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Based in Houston, TX, Stellus Capital (NYSE:SCM) scheduled $120 million IPO with a market capitalization of $162 million for Thursday, November 8, 2012.

Five IPOs are scheduled for this week. The full IPO calendar is available here.

N-2/1 filed November 7, 2012

Mangers, co-leads: Ray James, Stifel, Baird, Oppenheimer
Co-managers: Janney Montgomery Scott, Sterne Agee

SUMMARY
SCM is yet another Business Development Corp where an existing portfolio of loans is dumped on IPO investors.

CONCLUSION
SCM is similar to Monroe Capital (NASDAQ:MRCC) which IPO'd October 25, 2012 and trades around the IPO price of $15. IPOdesktop expects SCM to grade in a similar manner to MRCC, and therefore neutral to avoid for SCM.

OBSERVATIONS
Like MRCC, Stellus Capital (SCM) is a BDC where the sales load and IPO expenses are borne by the IPO investors. Another BDS, OFS (also expected to IPO the same day as SCM), however, is structured a little differently: OFS's sales load & IPO expenses are borne by the company rather than the IPO investors.

SCN has the same initial distribution ($.34 for the December 2012 quarter, pro-rated) and the same hurdle rate as MRCC. On an annualized basis $.34 per quarter is 9% per year at the price range mid-point of $15.
But the hurdle rate is 8% & then 100% of the distribution goes to the investment manager until a total of 10% in return is paid out.

INCENTIVE COMPENSATION
"The first part, which is calculated and payable quarterly in arrears, equals 20.0% of our "pre-incentive fee net investment income" for the immediately preceding quarter, subject to a hurdle rate of 2.0% per quarter (8.0% annualized), and is subject to a "catch-up" feature."

The second part is 20% of capital gains (if any).

The total annual expenses (as percentage of net assets attributable to common stock) are less than the other two: 5.63% for Stellus; 8.4% for OFS; 7.3% for Monroe.

USE OF PROCEEDS
SCM expects to net $115 from the IPO.

SCM intends to use 100% of the net proceeds of this offering and together with $41.1 million of borrowings under the Credit Facility to repay in full the Bridge Facility debt, which SCM will incur in connection with the purchase of the initial portfolio. The Bridge Facility is expected to have a maturity date of not more than seven (7) business days after the pricing date of this offering and will terminate upon SCM's full repayment of the outstanding borrowings thereunder.

Disclaimer: This SCM IPO report is based on a reading and analysis of SCM's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Stellus Capital