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Stellus Private Credit BDC

08/12/2026 | Press release | Distributed by Public on 08/12/2026 12:43

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or Stellus Private Credit BDC's ("we", "us", "our" and the "Company") future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

●

our future operating results;

●

our business prospects and the prospects of our portfolio companies;

●

the effect of investments that we expect to make;

●

the competitive market for investment opportunities in which we operate;

●

the return or impact of current and future investments;

●

our contractual arrangements and relationships with third parties;

●

actual and potential conflicts of interest with Stellus Private BDC Advisor, LLC (the "Advisor") or Stellus Capital Management, LLC ("Stellus Capital Management");

●

changes in the general economy, including those caused by tariffs and trade disputes with other countries, changes in inflation, and risk of recession; the impact of interest rate volatility on our business and our portfolio companies;

●

the impact of geopolitical conditions, including revolution, insurgency, terrorism, or war, on financial market volatility, global economic markets, and various markets for commodities;

●

the impact of a protracted decline in the liquidity of credit markets on our business;

●

the ability of our portfolio companies to achieve their objectives;

●

the valuation of our investment in portfolio companies, particularly those having no liquid trading market;

●

the use of borrowed money 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 the Advisor to locate suitable investments for us and to monitor and administer our investments;

●

the ability of Stellus Capital Management and the Advisor to attract and retain highly talented professionals;

●

our ability to maintain our qualification as a regulated investment company ("RIC") and as a business development company ("BDC"); and

●

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.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words "may," "might," "will," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "anticipate," "predict," "potential," "plan" or similar words.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or U.S. Securities and Exchange Commission ("SEC") rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

We were organized as a Delaware statutory trust on December 7, 2021, and formally commenced operations on February 1, 2022. Our investment objective is to maximize the total return to our shareholders in the form of current income and capital appreciation through debt and related equity investments in lower middle-market companies.

We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the "1940 Act"). Our investment activities are managed by, Stellus Private BDC Advisor, LLC, (the "Advisor") a Delaware limited liability company that is an investment adviser that is registered with the SEC under the Investment Advisers Act of 1940 (the "Advisers Act"). The Advisor is a majority-owned subsidiary of Stellus Capital Management, that is also an investment adviser registered with the SEC under the Advisers Act.

As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than "qualifying assets" as specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in "eligible portfolio companies (as defined in the 1940 Act)." Under the relevant SEC rules, the term "eligible portfolio company" includes any issuer that (i) is organized and with their principal of business in the United States, (ii) is not an investment company (other than SBICs (as defined below) that are wholly owned subsidiaries of a BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act, and (iii) satisfies any one of the following criteria: such company (a) has a market capitalization of less than $250,000,000, or does not have a class of securities listed on a national securities exchange, (b) is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the company, and, as a result thereof, the BDC has an affiliated person who is a director of the company, or (c) is a small and solvent company having total assets of not more than $4,000,000 and capital and surplus of not less than $2,000,000.

We have elected to be treated, qualify, and intend to qualify annually, as a RIC under subchapter M of the Code. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of June 30, 2026, we have no reason to believe that we were not in compliance with the RIC requirements. So long as we maintain our status as a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute at least annually to our shareholders.

In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities (and any preferred stock that we may issue in the future) of at least 150%, subject to certain meeting conditions. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing As of June 30, 2026 and December 31, 2025, our asset coverage ratio was 197% and 198%, respectively.

Economic Developments

Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe macroeconomic uncertainty as a result of various events and trends, including labor resource shortages, commodity inflation, fluctuating interest rates, economic sanctions in response to international conflicts and instances of geopolitical, economic and financial market instability in the United States and abroad, including as a result of the imposition of tariffs on the United States or against its trading partners, and the global conflict in the Middle East, including Iran. One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial markets.

Portfolio Composition and Investment Activity

Portfolio Composition

We originate and invest primarily in privately-held lower middle-market companies (typically those with $5,000,000 to $50,000,000 of earnings before interest, taxes, depreciation, and amortization ("EBITDA")) through first lien (including unitranche), second lien, and unsecured debt financing, often times with a corresponding equity investment.

As of June 30, 2026, we had $419,527,201 (at fair value) invested in 77 portfolio companies. As of June 30, 2026, our portfolio included approximately 93% of first lien debt, 7% of equity, and less than 1% in unsecured debt investments at fair value. The composition of our investments at cost and fair value as of June 30, 2026 was as follows:


	Cost		Fair Value
Senior Secured - First Lien⁽¹⁾	$	388,406,745	$	388,326,364
Equity		21,695,204		31,177,636
Total Investments	$	410,125,150	$	419,527,201

(1)

Includes unitranche investments, which accounted for 6.4% of the Company's portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. The Company's unitranche loans will expose it to certain risk associated with second lien and subordinated loans to the extent it invests in the "last-out" tranche.

As of December 31, 2025, we had $400,131,924 (at fair value) invested in 74 portfolio companies. As of December 31, 2025, our portfolio included approximately 94% of first lien debt and 6% of equity, and less than 1% in unsecured debt investments at fair value. The composition of our investments at cost and fair value as of December 31, 2025 was as follows:


	Cost		Fair Value
Senior Secured - First Lien⁽¹⁾	$	378,828,458	$	376,249,762
Unsecured Debt		27,731		30,447
Equity		17,935,793		23,851,715
Total Investments	$	396,791,982	$	400,131,924

(1)

6.4% of the Company's portfolio at fair value. Unitranche structures may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. The Company's unitranche loans will expose it to certain risk associated with second lien and subordinated loans to the extent it invests in the "last-out" tranche.

Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms and conditions of the underlying loan agreements. As of June 30, 2026 and December 31, 2025, we had unfunded commitments of $90,260,212 and $95,612,051, respectively, to provide debt financing to 61 and 59 portfolio companies, respectively. As of June 30, 2026, we had sufficient liquidity (through cash on hand, its ability to

drawdown capital from investors, and/or available borrowings under the Credit Facility (as defined below)) to fund such unfunded commitments should the need arise.

The following is a summary of geographical concentration of our investment portfolio as of June 30, 2026:


					% of Total
	Cost		Fair Value		Investments
Florida	$	57,296,486	$	57,106,042	13.61	%
New York		47,453,206		48,946,112	11.67	%
Texas		44,765,090		45,744,703	10.90	%
California		25,097,459		26,082,716	6.22	%
Pennsylvania		20,721,686		22,045,652	5.25	%
Arizona		16,585,971		17,669,499	4.21	%
Virginia		15,401,081		15,940,862	3.80	%
Michigan		14,845,679		15,112,448	3.60	%
Canada		14,833,832		14,714,907	3.51	%
Illinois		14,540,205		14,541,695	3.47	%
Tennessee		15,497,550		14,451,294	3.44	%
Missouri		13,572,671		13,708,079	3.27	%
Iowa		13,276,106		13,292,686	3.17	%
Colorado		12,130,558		12,104,257	2.89	%
United Kingdom		11,062,534		10,634,588	2.53	%
North Carolina		9,344,112		9,431,006	2.25	%
District of Columbia		8,564,943		8,918,066	2.13	%
Ohio		5,808,867		8,475,928	2.02	%
Minnesota		7,511,662		8,102,692	1.93	%
Massachusetts		7,670,978		7,682,033	1.83	%
Oregon		7,258,742		7,517,758	1.79	%
Wisconsin		7,247,185		7,399,958	1.76	%
Louisiana		6,586,430		6,774,824	1.61	%
Idaho		3,785,007		3,797,193	0.91	%
Georgia		3,513,192		3,545,568	0.85	%
Maryland		3,313,145		3,303,224	0.79	%
New Jersey		2,283,461		2,273,289	0.54	%
South Carolina		157,312		210,122	0.05	%
	$	410,125,150	$	419,527,201	100.00	%

The following is a summary of geographical concentration of our investment portfolio as of December 31, 2025:


					% of Total
	Cost		Fair Value		Investments
Florida	$	57,346,045	$	56,972,075	14.24	%
Texas		46,485,820		48,069,165	12.01	%
New York		46,235,480		47,639,398	11.91	%
California		36,369,556		36,736,941	9.18	%
Pennsylvania		20,165,108		21,484,667	5.37	%
Colorado		16,762,744		16,813,411	4.20	%
Canada		15,116,097		15,040,778	3.76	%
Illinois		17,990,126		14,729,856	3.68	%
Iowa		12,312,643		12,336,066	3.08	%
Virginia		11,786,284		11,958,881	2.99	%
United Kingdom		12,111,013		11,899,148	2.97	%
Arizona		10,470,434		11,317,450	2.83	%
Ohio		9,659,944		10,861,854	2.71	%
Maryland		10,030,046		9,851,468	2.46	%
North Carolina		9,039,546		9,223,446	2.31	%
Tennessee		9,983,962		9,098,223	2.27	%
Massachusetts		7,698,233		7,730,587	1.93	%
Minnesota		7,537,398		7,648,754	1.91	%
Oregon		7,281,723		7,589,802	1.90	%
Michigan		7,270,222		7,392,085	1.85	%
Missouri		5,046,536		5,139,186	1.28	%
Louisiana		4,487,910		4,553,598	1.14	%
District of Columbia		4,151,925		4,389,381	1.10	%
Idaho		4,218,163		4,235,256	1.06	%
Georgia		2,389,702		2,431,144	0.61	%
South Carolina		2,223,836		2,282,058	0.57	%
New Jersey		2,290,508		2,262,230	0.57	%
Wisconsin		330,978		445,016	0.11	%
	$	396,791,982	$	400,131,924	100.00	%

The following is a summary of industry concentration of our investment portfolio as of June 30, 2026:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	101,607,255	$	103,701,073	24.72	%
Healthcare & Pharmaceuticals		63,218,090		64,354,225	15.34	%
Capital Equipment		49,177,822		51,431,332	12.26	%
High Tech Industries		35,719,426		37,537,849	8.95	%
Media: Advertising, Printing & Publishing		25,519,766		24,707,442	5.89	%
Construction & Building		21,921,782		23,456,120	5.59	%
Services: Consumer		20,496,296		20,581,634	4.91	%
Consumer Goods: Non-Durable		17,091,117		18,561,074	4.42	%
Beverage & Food		17,040,064		16,937,430	4.04	%
Media: Diversified & Production		11,062,534		10,634,588	2.53	%
Consumer Goods: Durable		8,700,069		9,073,230	2.16	%
Chemicals, Plastics, & Rubber		8,895,897		8,970,775	2.14	%
Energy: Oil & Gas		8,608,724		8,915,605	2.13	%
Retail		7,510,265		7,527,504	1.79	%
Environmental Industries		7,476,749		7,046,837	1.68	%
Wholesale		6,079,294		6,090,483	1.45	%
	$	410,125,150	$	419,527,201	100.00	%

The following is a summary of industry concentration of our investment portfolio as of December 31, 2025:


					% of Total
	Cost		Fair Value		Investments
Services: Business	$	89,567,846	$	88,693,867	22.18	%
High Tech Industries		49,010,176		50,269,878	12.56	%
Healthcare & Pharmaceuticals		48,453,123		49,442,697	12.36	%
Capital Equipment		39,615,369		41,025,852	10.25	%
Media: Advertising, Printing & Publishing		25,391,544		24,600,455	6.15	%
Construction & Building		22,265,430		22,580,411	5.64	%
Services: Consumer		20,534,718		20,334,410	5.08	%
Consumer Goods: Non-Durable		17,729,105		19,164,105	4.79	%
Beverage & Food		16,571,541		16,445,790	4.11	%
Chemicals, Plastics, & Rubber		14,236,397		14,131,809	3.53	%
Media: Diversified & Production		12,111,013		11,899,148	2.97	%
Consumer Goods: Durable		8,379,684		8,649,708	2.16	%
Energy: Oil & Gas		8,144,225		8,500,887	2.12	%
Environmental Industries		7,603,889		7,162,621	1.79	%
Retail		6,547,870		6,545,924	1.64	%
Wholesale		5,886,684		5,873,214	1.47	%
Hotel, Gaming, & Leisure		4,743,368		4,811,148	1.20	%
	$	396,791,982	$	400,131,924	100.00	%

At June 30, 2026, our average portfolio company investment at amortized cost and fair value was approximately $5.3 million and $5.4 million, respectively, and our largest portfolio company investment at amortized cost and fair value was $11.1 million and $10.6 million, respectively. At December 31, 2025, our average portfolio company investment at amortized cost and fair value was approximately $5.4 million and $5.4 million, respectively, and our largest portfolio company investment at both amortized cost and fair value was $12.1 million.

At June 30, 2026, 95% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 5% bore interest at fixed rates. At December 31, 2025, 97% of our debt investments bore interest based on floating rates (subject to interest rate floors) and 3% bore interest at fixed rates.

The weighted average yield on all of our debt investments as of June 30, 2026 and December 31, 2025 was approximately 9.5% and 9.8%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of June 30, 2026 and December 31, 2025 was approximately 9.0% and 9.4%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount. The weighted average yield of our investments is not the same as a return on investment for our shareholder, but rather relates to a portion of our investment portfolio and is calculated before the payment of our subsidiary's fees and expenses.

As of June 30, 2026 and December 31, 2025, we had cash and cash equivalents of $4.7 million and $2.6 million, respectively.

Investment Activity

During the six months ended June 30, 2026, we made an aggregate of $64.0 million of investments in six new portfolio companies and ten existing portfolio companies. During the six months ended June 30, 2026, we received an aggregate of $46.9 million in proceeds from repayments of our investments.

During the six months ended June 30, 2025, we made an aggregate of $51.1 million of investments in six new portfolio companies and five existing portfolio companies. During the six months ended June 30, 2025, we received an aggregate of $14.4 million in proceeds from repayments of our investments.

Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital to lower middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

Asset Quality

In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:

●

Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.

●

Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.

●

Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.

●

Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected.

●

Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5 are those for which some loss of return and principal is expected.


	As of June 30, 2026					As of December 31, 2025
	(dollars in millions)					(dollars in millions)
					Number of					Number of
			% of Total		Portfolio			% of Total		Portfolio
Investment Category	Fair Value		Portfolio		Companies	Fair Value		Portfolio		Companies
1	$	106.7	25	%	19	$	77.5	19	%	14
2		259.5	62	%	48		274.0	68	%	51
3		47.0	11	%	9		42.5	11	%	8
4		6.3	2	%	1		6.1	2	%	1
Total	$	419.5	100	%	77	$	400.1	100	%	74

Loans and Debt Securities on Non-Accrual Status

We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As June 30, 2026, we had loans to one portfolio company that was on non-accrual status, which represented approximately 1.5% of our loan portfolio at cost and 1.5% at fair value. As of December 31, 2025, we had loans to one portfolio company that was on non-accrual status, which represented approximately 1.6% of our loan portfolio at cost and 1.5% at fair value. As of June 30, 2026 and December 31, 2025, $1.8 million and $1.3 million of income from investments on non-accrual, respectively, had not been accrued.

Results of Operations

An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.

Comparison of the three and six months ended June 30, 2026 and 2025

Revenues

We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind ("PIK") interest. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn will increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.

The following shows the breakdown of investment income for the three and six months ended June 30, 2026 and 2025 (in millions).


	Three Months Ended				Six Months Ended
	June 30, 2026		June 30, 2025		June 30, 2026		June 30, 2025
Interest income⁽¹⁾	$	9.0	$	8.4	$	17.8	$	16.2
PIK interest		0.4		0.1		0.6		0.2
Miscellaneous fees⁽¹⁾		0.3		0.2		0.8		0.4
Total	$	9.7	$	8.7	$	19.2	$	16.8

(1)

For the three and six months ended June 30, 2026, we recognized $0.1 million and $0.4 million, respectively, of non-recurring income related to amendments and early repayments to specific loan positions. For the three and six months ended June 30, 2025, we recognized $0.1 million and $0.1 million, respectively, of non-recurring income related to early repayments to specific loan positions.

The increase in interest income from the respective periods was due primarily to growth in the overall investment portfolio.

Expenses

Our primary operating expenses include the payment of fees to the Advisor under the investment advisory agreement, our allocable portion of overhead expenses under the administration agreement with Stellus Capital Management and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include:

●

organization and offering costs;

●

valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm);

●

fees and expenses incurred or reimbursed by Stellus Capital Management and the Advisor, or payable to third parties, including agents, consultants, or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating, and making investments;

●

interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts;

●

offerings of our common shares of beneficial interest and other securities;

●

base management and incentive fees;

●

administration fees and expenses, if any, payable under the administration agreement (including our allocable portion of the Advisor's overhead in performing its obligations under the administration agreement, including rent and the allocable portion of the cost of our chief compliance officer, and chief financial officer and their respective staffs;

●

transfer agent and custodial fees and expenses;

●

U.S. federal and state registration fees;

●

all costs of registration;

●

U.S. federal, state, and local taxes;

●

Independent Trustees' fees and expenses;

●

costs of preparing and filing reports or other documents required by the SEC or other regulators;

●

costs of any reports, proxy statements or other notices to shareholders, including printing costs;

●

costs and fees associated with any fidelity bond, trustees and officers/errors and omissions liability insurance, and any other insurance premiums;

●

direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors, and outside legal costs; and

●

all other expenses reasonably incurred by us or the Administrator in connection with administering our business.

The following shows the breakdown of operating expenses for the three and six months ended June 30, 2026 and 2025 (in millions).


	Three Months Ended						Six Months Ended
	June 30, 2026			June 30, 2025			June 30, 2026			June 30, 2025
Operating Expenses
Management fees	$	1.5		$	1.2		$	3.0		$	2.2
Income incentive fee		0.6			0.7			1.3			1.3
Capital gains incentive fee		0.2			0.1			0.2			0.3
Professional fees		0.2			0.2			0.4			0.4
Amortization of deferred offering costs		-			0.1			0.1			0.1
Administrative services expenses		0.3			0.2			0.5			0.3
Valuation fees		-			-			0.1			-
Interest expense and other fees		3.8			3.2			7.2			6.3
Other general and administrative expenses		0.1			0.1			0.2			0.1
Expenses reimbursed/fees waived by Advisor (Note 2)		(0.7)			(0.7)			(1.6)			(1.3)
Net Operating Expenses	$	6.0		$	5.1		$	11.5		$	9.8

The increase in operating expenses for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, was due to (1) higher interest expense as a result of higher outstanding balances on our Credit Facility and (2) higher management fees due to overall portfolio growth (See Note 2 for further details).

Net Investment Income

For the three months ended June 30, 2026, net investment income was $3.7 million, or $0.28 per common share of beneficial interest (based on 13,187,428 weighted-average common shares of beneficial interest outstanding for the three months ended June 30, 2026).

For the three months ended June 30, 2025, net investment income was $3.6 million, or $0.33 per common share of beneficial interest (based on 10,935,215 weighted-average common shares of beneficial interest outstanding for the three months ended June 30, 2025).

For the six months ended June 30, 2026, net investment income was $7.7 million, or $0.58 per common share of beneficial interest (based on 13,150,920 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2026).

For the six months ended June 30, 2025, net investment income was $7.0 million, or $0.64 per common share of beneficial interest (based on 10,851,870 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2025).

The increase in net investment income over the respective periods was due to the increase in revenues as explained in the "Revenues" section above, partially offset by higher expenses as explained in the "Expenses" section above.

Net Realized Gains and Losses

We measure realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized. There were ($3.8) million and ($3.8) million of realized (losses) on investments for the three and six months ended June 30, 2026, respectively. For each of the three and six months ended June 30, 2025, the Company realized less than $0.1 million of net realized gains related to foreign currency translations.

Proceeds from repayments of investments and amortization of certain other investments for the three and six months ended June 30, 2026 totaled $25.7 million and $46.9 million, respectively.

Proceeds from repayments of investments and amortization of certain other investments for the three and six months ended June 30, 2025 totaled $10.1 million and $14.4 million, respectively.

Net Change in Unrealized Appreciation (Depreciation) of Investments

Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.

Net change in unrealized appreciation on investments and cash equivalents for the three and six months ended June 30, 2026 totaled $6.3 million and $6.1 million, respectively.

Net change in unrealized depreciation on investments and cash equivalents for the three and six months ended June 30, 2025 totaled $1.0 million and $2.2 million, respectively.

(Provision) Benefit for Taxes on Unrealized (Appreciation) Depreciation on Investments

On February 11, 2022, the Company formed PBDC Consolidated Blocker, LLC (the "Taxable Subsidiary"), which is structured as a Delaware limited liability company that is classified as a corporation for U.S. federal income tax purposes, to hold equity or equity-like investments in portfolio companies that are not treated as corporations for U.S. federal income tax purposes, such as certain limited liability companies, or LLCs or other entities or arrangements treated as pass-through entities for U.S. federal income tax purposes.

The Taxable Subsidiary permits us to hold equity investments in portfolio companies which are "pass through" entities for U.S. federal income tax purposes and continue to comply with the "source income" requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with us for U.S. federal income tax purposes and may independently generate income, gains, deductions or losses for U.S. federal income tax purposes, as a result of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities of the Taxable Subsidiary are reflected in our Consolidated Financial Statements in accordance with generally accepted accounting principles. For both the three and six months ended June 30, 2026, we recognized a (provision) for income tax on unrealized investments of less than ($0.1) million for the Taxable Subsidiary. For the three months ended June 30, 2026 and 2025, we recognized a provision for income tax on unrealized investments of $0.2 million and less than $0.1 million, respectively. For the six months ended June 30, 2026 and 2025, we recognized a (provision) benefit for income tax on unrealized investments of ($0.4) million and less than $0.1 million for the Taxable

Subsidiary, respectively. As of June 30, 2026 and December 31, 2025, there was $0.7 million and $0.3 million of deferred tax liabilities on the Consolidated Statements of Assets and Liabilities, respectively.

Net Increase in Net Assets Resulting from Operations

For the three months ended June 30, 2026, net increase in net assets resulting from operations totaled $5.9 million, or $0.45 per common share of beneficial interest (based on 13,187,428 weighted-average common shares of beneficial interest outstanding for the three months ended June 30, 2026).

For the three months ended June 30, 2025, net increase in net assets resulting from operations totaled $4.7 million, or $0.43 per common share of beneficial interest (based on 10,935,215 weighted-average common shares of beneficial interest outstanding for the three months ended June 30, 2025).

For the six months ended June 30, 2026, net increase in net assets resulting from operations totaled $9.6 million, or $0.73 per common share of beneficial interest (based on 13,150,920 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2026).

For the six months ended June 30, 2025, net increase in net assets resulting from operations totaled $9.3 million, or $0.86 per common share of beneficial interest (based on 10,851,870 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2025).

Financial Condition, Liquidity, and Capital Resources

Cash Flows from Operating and Financing Activities

Our operating activities used net cash of $10.1 million and $29.4 million for the six months ended June 30, 2026 and 2025, respectively, primarily in connection with the purchase of new portfolio investments. Our financing activities for the six months ended June 30, 2026 provided cash of $12.2 million primarily from the issuance and purchase of common shares of beneficial interest, net. Our financing activities for the six months ended June 30, 2025 provided cash of $30.9 million primarily from the issuance of common shares of beneficial interest.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from net proceeds of any share offering, pursuant to capital calls from investors with capital commitments to us, the Credit Facility, and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common shares of beneficial interest. We used, and expect to continue to use, these capital resources as well as proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.

In addition, we intend to distribute between 90% and 100% of our taxable income to our shareholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of the senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 150%, subject to meeting certain conditions. This requirement limits the amount that we may borrow. We were in compliance with the asset coverage ratios at all times. As of June 30, 2026 and December 31, 2025, our asset coverage ratio was 197% and 198%, respectively. 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 common shares of beneficial interest 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 borrowing. As of June 30, 2026 and December 31, 2025, we had cash and cash equivalents of $4.7 million and $2.6 million, respectively.

Credit Facilities

Credit Facility

On September 30, 2022, as amended on December 9, 2022, April 26, 2023 and October 3, 2024, the Company entered into a senior secured revolving credit agreement with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the "Credit Facility" and together with the SPV Facility (defined below), the "Credit Facilities"). The Credit Facility provides for borrowings up to a maximum of $175.0 million on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $200.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.

The Credit Facility bears interest, subject to the Company's 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 credit spread adjustment (0.10% for one-month Term SOFR and 0.15% for three-month Term SOFR), subject to a 0.25% 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, which is subject to a 3.00% floor, based on the highest of (a) the Prime Rate, (b) Federal Funds Rate plus 0.50% and (c) one-month Term SOFR plus a credit spread adjustment of 0.10% (subject to a 0.25% floor), plus 1.00%. The Company pays 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 30, 2026, after which the Company 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 borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 30, 2027.

Our obligations to the lenders under the Credit Facility are secured by a first priority security interest in its portfolio of securities and cash held. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10.0 million, including cash, liquid investments, and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a certain minimum stockholder's equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of June 30, 2026 and December 31, 2025, we were in compliance with these covenants.

As of June 30, 2026 and December 31, 2025, there were $141.0 million and $128.6 million outstanding borrowings under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We have incurred costs of $3.9 million in connection with the current Credit Facility, which are being amortized over the life of the facility. As of June 30, 2026 and December 31, 2025, $2.2 million and $2.6 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from Credit Facilities payable.


	June 30, 2026		December 31, 2025
Credit Facility payable	$	141.0	$	128.6
Prepaid loan structure fees		(2.2)		(2.6)
Credit Facility payable, net of prepaid loan structure fees	$	138.8	$	126.0

Interest is paid monthly in arrears. The following table summarizes the interest expense and amortized financing costs on the Credit Facility for the three and six months ended June 30, 2026 and 2025 (dollars in millions):


	Three Months Ended						Six Months Ended
	June 30, 2026			June 30, 2025			June 30, 2026			June 30, 2025
Interest expense	$	2.4		$	2.2		$	4.6		$	4.2
Loan structure fees amortization		0.2			0.1			0.4			0.2
Total interest and other fees	$	2.6		$	2.3		$	5.0		$	4.4
Weighted average interest rate		6.5	%		7.4	%		6.6	%		7.3	%
Effective interest rate (including fee amortization)		7.1	%		7.7	%		7.2	%		7.7	%
Average debt outstanding	$	149.0		$	121.4		$	140.4		$	116.1
Cash paid for interest and unused fees	$	2.3		$	2.2		$	4.6		$	4.2

SPV Facility

On August 1, 2024, as amended on October 2, 2025, the Company entered into a Loan Financing and Servicing Agreement (the "Loan Agreement") for a special purpose vehicle financing credit facility (the "SPV Facility") by and among Stellus Private Credit BDC SPV LLC ("PBDC SPV"), as borrower, the Company, as equityholder and servicer, Deutsche Bank AG, New York Branch, as facility agent, Citibank, N.A., as collateral agent and collateral custodian, Alter Domus (US) LLC, as collateral administrator, and the lenders that are party thereto from time to time. The SPV Facility provides for $50.0 million of initial commitments with an accordion feature that allows for an additional $50.0 million of total commitments from new and existing lenders on the same terms and conditions as the existing commitments. Advances under the SPV Facility bear interest at three-month Term SOFR (as defined in the Loan Agreement) plus an applicable margin of 2.50% during the revolving period ending on October 2, 2028 and three-month Term SOFR plus an applicable margin of 2.85% thereafter. The Loan Agreement provides for an unused commitment fee, from the effective date of the Loan Agreement through August 1, 2027, of 0.25% per annum on the unused commitments if PBDC SPV's credit facility utilization is greater than or equal to 80%, and otherwise, 0.50% per annum on the unused commitments, and other customary fees. The SPV Facility will mature on October 2, 2031.

As of June 30, 2026, there was $75.0 million outstanding under the SPV Facility. The carrying amount of the amount outstanding under the SPV Facility approximates its fair value. The fair value of the SPV Facility is determined in accordance with ASC Topic 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the SPV Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred costs of $0.8 million in connection with the SPV Facility, which are being amortized over the life of the facility. As of both June 30, 2026 and December 31, 2025, $0.7 million of such prepaid loan structure fees and administration fees had yet to be amortized. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from Credit Facilities payable.

The following is a summary of the SPV Facility, net of prepaid loan structure fees:


	June 30, 2026		December 31, 2025
SPV Facility payable	$	75.0	$	75.0
Prepaid loan structure fees		(0.7)		(0.7)
SPV Facility payable, net of prepaid loan structure fees	$	74.3	$	74.3

Interest is paid quarterly in arrears. The following table summarizes the interest expense and amortized financing costs on the SPV Facility for the three and six months ended June 30, 2026:


	Three Months Ended						Six Months Ended
	June 30, 2026			June 30, 2025			June 30, 2026			June 30, 2025
Interest expense	$	1.1		$	0.9		$	2.1		$	1.6
Facility agent fee		0.1			-			0.1			0.1
Loan structure fees amortization		-			-			0.1			0.1
Total interest and other fees	$	1.2		$	0.9		$	2.3		$	1.8
Weighted average interest rate		5.7	%		6.9	%		5.7	%		6.9	%
Effective interest rate (including fee amortization)		6.2	%		7.4	%		6.3	%		7.4	%
Average debt outstanding	$	75.0		$	50.0		$	75.0		$	50.0
Cash paid for interest and unused fees	$	1.2		$	0.9		$	2.3		$	1.8

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2026 and December 31, 2025, our off-balance sheet arrangements consisted of $90.3 million and $95.6 million, respectively, of unfunded commitments to provide debt and equity financings to 61 and 59 of our portfolio companies, respectively. As of June 30, 2026, we had sufficient liquidity to fund such unfunded commitments (through cash on hand, its ability to drawdown capital from investors, and/or available borrowings under the Credit Facilities) should the need arise.

Regulated Investment Company Status and Dividends

We have elected to be treated, qualify and intend to qualify annually as a RIC under subchapter M of the Code. So long as we continue to qualify as a RIC, we will not be subject to U.S. federal income tax on our investment company taxable income and realized net capital gains that we timely distribute to shareholders as dividends.

Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.

To maintain our RIC tax treatment, we generally must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we maintain our status as a RIC, we must also satisfy certain distribution requirements each calendar year in order to avoid a federal excise tax on our undistributed earnings of a RIC. As of December 31, 2025, the Company estimates that it has $2.7 million of undistributed taxable income that was carried forward toward distributions to be paid in 2026. The Company intends to distribute any undistributed ordinary income as of December 31, 2025 within the required period of time such that the Company will not have to pay corporate-level U.S. federal income tax related to the year ended December 31, 2026.

We intend to distribute to our shareholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). However, the covenants contained in the Credit Facilities may prohibit us from making distributions to our shareholders, and, as a result, could hinder our ability to satisfy the distribution requirement. In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our shareholders. If we do this, our shareholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our Common Shares. Our shareholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall below the total amount

of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of capital to our shareholders.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in Credit Facilities. We cannot assure shareholders that they will receive any distributions or distributions at a particular level.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (the "IRS"), a publicly offered RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each shareholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all shareholders must be at least 20% of the aggregate declared distribution. If too many shareholders elect to receive cash, each shareholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any shareholder electing to receive cash, receive less than 20% of his or her entire distribution in cash.

If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these U.S. Treasury regulations or private letter rulings. However, we continue to monitor our liquidity position and the overall economy and will continue to assess whether it would be in our and our shareholders' best interest to take advantage of the IRS rulings.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements contained herein for a description of recent accounting pronouncements, if any, including the expected dates of adoption and the anticipated impact on the Consolidated Financial Statements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.

We consider the most significant accounting policies related to estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses to be those related to Investment Valuation.

Subsequent Events

The Company's management has evaluated subsequent events through the date of issuance of the Consolidated Financial Statements included herein. There have been no subsequent events that require recognition or disclosure in these Consolidated Financial Statements except for the following described below.

Investment Portfolio

The Company invested in the following portfolio companies subsequent to June 30, 2026:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
Add-On Investment	July 2, 2026	Blade Landscape Investments, LLC*	Regional provider of commercial landscaping services	$	2,250	Equity
New Investment	July 16, 2026	Emergent Software	Microsoft-centric data, AI, and cloud IT services partner	$	2,246,180	Senior Secured - First Lien
				$	1,871,817	Delayed Draw Term Loan Commitment
				$	500,000	Revolver Commitment
				$	222,653	Equity
New Investment	August 5, 2026	LJ Welding Automation Ltd.	Manufacturer of material handling and welding automation systems	$	6,969,323	Senior Secured - First Lien
				$	500,000	Revolver Commitment
				$	276,642	Equity

*	Existing portfolio company

The Company realized in the following portfolio company subsequent to June 30, 2026:


Activity Type	Date	Company Name	Company Description	Proceeds Received		Instrument Type
Full Repayment	July 27, 2026	MacKenzie-Childs Acquisition, Inc.	Lifestyle home décor brand	$	8,116,861	Senior Secured - First Lien

Credit Facilities

As of August 12, 2026, the outstanding balance under the Credit Facility and SPV Facility was $141.3 million and $75.0 million, respectively.

Dividends Declared

On July 16, 2026, the Board declared a regular monthly dividend for each of July 2026, August 2026, and September 2026 as follows:


		Record		Payment		Amount per
Declared		Date		Date		Share
7/16/2026		7/17/2026		7/31/2026		$	0.1033
7/16/2026		8/3/2026		8/31/2026		$	0.1033
7/16/2026		9/1/2026		9/30/2026		$	0.1033

Stellus Private Credit BDC published this content on August 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 12, 2026 at 18:44 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]

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