Net Investment Income of $0.30 per common
share
Declares 30th Consecutive Quarterly
Distribution on common shares
OFS Capital Corporation (NASDAQ:OFS) ("OFS Capital," the
"Company," "we," "us," or "our") today announced its financial
results for the quarter ended March 31, 2020.
FINANCIAL HIGHLIGHTS
- Net investment income of $3.97 million, or $0.30 per
share.
- Net asset value ("NAV") per share decreased to $9.71 at March
31, 2020 from $12.46 at December 31, 2019. The fair value mark on
our portfolio declined by approximately 7.2% and one loan was
placed on non-accrual during the quarter.
- At March 31, 2020, 91% and 79% of our loan portfolio and total
portfolio, respectively, consisted of senior secured loans, based
on fair value.
- As of March 31, 2020, 93% of our debt matures in 2024 and
beyond and 44% of our outstanding debt is unsecured.
- On May 4, 2020, OFS Capital's Board of Directors declared a
distribution of $0.17 per share for the second quarter of 2020,
payable on June 30, 2020, to stockholders of record as of June 23,
2020. Given the unprecedented uncertainty related to the COVID-19
situation, we intend to take a cautious approach to our
distributions. We believe that this rate will enhance our liquidity
so that we can continue to support our borrowers, strengthen our
balance sheet and put us in a position to capitalize on potential
opportunities.
We are actively monitoring our portfolio companies throughout
this period of economic uncertainty including assessing portfolio
companies' operational and liquidity outlook. In March 2020, the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),
which, among other things, provides eligible companies with up to
$10 million in 100% SBA-guaranteed forgivable Paycheck Protection
Program ("PPP") loans, was signed into law. As of today, over 25 of
our portfolio companies have secured approximately $78 million in
PPP loans from the SBA.
With respect to our portfolio, at March 31, 2020 and May 8,
2020, we had unfunded commitments of $4.4 million and $-0-,
respectively.
At March 31, 2020, our asset coverage ratio was 162% and we
remained in compliance with all applicable financial covenant
thresholds under our outstanding debt and our minimum asset
coverage requirements under the 1940 Act.
We believe that we have diverse sources of funding. As of today,
we have approximately $47.2 million of cash and additional capacity
on our revolving corporate credit line with Pacific Western Bank
and senior loan facility with BNP Paribas, which are both subject
to a borrowing base and other covenants. Our senior loan facility
has no LIBOR floor and matures in 2024. We have approximately $153
million in unsecured bonds that mature in 2025 and beyond. In
addition, we have approximately $134 million of SBA debentures,
which we anticipate paying down as the loans within OFS SBIC I, LP
repay.
"We believe that we have in-house capabilities to invest across
the loan and structured credit markets, with more than $2.1 billion
in assets under management. We expect to continue to utilize our
full platform to manage our portfolio and to find attractive
investment opportunities. Our Advisor's long standing investment
platform has been in existence since 1994, is part of an asset
management platform with over $30 billion of assets under
management and has strong relationships with our bank partners,"
said Bilal Rashid, OFS Capital's Chairman and Chief Executive
Officer. "Our Advisor continues to own 22% of the Company, which we
believe aligns its interests with the Company's stockholders."
HIGHLIGHTS
($ in millions, except for per share
data)
Portfolio Overview
At March 31, 2020
Total assets
$
476.9
Investment portfolio, at fair value
$
465.7
Net assets
$
130.0
Net asset value per share
$
9.71
Weighted average yield on performing debt
investments (1)
10.11
%
Weighted average yield on total debt
investments (2)
9.51
%
Weighted average yield on total
investments (3)
9.03
%
(1)
The weighted average yield on our
performing debt and structured finance note investments is computed
as (a) the sum of (i) the annual stated accruing interest on debt
investments plus the annualized accretion of loan origination fees,
original issue discount, market discount or premium, and loan
amendment fees at the balance sheet date, plus (ii) the annual
effective yield on structured finance notes at the balance sheet
date divided by (b) amortized cost of our debt and structured
finance note investments, excluding debt investments in non-accrual
status as of the balance sheet date.
(2)
The weighted average yield on our total
debt and structured finance note investments is computed as (a) the
sum of (i) the annual stated accruing interest on debt investments
plus the annualized accretion of loan origination fees, original
issue discount, market discount or premium, and loan amendment fees
at the balance sheet date, plus (ii) the annual effective yield on
structured finance notes at the balance sheet date divided by (b)
amortized cost of our debt and structured finance note investments,
including debt investments in non-accrual status as of the balance
sheet date.
(3)
The weighted average yield on total
investments is computed as (a) the annual stated accruing interest
plus the annualized accretion of loan origination fees, original
issue discount, market discount or premium, and loan amendment fees
on our debt investments at the balance sheet date, plus the annual
effective yield on our structured finance notes at the balance
sheet date, plus the effective cash yield on our performing
preferred equity investments divided by (b) amortized cost of our
total investment portfolio, including assets on non-accrual basis
as of the balance sheet date. The weighted average yield of
investments is not the same as a return on investment for our
stockholders but, rather, relates to a portion of our investment
portfolio and is calculated before the payment of all of our fees
and expenses.
Quarter Ended March
31,
Operating Results
2020
2019
Total investment income
$
12.9
$
12.3
Net investment income
$
4.0
$
4.8
Net investment income per common share,
basic and diluted
$
0.30
$
0.36
Net increase (decrease) in net assets
resulting from operations
$
(32.2
)
$
3.7
Quarter Ended March
31,
Portfolio Activity
2020
2019
Number of new portfolio company
investments
5
3
Investments in new portfolio companies
$
39.8
$
35.6
Investments in existing portfolio
companies
$
11.8
$
12.7
Investments in structured finance
notes
$
12.0
$
15.3
Number of portfolio companies and
structured finance notes at end of period
77
51
PORTFOLIO AND INVESTMENT ACTIVITIES
The total fair value of our investment portfolio was $465.7
million at March 31, 2020, which was equal to approximately 90% of
amortized cost. As of March 31, 2020, the fair value of our debt
investment portfolio totaled $401.5 million in 63 portfolio
companies, of which 91% and 9% were senior secured loans and
subordinated loans, respectively. As of March 31, 2020, we also
held approximately $38.8 million in equity investments, at fair
value, in 14 portfolio companies in which we also held debt
investments, as well as eight portfolio companies in which we
solely held an equity investment. As of March 31, 2020, our
investment portfolio also included six investments in structured
finance notes with a fair value of $25.3 million. We had unfunded
commitments of $4.4 million to four portfolio companies at March
31, 2020. As of March 31, 2020, floating rate loans as a percentage
of fair value comprised 88% of our debt investment portfolio, with
the remaining 12% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Investment Income
Interest income increased by $0.6 million for the three months
ended March 31, 2020, compared to the three months ended March 31,
2019, primarily due to a $2.0 million increase caused by an
approximately $77 million increase in the average outstanding
performing loan balance offset, in part, by a $1.4 million decrease
resulting from a 136 basis point decrease in the recurring earned
yield on our portfolio. We recognized fee income of $0.5 million
for the three months ended March 31, 2020, primarily due to $0.1
million of prepayment fees and $0.4 million of syndication fees
resulting from the $33.4 million in loan originations during the
period in which OFS Capital Management, LLC sourced, structured,
and arranged the lending group, and for which we were additionally
compensated.
Expenses
Interest expense
Interest expense for the three months ended March 31, 2020
increased $1.5 million over the corresponding prior year period
primarily due to the issuance of the $54.3 million of unsecured
notes in October and November 2019 and borrowings under the BNP
revolving credit facility.
Management fee
Management fee expense for the three months ended March 31, 2020
increased $0.2 million over the corresponding period due to an
increase in our average total assets, resulting primarily from the
deployment of the $54.3 million from the issuance of unsecured
notes during October and November 2019 and the utilization of the
BNP revolving credit facility.
Incentive fee
Incentive fee expense decreased $0.3 million, prior to the Part
One incentive fees waiver of $0.4 million for the three months
ended March 31, 2020 compared to the three months ended March 31,
2019, primarily due to a decrease in net investment income
resulting from a decline in net interest margin, as well as one new
investment on non-accrual status.
On May 4, 2020, our investment adviser agreed to irrevocably
waive the receipt of Part One incentive fees (based on net
investment income) of $0.4 million relating to net investment
income, that it would otherwise be entitled to receive under the
Investment Advisory Agreement for the three months ended March 31,
2020. As a result of the voluntary fee waiver, we incurred Part One
incentive fee expense of $0.4 million for the three months ended
March 31, 2020, which is equal to half the Part One incentive fees
expense we would have incurred for the three months ended March 31,
2020.
Administration fee
Administration fee expense for the three months ended March 31,
2020 increased $0.1 million over the corresponding period primarily
due to an increase in our allocable portion of OFS Services’s
overhead.
Net Gain (Loss) on Investments
The fair value of the portfolio declined due to the net
unrealized depreciation of $27.4 million in the first quarter
primarily as a result of the adverse economic effects of the
COVID-19 pandemic on market conditions and the overall economy as
of March 31, 2020 and the related declines in quoted loan prices,
increases in underlying market credit spreads and company-specific
negative impacts on past and expected future operating performance.
Additionally, we incurred realized losses of $9.1 million primarily
due to the restructuring of our debt investment in Constellis
Holdings, LLC, which was fully recognized as an unrealized loss as
of December 31, 2019.
We recognized net losses of $18.7 million on senior secured debt
during the three months ended March 31, 2020, primarily as a result
of the net unrealized depreciation of $19.0 million on our senior
secured debt. We also recognized a net realized loss of $9.1
million, primarily due to a $9.1 million realized loss from the
restructuring of our debt investment in Constellis Holdings, LLC,
which had unrealized depreciation of $9.3 million as of December
31, 2019, and therefore positively impacted the current quarter net
loss by $0.2 million.
We recognized net losses of $7.5 million on subordinated debt
during the three months ended March 31, 2020, primarily as a result
of unrealized depreciation of $7.2 million on Online Tech Stores,
LLC, which was the only loan placed on non-accrual during the
quarter. We also recognized net unrealized depreciation of $0.3
million for the three months ended March 31, 2020, primarily due to
net negative impact of portfolio company-specific performance
factors.
We recognized net losses of $1.2 million on preferred equity
investments for the three months ended March 31, 2020, primarily as
a result of unrealized appreciation of $0.8 million on TTG
Healthcare, LLC Class B preferred shares, offset by unrealized
depreciation of $2.0 million on Contract Datascan Series A
units.
We recognized net losses of $0.3 million on common equity and
warrant investments for the three months ended March 31, 2020,
primarily as a result of unrealized appreciation of $5.2 million on
Pfanstiehl Holdings, Inc., offset by unrealized depreciation of
$5.5 million our remaining common equity and warrant investments as
a result of negative portfolio company-specific performance
factors.
We recognized unrealized depreciation of $8.2 million on
Structured Finance Notes for the three months ended March 31, 2020,
primarily as a result of the negative impact of assumptions that
reflect more stress on the underlying portfolios due to widening
credit spreads since our investment purchases.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2020, we had $2.2 million in cash, which includes
cash of $0.1 million held by our wholly owned small business
investment company, OFS SBIC I, LP ("SBIC I LP"). Our use of cash
held by SBIC I LP is restricted by SBA regulation, including
limitations on the amount of cash SBIC I LP can distribute to OFS
Capital as parent company. As of March 31, 2020, we had $59.8
million available for additional borrowings under our senior
secured revolving credit facility with Pacific Western Bank, as
well as an unused commitment of $102.1 million under our BNP
revolving credit facility. Based on fair values and equity capital
at March 31, 2020, we could access available lines of credit for
$51.0 million and remain in compliance with 1940 Act asset coverage
requirements. As of May 8, 2020, we had cash on hand of
approximately $47.2 million. The cash build-up after quarter end
was attributable to approximately $31.5 million in proceeds from
the pay-off and sale of assets, which was greater than the
aggregate fair value of these assets as of March 31, 2020 and
approximated their cost. We also had additional net borrowings of
approximately $15.0 million on our lines of credit subsequent to
March 31, 2020.
RECENT DEVELOPMENTS
On March 11, 2020, the World Health Organization declared the
novel coronavirus as a pandemic, and on March 13, 2020 the United
States declared a national emergency with respect to the COVID-19
pandemic. The outbreak of the COVID-19 pandemic has severely
impacted global economic activity and caused significant volatility
and negative pressure in financial markets. The global impact of
the outbreak has been rapidly evolving and many countries,
including the United States, have reacted by instituting
quarantines, mandating business and school closures and restricting
travel. Such actions are creating disruption in global supply
chains and adversely impacting a number of industries. The outbreak
could have a continued adverse impact on economic and market
conditions and trigger a period of global economic slowdown which
may be protracted. The rapid development and fluidity of this
situation precludes any prediction as to the ultimate adverse
impact of the COVID-19 pandemic. Nevertheless, the COVID-19
pandemic presents material uncertainty and risks with respect to
the underlying value of the Company’s portfolio companies, the
Company’s business, financial condition, results of operations and
cash flows, such as the potential negative impact to financing
arrangements, increased costs of operations, changes in law and/or
regulation, and uncertainty regarding government and regulatory
policy. Further, the operational and financial performance of the
portfolio companies in which the Company makes investments have
been, and may continue to be, significantly impacted by the
COVID-19 pandemic, which in turn has, and may continue to have, an
impact the valuation of the Company’s investments.
Accordingly, the Company cannot predict the extent to which its
business, financial condition, results of operations and cash flows
will be affected at this time. The potential impact to the
Company’s results will depend to a large extent on future
developments and new information that may emerge regarding the
duration and severity of the COVID-19 pandemic and the actions
taken by authorities and other entities to contain the coronavirus
or treat its impact, all of which are beyond the Company’s
control.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, May 8, 2020, at 1:00 PM Eastern Time. Interested parties
may participate in the call via the following:
INTERNET: Go to www.ofscapital.com at least 15 minutes prior to
the start time of the call to register, download, and install any
necessary audio software. A replay will be available for 90 days on
OFS Capital’s website at www.ofscapital.com.
TELEPHONE: Dial (877) 510-7674 (Domestic) or (412) 902-4139
(International) approximately 15 minutes prior to the call. A
telephone replay of the conference call will be available through
May 18, 2020 at 9:00 AM Eastern Time and may be accessed by calling
(877) 344-7529 (Domestic) or (412) 317-0088 (International) and
utilizing conference ID #10143572.
For more detailed discussion of the financial and other
information included in this press release, please refer to OFS
Capital’s Form 10-Q for the first quarter ended March 31, 2020,
which we expect to file with the Securities and Exchange Commission
later today.
OFS Capital Corporation and
Subsidiaries
Consolidated Statement of Assets and
Liabilities
(Dollar amounts in thousands, except
per share data)
March 31, 2020
December 31, 2019
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $390,198 and $396,201, respectively)
$
343,692
$
372,535
Affiliate investments (amortized cost of
$114,015 and $131,950, respectively)
114,819
135,679
Control investment (amortized cost of
$10,609 and $10,520, respectively)
7,142
8,717
Total investments at fair value (amortized
cost of $514,822 and $538,671, respectively)
465,653
516,931
Cash
2,170
13,447
Interest receivable
2,799
3,349
Receivable for investment sold
1,920
—
Prepaid expenses and other assets
4,311
4,461
Total assets
$
476,853
$
538,188
Liabilities
Revolving lines of credit
$
58,050
$
56,450
SBA debentures (net of deferred debt
issuance costs of $1,661 and $1,904, respectively)
132,109
147,976
Unsecured notes (net of deferred debt
issuance costs of $4,601 and $4,798 respectively)
148,249
148,052
Interest payable
2,193
3,505
Payable to adviser and affiliates
3,233
4,106
Payable for investments purchased
1,985
10,264
Accrued professional fees
746
621
Other liabilities
305
587
Total liabilities
346,870
371,561
Commitments and contingencies
Net assets
Preferred stock, par value of $0.01 per
share, 2,000,000 shares authorized, -0- shares issued and
outstanding as of March 31, 2020, and December 31, 2019,
respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,392,529 and 13,376,836
shares issued and outstanding as of March 31, 2020, and December
31, 2019, respectively
134
134
Paid-in capital in excess of par
187,387
187,305
Total distributable earnings (losses)
(57,538
)
(20,812
)
Total net assets
129,983
166,627
Total liabilities and net
assets
$
476,853
$
538,188
Number of shares outstanding
13,392,529
13,376,836
Net asset value per share
$
9.71
$
12.46
OFS Capital Corporation and
Subsidiaries
Condensed Consolidated Statements of
Operations (unaudited)
(Dollar amounts in thousands, except
per share data)
Three Months Ended March
31,
2020
2019
Investment income
Interest income:
Non-control/non-affiliate investments
$
9,072
$
8,642
Affiliate investments
2,394
2,333
Control investment
196
259
Total interest income
11,662
11,234
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
261
97
Affiliate investments
269
252
Control investment
85
27
Total payment-in-kind interest and
dividend income
615
376
Dividend income:
Affiliate investments
100
173
Total dividend income
100
173
Fee income:
Non-control/non-affiliate investments
485
342
Affiliate investments
5
205
Control investment
3
15
Total fee income
493
562
Total investment income
12,870
12,345
Expenses
Interest expense
4,922
3,455
Management fee
2,019
1,843
Incentive fee
883
1,163
Professional fees
648
535
Administration fee
520
437
Other expenses
347
84
Total expenses before incentive fee
waiver
9,339
7,517
Incentive fee waiver
(441
)
—
Total expenses, net of incentive fee
waiver
8,898
7,517
Net investment income
3,972
4,828
Net realized and unrealized gain
(loss)
Net realized loss on
non-control/non-affiliate investments
(8,973
)
(804
)
Loss on extinguishment of debt
(149
)
—
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments, net of taxes
(22,422
)
658
Net unrealized depreciation on affiliate
investments
(2,924
)
(1,120
)
Net unrealized appreciation (depreciation)
on control investment
(1,664
)
170
Net loss
(36,132
)
(1,096
)
Net increase (decrease) in net assets
resulting from operations
$
(32,160
)
$
3,732
Net investment income per common share –
basic and diluted
$
0.30
$
0.36
Net increase (decrease) in net assets
resulting from operations per common share – basic and diluted
$
(2.41
)
$
0.28
Distributions declared per common
share
$
0.34
$
0.34
Basic and diluted weighted average shares
outstanding
13,377,008
13,357,464
ABOUT OFS CAPITAL
The Company is an externally managed, closed-end,
non-diversified management investment company that has elected to
be regulated as a business development company. The Company's
investment objective is to provide stockholders with both current
income and capital appreciation primarily through debt investments
and, to a lesser extent, equity investments. The Company invests
primarily in privately held middle-market companies in the United
States, including lower-middle-market companies, targeting
investments of $3 to $20 million in companies with annual EBITDA
between $3 million and $50 million. The Company offers flexible
solutions through a variety of asset classes including senior
secured loans, which includes first-lien, second-lien and
unitranche loans, as well as subordinated loans and, to a lesser
extent, warrants and other equity securities. The Company's
investment activities are managed by OFS Capital Management, LLC,
an investment adviser registered under the Investment Advisers Act
of 19401, as amended, and headquartered in Chicago, Illinois, with
additional offices in New York and Los Angeles.
FORWARD-LOOKING STATEMENTS
Statements in this press release regarding management's future
expectations, beliefs, intentions, goals, strategies, plans or
prospects, including statements relating to: OFS Capital’s results
of operations, including net investment income, net asset value and
net investment gains and losses and the factors that may affect
such results; the Company's approach to distributions, including
whether the current distribution rate will enhance liquidity to
support the Company's borrowers, strengthen its balance sheet or
enable the Company to capitalize on potential opportunities; the
diversity of the Company's funding sources; management's belief
that there are in-house capabilities to invest across the loan and
structured credit markets; the expectation that OFS will continue
to utilize its full platform to manage its portfolio and to find
attractive investment opportunities, when there can be no assurance
that such efforts will improve portfolio results or that any such
investments will be identified and consummated; management's belief
that its relationships with its lenders are strong; the belief that
the Advisor's ownership of the Company's common stock aligns its
interests with those of the Company's stockholders; the effect of
the COVID-19 pandemic on the Company's business, financial
condition, results of operations and cash flows and those of its
portfolio companies, including the Company's and its portfolio
companies' ability to achieve their respective objectives; the
effect of the disruptions caused by the COVID-19 pandemic on the
Company's ability to continue to effectively manage its business
and on the availability of equity and debt capital and the
Company's use of borrowed money to finance a portion of its
investments; and other factors may constitute forward-looking
statements for purposes of the safe harbor protection under
applicable securities laws. Forward-looking statements can be
identified by terminology such as “anticipate,” “believe,” “could,”
“could increase the likelihood,” “estimate,” “expect,” “intend,”
“is planned,” “may,” “should,” “will,” “will enable,” “would be
expected,” “look forward,” “may provide,” “would” or similar terms,
variations of such terms or the negative of those terms. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors including those risks,
uncertainties and factors referred to in OFS Capital’s Annual
Report on Form 10-K for the year ended December 31, 2019 filed with
the Securities and Exchange Commission under the section “Risk
Factors,” as well as other documents that may be filed by OFS
Capital from time to time with the Securities and Exchange
Commission. As a result of such risks, uncertainties and factors,
actual results may differ materially from any future results,
performance or achievements discussed in or implied by the
forward-looking statements contained herein. OFS Capital is
providing the information in this press release as of this date and
assumes no obligations to update the information included in this
press release or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
1
Registration does not imply a certain
level of skill or training
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200508005144/en/
INVESTOR RELATIONS CONTACT: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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