022

August 15, 2022

$

0.0933

July 13, 2022

August 31, 2022

September 15, 2022

$

0.0933

July 13, 2022

September 30, 2022

October 14, 2022

$

0.0933

Total

$

7.2293

19

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information contained in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent Annual Report on Form 10-K and in “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent Quarterly Report on Form 10-Q are incorporated by reference herein and should be read in conjunction with, and are qualified by reference to, our financial statements and notes thereto included in such Annual Report on Form 10-K and such Quarterly Report on Form 10-Q, as applicable.

20

Table of Contents

BUSINESS

The information contained in “Part I, Item 1. Business,” “Part I, Item 2. Properties” and “Part I, Item 3. Legal Proceedings” of our most recent Annual Report on Form 10-K, and in “Part II, Item 1. Legal Proceedings” of our most recent Quarterly Report on Form 10-Q are incorporated herein by reference.

21

Table of Contents

SENIOR SECURITIES

Information regarding our senior securities is incorporated by reference herein from our most recent Annual Report on Form 10-K and our most recent Quarterly Report on Form 10-Q.

22

Table of Contents

PORTFOLIO COMPANIES

The following table sets forth certain information regarding each of the portfolio companies in which we had debt or equity investment as of June 30, 2022. We may receive rights to observe the meetings of our portfolio companies’ board of directors. Other than these investments, our only relationship with our portfolio companies are the managerial assistance we may separately provide to our portfolio companies, which services would be ancillary to our investments. As of June 30, 2022, we did not “control” and are not an “affiliate” of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would “control” a portfolio company if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio company if we owned five percent or more of its voting securities.

    

    

    

    

    

    

    

    

    

    

Principal

    

    

    

% of

    

% Fully

 

Company

Headquarters/

Investment

Amount/

Amortized

Fair

Net

Diluted

Investments

Address

Industry

Security(2)

Coupon

Floor

Cash

PIK(8)

Date

Maturity

Shares(3)

Cost

Value(1)

Assets

Owenership

 

Non-controlled, non-affiliated investments

 

  

Ad.Net Acquisition, LLC

 

1100 Glendon Ave, Suite 1200 Los Angeles, CA 90024

 

Los Angeles, CA

 

  

Term Loan (SBIC II)

 

Services: Business

 

First Lien

 

3M LIBOR+6.00%

1.00

%  

8.25

%  

  

 

5/7/2021

 

5/7/2026

$

15,432,353

 

15,246,637

 

15,123,706

 

5.39

%  

  

Ad.Net Holdings, Inc. Series A Common Stock (SBIC II)

 

Equity

 

  

 

5/7/2021

 

7,794

 

77,941

 

79,193

 

0.03

%  

Ad.Net Holdings, Inc. Series A Preferred Stock (SBIC II)

 

Equity

 

  

 

5/7/2021

 

7,015

 

701,471

 

712,736

 

0.25

%  

Total

 

  

 

$

16,026,049

 

$

15,915,635

 

5.67

%  

0.92

%

ADS Group Opco, LLC

 

938 Quail Street Lakewood, CO, 80215

 

Lakewood, CO

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Term Loan (SBIC II)

 

Aerospace & Defense

 

First Lien

 

3M LIBOR+6.75%

1.00

%  

9.00

%  

  

 

6/4/2021

 

6/4/2026

$

14,700,000

 

14,458,807

 

14,259,000

 

5.08

%  

  

Revolver

 

First Lien

 

3M LIBOR+6.75%

1.00

%  

8.98

%  

  

 

6/4/2021

 

6/4/2026

$

71,853

 

71,853

 

69,697

 

0.02

%  

  

ADS Group Topco, LLC Class A Units

 

Equity

 

  

 

6/4/2021

 

77,626

 

288,691

 

183,690

 

0.07

%  

  

ADS Group Topco, LLC Class B Units

 

Equity

 

  

 

6/4/2021

 

56,819

 

211,309

 

134,454

 

0.05

%  

  

ADS Group Topco, LLC Class Z Units

 

Equity

 

  

 

6/15/2022

 

72,043

 

267,929

 

269,882

 

0.10

%  

  

Total

 

  

 

$

15,298,589

 

$

14,916,723

 

5.32

%  

1.34

%

23

Table of Contents

    

    

    

    

    

    

    

    

    

    

Principal

    

    

    

% of

    

% Fully

 

Company

Headquarters/

Investment

Amount/

Amortized

Fair

Net

Diluted

 

Investments

    

Address

    

Industry

    

Security(2)

    

Coupon

    

Floor

    

Cash

    

PIK(8)

    

Date

    

Maturity

    

Shares(3)

    

Cost

    

Value(1)

    

Assets

    

Owenership

 

Advanced Barrier Extrusions, LLC

 

4390 Anderle Drive Rhinelander, WI, 54501

 

Rhinelander, WI

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Term Loan B (SBIC)

 

 

Containers, Packaging, & Glass

 

First Lien

 

1M LIBOR+7.50%

1.00

%  

9.17

%  

  

 

11/30/2020

 

11/30/2026

$

17,237,500

 

16,968,512

 

16,720,376

 

5.97

%  

  

GP ABX Holdings Partnership, L.P. Partner Interests

 

 

 

Equity

 

  

 

  

 

  

 

  

 

8/8/2018

 

  

 

644,737

 

528,395

 

193,862

 

0.07

%  

  

Total

$

17,496,907

$

16,914,238

6.04

%  

0.70

%

AIP ATCO Buyer, LLC

 

7300 15 Mile Rd. Sterling Heights, MI 48312

 

Sterling Heights, MI

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Term Loan

 

  

 

Services: Business

First Lien

 

6M SOFR+6.50%

1.00

%  

8.40

%  

  

 

5/17/2022

 

5/17/2028

$

100,000

 

98,021

 

98,021

 

0.04

%  

  

Revolver

 

  

 

  

 

First Lien

 

1M SOFR+6.50%

1.00

%  

8.08

%  

  

 

5/17/2022

 

5/17/2028

$

26,667

 

26,667

 

26,139

 

0.01

%  

  

Total

$

124,688

$

124,160

0.05

%  

Anne Lewis Strategies, LLC

1140 19th Street NW, Suite 300 Washington,DC 20036-6611

Washington, DC

Term Loan (SBIC II)

 

 

Services: Business

 

First Lien

 

3M LIBOR+6.50%

 

1.00

%  

8.75

%  

  

 

3/5/2021

 

3/5/2026

$

10,781,250

 

10,613,792

 

10,781,250

 

3.85

%  

  

Term Loan (SBIC II)

First Lien

3M LIBOR+6.50%

1.00

%  

8.75

%  

4/15/2022

3/5/2026

$

6,475,840

6,353,210

6,475,840

2.31

%  

SG AL Investment, LLC Common Units

Equity

3/5/2021

1,000

703,354

3,198,406

1.14

%  

Total

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

$

17,670,356

$

20,455,496

 

7.30

%  

2.65

%

APE Holdings, LLC

302 Deerwood Glen Drive Deerpark, TX 77536

Deer Park, TX

Class A Units

Chemicals, Plastics, & Rubber

Equity

9/5/2014

375,000

375,000

44,159

0.02

%

Total

$

375,000

$

44,159

0.02

%

0.11

%

24

Table of Contents

    

    

    

    

    

    

    

    

    

    

Principal

    

    

    

% of

    

% Fully

 

Company

Headquarters/