Stellus Capital Investment Corp 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk We are subject to financial market risks, including changes in interest rates. At March 31, 2022 and December 31, 2021, 97% and 96% of the loans in our portfolio bore interest at floating rates, respectively. These floating rate loans typically bear interest in reference to LIBOR, SOFR, or the Sterling Overnight Index Average, which are indexed to 30-day or 90-day rates, subject to an interest rate floor. As of March 31, 2022 and December 31, 2021, the weighted average interest rate floor on our floating rate loans was 1.12% and 1.13%, respectively. Assuming that the Consolidated Statements of Assets and Liabilities as of March 31, 2022 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates: ($ in millions) ​ Change in Basis Points (2) ​ ​ Interest Income ​ ​ Interest Expense (3) ​ ​ Net Interest Income (1) ​ Up 200 basis points ​ ​ ​ $ 12.8 ​ ​ ​ ​ $ (4.1 ) ​ ​ ​ ​ $ 8.7 ​ ​ Up 150 basis points ​ ​ ​ ​ 9.1 ​ ​ ​ ​ ​ (3.1 ) ​ ​ ​ ​ ​ 6.0 ​ ​ Up 100 basis points ​ ​ ​ ​ 5.4 ​ ​ ​ ​ ​ (2.1 ) ​ ​ ​ ​ ​ 3.3 ​ ​ Up 50 basis points ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ (1.0 ) ​ ​ ​ ​ ​ 1.1 ​ ​ Down 25 basis points ​ ​ ​ ​ (0.1 ) ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ (0.1 ) ​ ​ ​ (1) Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 2 for more information on the incentive fee. ​ 76 TABLE OF CONTENTS ​ (2) This table assumes floating rates would not fall below zero. ​ (3) Includes the impact of the 25 bps LIBOR floor in place on the Credit Facility. ​ Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the quarter ended March 31, 2022, we did not engage in hedging activities. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the three months ended March 31, 2022 and 2021, we did not engage in hedging activities.