Quarterly Distribution Increased by 10%
Compared to Prior Quarter
OFS Capital Corporation (NASDAQ: OFS) ("OFS Capital," the
"Company," "we," "us," or "our") today announced its financial
results for the quarter ended March 31, 2021.
FINANCIAL HIGHLIGHTS
- Net investment income of $2.6 million, or $0.19 per share.
- Adjusted net investment income(1) of $3.1 million, or $0.23 per
share.
- Net asset value ("NAV") per share increased to $11.96 at March
31, 2021 from $11.85 at December 31, 2020. During the three months
ended March 31, 2021, our portfolio recognized net gains of $3.9
million.
- No new loans placed on non-accrual status in the quarter.
- At March 31, 2021, 96% and 70% of our loan portfolio and total
portfolio, respectively, consisted of senior secured loans, based
on fair value.
- As of March 31, 2021, 90% of our debt matures in 2024 and
beyond and 64% of our outstanding debt is unsecured.
- On May 7, 2021, OFS Capital's Board of Directors declared a
distribution of $0.22 per share for the second quarter of 2021,
payable on June 30, 2021, to stockholders of record as of June 23,
2021.
"We are pleased to announce our third consecutive increase in
our quarterly distribution," said Bilal Rashid, OFS Capital's
Chairman and Chief Executive Officer. "We had a strong quarter that
resulted in another increase in our net asset value per share. We
refinanced $125 million of our long term debt during the quarter,
which we believe will result in lower interest expense going
forward. We believe there is an opportunity for us to continue to
increase net investment income over time as we increase the pace of
our originations and benefit from lower borrowing costs.”
(1) Supplemental information regarding adjusted net
investment income:
On a supplemental basis, we disclose adjusted net investment
income ("Adjusted Net Investment Income") (including on a per share
basis), which is a financial measure calculated and presented on a
basis of accounting other than in accordance with generally
accepted accounting principles of the United States of America
(“GAAP”). GAAP states losses on debt extinguishment are measured as
the “difference between the reacquisition price of debt and the net
carrying amount of the extinguished debt,” which for our Unsecured
Notes Due April 2025 and our Unsecured Notes Due October 2025
(together, the “Extinguished Debt”) equaled the call price of $98.5
million less the balance sheet carrying amount on the date of
extinguishment of $96.3 million but does not include other costs
necessary to complete such extinguishment. We issued the redemption
notices for the Extinguished Debt on February 10, 2021, the date
our Unsecured Notes Due February 2026 closed and funds to redeem
the extinguished debt became available. Moreover, the indentures of
the Extinguished Debt required a 30-day notice period prior to
their extinguishment (the "Redemption Period"). Consequently, the
Company incurred interest expense for the new Unsecured Notes Due
February 2026, a duplication of interest cost management believes
was necessary to affect the extinguishment of the debt. Adjusted
Net Investment Income reflects the exclusion of duplicate interest
expense during the Redemption Period from interest expense (a
component of net investment income). Management believes that
Adjusted Net Investment Income is a useful indicator of future
operations and that providing this measure may facilitate a more
complete analysis and greater transparency into our ongoing
operations, particularly in comparing underlying results from
period to period, and afford investors a view of results that may
be more easily compared to those of other companies. The
presentation of this additional information, however, is not meant
to be considered in isolation or as a substitute for financial
results prepared in accordance with GAAP. A reconciliation of net
investment income to Adjusted Net Investment Income is set forth in
Schedule I.
HIGHLIGHTS
($ in millions, except for per share
data)
Portfolio Overview
At March 31, 2021
Total assets
$
511.6
Investment portfolio, at fair value
$
466.1
Net assets
$
160.5
Net asset value per share
$
11.96
Weighted average yield on performing debt
investments (1)
10.04
%
Weighted average yield on total debt
investments (2)
9.01
%
Weighted average yield on total
investments (3)
8.41
%
(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
2021
2020
Total investment income
$
10.5
$
12.9
Net investment income
$
2.6
$
4.0
Net investment income per common share,
basic and diluted
$
0.19
$
0.30
Net increase (decrease) in net assets
resulting from operations
$
4.2
$
(32.2
)
Quarter Ended March
31,
Portfolio Activity
2021
2020
Number of new portfolio company
investments
18
5
Investments in new portfolio companies
$
36.2
$
39.8
Investments in existing portfolio
companies
$
26.1
$
11.8
Investments in structured finance
notes
$
6.2
$
12.0
Number of portfolio companies and
structured finance notes at end of period
87
77
PORTFOLIO AND INVESTMENT ACTIVITIES
The total fair value of our investment portfolio was $466.1
million at March 31, 2021, which was equal to approximately 97% of
amortized cost. As of March 31, 2021, the fair value of our debt
investment portfolio totaled $337.9 million in 59 portfolio
companies, of which 96% and 4% were senior secured loans and
subordinated loans, respectively. As of March 31, 2021, we also
held approximately $66.6 million in equity investments, at fair
value, in 10 portfolio companies in which we also held debt
investments, as well as thirteen portfolio companies in which we
solely held an equity investment. As of March 31, 2021, our
investment portfolio also included fifteen investments in
structured finance notes with a fair value of $61.6 million. At
March 31, 2021, we had unfunded commitments of $5.8 million to four
portfolio companies. As of March 31, 2021, floating rate loans as a
percentage of fair value comprised 93% of our debt investment
portfolio, with the remaining 7% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Investment Income
During the three months ended March 31, 2021, recurring interest
income and PIK interest income of $9.8 million remained stable,
compared to the three months ended December 31, 2020.
Syndication fees and prepayment fees result from periodic
transactions rather than from holding portfolio investments and are
considered non-recurring. During the three months ended March 31,
2021, total fee income compared to December 31, 2020, decreased
from $0.6 million to $0.3 million due to decreases in syndication
fees and prepayment fees.
Expenses
Interest expense
Interest expense for the three months ended March 31, 2021
increased $0.3 million compared to the three months ended December
31, 2020, primarily due to us paying interest on both the newly
issued $125.0 million of unsecured notes in February and March 2021
and the $98.5 million of redeemed unsecured notes. After the 30-day
notice period expired, we used a portion of the proceeds from the
$125.0 million of unsecured notes to redeem $98.5 million of
previously issued unsecured notes.
Management fee
Management fee expense for the three months ended March 31, 2021
remained stable compared to the prior quarter.
Incentive fee
Incentive fee expense for the three months ended March 31, 2021
decreased $0.7 million compared to the prior quarter due to a
decline in net interest margin.
Administration fee
Administration fee expense for the three months ended March 31,
2021 increased $0.2 million compared to the prior quarter due to an
increase in our allocable portion of OFS Capital Services, LLC
personnel and software costs.
Net Gain (Loss) on Investments
Our portfolio experienced net gains of $3.9 million in the first
quarter of 2021 primarily as a result of performance improvements
in our directly originated debt and equity investments.
During the three months ended March 31, 2021:
- We recognized net gains of $3.9 million on our senior debt
investments, primarily as a result of unrealized appreciation of
$1.5 million on our investment in Wastebuilt Environmental
Solutions, LLC.
- We recognized net losses of $1.4 million on our subordinated
debt investments, primarily as a result of unrealized depreciation
of $2.3 million on our investment in Online Tech Stores, LLC.
- We recognized net gains of $0.7 million on our preferred equity
investments, primarily as a result of unrealized appreciation of
$0.9 million on our investment in Neosystems Corp.
- We recognized net gains of $1.4 million on our common equity,
warrants and other investments, primarily as a result of unrealized
appreciation of $1.0 million on our investment in Pfanstiehl
Holdings, Inc.
- We recognized net losses of $0.5 million on our Structured
Finance Note investments, primarily as a result of unrealized
depreciation of $0.7 million on our investment in Apex Credit CLO
2020 Ltd.
Other
Our net asset value per share was reduced $0.17 per share
primarily due to a $2.2 million loss on extinguishment of debt
related to our redemption of all $50.0 million in aggregate
principal amount of unsecured notes due in April 2025 and all $48.5
million in aggregate principal amount of unsecured notes due in
October 2025.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2021, we had $41.6 million in cash, which includes
$4.5 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, 2021, we had an unused commitment of $25.0
million under our senior secured revolving credit facility with
Pacific Western Bank, as well as an unused commitment of $130.5
million under our BNP revolving credit facility, both subject to a
borrowing base and other covenants. Based on fair values and equity
capital at March 31, 2021, we could access available lines of
credit for $97.0 million and remain in compliance with 1940 Act
asset coverage requirement.
RECENT DEVELOPMENTS
We are continuing to closely monitor the impact of the outbreak
of COVID-19 on all aspects of our business, including how it
impacts our portfolio companies, employees, due diligence and
underwriting processes, and financial markets. The U.S. capital
markets experienced extreme volatility and disruption following the
COVID-19 pandemic, which appear to have subsided and returned to
pre-COVID-19 levels. Nonetheless, certain economists and major
investment banks have expressed concern that the continued spread
of the virus globally could lead to a prolonged period of
world-wide economic downturn.
On March 27, 2020, the U.S. government enacted the CARES Act,
which contains provisions intended to mitigate the adverse economic
effects of the coronavirus pandemic. On December 27, 2020, the U.S.
government enacted the December 2020 COVID Relief Package.
Additionally, on March 11, 2021, the U.S. government enacted the
American Rescue Plan, which included additional funding to mitigate
the adverse economic effects of the COVID-19 pandemic. It is
uncertain whether, or to what extent, our portfolio companies will
be able to benefit from the CARES Act, the December 2020 COVID
Relief Package, the American Rescue Plan, or any other subsequent
legislation intended to provide financial relief or assistance. As
a result of this disruption and the pressures on their liquidity,
certain of our portfolio companies have been, or may continue to
be, incentivized to draw on most, if not all, of the unfunded
portion of any revolving or delayed draw term loans made by us,
subject to availability under the terms of such loans.
The extent of the impact of the COVID-19 pandemic on our
operational and financial performance, including our ability to
execute our business strategies and initiatives in the expected
time frame, will depend to a large extent on future developments
regarding the duration and severity of the coronavirus,
effectiveness of vaccination deployment and the actions taken by
governments (including stimulus measures or the lack thereof) and
their citizens to contain the coronavirus or treat its impact, all
of which are beyond our control. An extended period of global
supply chain and economic disruption could materially affect our
business, results of operations, access to sources of liquidity and
financial condition. Given the fluidity of the situation, we cannot
estimate the long-term impact of COVID-19 on our business, future
results of operations, financial position, or cash flows at this
time.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Tuesday, May 11, 2021, at 10:00 AM 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 21, 2021 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 #10155748.
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, 2021,
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, 2021
December 31,
2020
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $386,218 and $363,628, respectively)
$
352,837
$
328,665
Affiliate investments (amortized cost of
$83,676 and $86,484, respectively)
101,964
102,846
Control investment (amortized cost of
$11,009 and $10,911, respectively)
11,298
10,812
Total investments at fair value (amortized
cost of $480,903 and $461,023, respectively)
466,098
442,323
Cash
41,641
37,708
Interest receivable
519
1,298
Receivable for investments sold
474
—
Prepaid expenses and other assets
2,859
2,484
Total assets
$
511,591
$
483,813
Liabilities
Revolving lines of credit
$
19,550
$
32,050
SBA debentures (net of deferred debt
issuance costs of $922 and $1,088, respectively)
94,583
104,182
Unsecured notes (net of deferred debt
issuance costs of $5,830 and $4,897, respectively)
198,495
172,953
Interest payable
1,860
3,176
Payable to adviser and affiliates
2,798
3,252
Payable for investments purchased
32,927
8,411
Accrued professional fees
479
495
Other liabilities
429
338
Total liabilities
351,121
324,857
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, 2021, and December 31, 2020,
respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,411,962 and 13,409,559
shares issued and outstanding as of March 31, 2021, and December
31, 2020, respectively
134
134
Paid-in capital in excess of par
187,146
187,124
Total distributable earnings (losses)
(26,810
)
(28,302
)
Total net assets
160,470
158,956
Total liabilities and net
assets
$
511,591
$
483,813
Number of shares outstanding
13,411,962
13,409,559
Net asset value per share
$
11.96
$
11.85
OFS Capital Corporation and
Subsidiaries
Condensed Consolidated Statements of
Operations (unaudited)
(Dollar amounts in thousands, except
per share data)
Three Months Ended March
31,
2021
2020
Investment income
Interest income:
Non-control/non-affiliate investments
$
8,527
$
9,072
Affiliate investments
904
2,394
Control investment
269
196
Total interest income
9,700
11,662
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
318
261
Affiliate investments
71
269
Control investment
98
85
Total payment-in-kind interest and
dividend income
487
615
Dividend income:
Affiliate investments
—
100
Total dividend income
—
100
Fee income:
Non-control/non-affiliate investments
267
485
Affiliate investments
37
5
Control investment
—
3
Total fee income
304
493
Total investment income
10,491
12,870
Expenses
Interest expense
4,825
4,922
Management fee
1,834
2,019
Incentive fee
—
883
Professional fees
387
648
Administration fee
568
520
Other expenses
327
347
Total expenses before incentive fee
waiver
7,941
9,339
Incentive fee waiver
—
(441
)
Total expenses, net of incentive fee
waiver
7,941
8,898
Net investment income
2,550
3,972
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on
non-control/non-affiliate investments
91
(8,973
)
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments, net of taxes
1,518
(22,422
)
Net unrealized appreciation (depreciation)
on affiliate investments
1,926
(2,924
)
Net unrealized appreciation (depreciation)
on control investment
388
(1,664
)
Net gain (loss) on investments
3,923
(35,983
)
Loss on extinguishment of debt
(2,299
)
(149
)
Net increase (decrease) in net assets
resulting from operations
$
4,174
$
(32,160
)
Net investment income per common share –
basic and diluted
$
0.19
$
0.30
Net increase (decrease) in net assets
resulting from operations per common share – basic and diluted
$
0.31
$
(2.41
)
Distributions declared per common
share
$
0.20
$
0.34
Basic and diluted weighted average shares
outstanding
13,409,033
13,377,008
Schedule
I
Non-GAAP Financial Measure – Adjusted Net
Investment Income
On a supplemental basis, we disclose Adjusted Net Investment
Income (including on a per share basis), which is a financial
measure calculated and presented on a basis of accounting other
than in accordance GAAP. Management believes that Adjusted Net
Investment Income is a useful indicator of future operations and
that providing this measure may facilitate a more complete analysis
and greater transparency into our ongoing operations, particularly
in comparing underlying results from period to period, and afford
investors a view of results that may be more easily compared to
those of other companies.
The following table provides a reconciliation from net
investment income (the most comparable GAAP measure) to Adjusted
Net Investment Income for the three months ended March 31, 2021.
(dollar amounts in thousands, except per share data):
Three months ended March 31,
2021
(000's)
Per Share
Net investment income
$
2,550
$
0.19
Duplicate interest costs
564
0.04
Adjusted Net Investment Income
$
3,114
$
0.23
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 $5 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; management's belief that net investment income can
grow over time as a result of increased origination pacing and
reduced borrowing costs, when there can be no assurance that either
will occur; 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 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, 2020 filed with
the Securities and Exchange Commission under the section “Risk
Factors,” and in "Part II, Item 1A. Risk Factors" in our Quarterly
Report in Form 10-Q for the quarter ended March 31, 2021, 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/20210511005274/en/
INVESTOR RELATIONS CONTACT: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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