Quarterly Distribution Increased by 9%
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 June 30, 2021.
FINANCIAL HIGHLIGHTS
- Net investment income of $3.2 million, or $0.24 per share, an
increase of approximately 26% compared to the net investment income
of $2.5 million, or $0.19 per share, for the quarter ended March
31, 2021. We had approximately $564,000, or $0.04 per share, of
duplicative interest costs in the first quarter of 2021 related to
our bond refinancing.
- Net asset value ("NAV") per share increased to $13.42 at June
30, 2021 from $11.96 at March 31, 2021. During the three months
ended June 30, 2021, our portfolio recognized net gains of $19.2
million.
- No new loans placed on non-accrual status in the quarter.
- At June 30, 2021, 95% and 66% of our loan portfolio and total
portfolio, respectively, consisted of senior secured loans, based
on fair value.
- As of June 30, 2021, 90% of our debt matures in 2024 and beyond
and 63% of our outstanding debt is unsecured.
- On August 3, 2021, OFS Capital's Board of Directors declared a
distribution of $0.24 per share for the third quarter of 2021,
payable on September 30, 2021, to stockholders of record as of
September 23, 2021.
"We had a strong quarter highlighted by a 12% increase in our
net asset value," said Bilal Rashid, OFS Capital's Chairman and
Chief Executive Officer. "Our net investment income also increased
from the prior quarter and for the fourth consecutive quarter, we
increased our quarterly distribution. We believe there is an
opportunity for us to continue to increase net investment income
over time as we increase the pace of our originations and continue
to benefit from lower borrowing costs as a result of our
refinancing activity earlier this year."
HIGHLIGHTS
($ in millions, except for per share data)
Portfolio Overview
At June 30, 2021
Total assets
$
522.4
Investment portfolio, at fair value
$
484.0
Net assets
$
180.0
Net asset value per share
$
13.42
Weighted average yield on performing debt
investments (1)
9.77
%
Weighted average yield on total debt
investments (2)
8.91
%
Weighted average yield on total
investments (3)
8.36
%
(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
Operating Results
June 30, 2021
March 31, 2021
Total investment income
$
11.4
$
10.5
Net investment income
$
3.2
$
2.6
Net investment income per common share,
basic and diluted
$
0.24
$
0.19
Net increase in net assets resulting from
operations
$
22.4
$
4.2
Quarter Ended
Portfolio Activity
June 30, 2021
March 31, 2021
Number of new portfolio company
investments
13
18
Investments in new portfolio companies
$
26.5
$
36.2
Investments in existing portfolio
companies
$
18.0
$
26.1
Investments in structured finance
notes
$
15.7
$
6.2
Number of portfolio companies and
structured finance notes at end of period
91
87
PORTFOLIO AND INVESTMENT ACTIVITIES
The total fair value of our investment portfolio was $484.0
million at June 30, 2021, which was equal to approximately 103% of
amortized cost. As of June 30, 2021, the fair value of our debt
investment portfolio totaled $334.9 million in 61 portfolio
companies, of which 95% and 5% were senior secured loans and
subordinated loans, respectively. As of June 30, 2021, we also held
approximately $80.9 million in equity investments, at fair value,
in 8 portfolio companies in which we also held debt investments, as
well as fourteen portfolio companies in which we solely held an
equity investment. As of June 30, 2021, our investment portfolio
also included sixteen investments in structured finance notes with
a fair value of $68.2 million. At June 30, 2021, we had unfunded
commitments of $11.0 million to eight portfolio companies. As of
June 30, 2021, floating rate loans as a percentage of fair value
comprised 97% of our debt investment portfolio, with the remaining
3% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Interest Income
During the three months ended June 30, 2021, recurring interest
income and PIK interest income of $10.1 million increased $0.3
million compared to the three months ended March 31, 2021. Total
interest income and PIK interest income of $10.6 million increased
$0.5 million compared to the three months ended March 31, 2021.
Fee Income
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 June
30, 2021, total fee income increased from $0.3 million to $0.6
million compared to March 31, 2021, primarily due to a $0.2 million
increase in syndication fees.
Expenses
Interest expense
Interest expense for the three months ended June 30, 2021
decreased $0.3 million compared to the three months ended March 31,
2021, primarily due to the payment of interest during the three
months ended March 31, 2021 on both the $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 June 30, 2021
remained stable compared to the prior quarter.
Incentive fee
Incentive fee expense for the three months ended June 30, 2021
increased $0.8 million compared to the prior quarter due to an
increase in net interest margin.
Administration fee
Administration fee expense for the three months ended June 30,
2021 decreased $0.1 million compared to the prior quarter due to
allocations related to year-end administrative services, including
audit support during the first quarter of 2021.
Net Investment Income
Net investment income for the three months ended June 30, 2021
increased $0.7 million compared to the prior quarter primarily due
to an increase in net interest margin.
Net Gain (Loss) on Investments
Our portfolio experienced net gains of $19.2 million in the
second quarter of 2021 primarily as a result of performance
improvements in our directly originated debt and equity
investments. Net gains for the quarter include realized losses of
$10.8 million primarily due to the sale of our subordinated debt
investment in Community Intervention Services, LLC and the
write-off of equity interests in My Alarm Center, LLC, which were
substantially recognized as unrealized losses in prior fiscal
years.
During the three months ended June 30, 2021 we recognized net
gains of:
- $0.9 million on our senior debt investments.
- $3.5 million on our subordinated debt investments, primarily as
a result of unrealized appreciation of $3.5 million on our
investment in Eblens Holdings, Inc.
- $14.4 million on our common equity, warrants and other
investments, primarily as a result of unrealized appreciation of
$12.1 million on our investment in Pfanstiehl Holdings, Inc.
- $0.7 million on our Structured Finance Note investments.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2021, we had $35.2 million in cash, which includes
$15.7 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 June 30, 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 $125.9
million under our BNP revolving credit facility, both subject to a
borrowing base and other covenants. Based on fair values and equity
capital at June 30, 2021, we could access available lines of credit
for $129.0 million and remain in compliance with 1940 Act asset
coverage requirement.
RECENT DEVELOPMENTS
We are continuing to closely monitor the impact of the COVID-19
pandemic 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
outbreak of 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 Friday, August 6, 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
August 20, 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 #10159201.
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 second quarter ended June 30, 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)
June 30, 2021
December 31,
2020
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $373,780 and $363,628, respectively)
$
358,471
$
328,665
Affiliate investments (amortized cost of
$83,740 and $86,484, respectively)
113,493
102,846
Control investment (amortized cost of
$11,057 and $10,911, respectively)
12,062
10,812
Total investments at fair value (amortized
cost of $468,577 and $461,023, respectively)
484,026
442,323
Cash
35,159
37,708
Interest receivable
1,051
1,298
Prepaid expenses and other assets
2,204
2,484
Total assets
$
522,440
$
483,813
Liabilities
Revolving lines of credit
$
24,050
$
32,050
SBA debentures (net of deferred debt
issuance costs of $865 and $1,088, respectively)
94,640
104,182
Unsecured notes (net of deferred debt
issuance costs of $5,607 and $4,897 respectively)
198,718
172,953
Interest payable
4,088
3,176
Payable to adviser and affiliates
3,352
3,252
Payable for investments purchased
16,363
8,411
Accrued professional fees
597
495
Other liabilities
639
338
Total liabilities
342,447
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 June 30, 2021 and December 31, 2020,
respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,415,235 and 13,409,559
shares issued and outstanding as of June 30, 2021 and December 31,
2020, respectively
134
134
Paid-in capital in excess of par
187,179
187,124
Total distributable earnings (losses)
(7,320)
(28,302)
Total net assets
179,993
158,956
Total liabilities and net
assets
$
522,440
$
483,813
Number of shares outstanding
13,415,235
13,409,559
Net asset value per share
$
13.42
$
11.85
OFS Capital Corporation and
Subsidiaries
Condensed Consolidated
Statements of Operations (unaudited)
(Dollar amounts in thousands,
except per share data)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Investment income
Interest income:
Non-control/non-affiliate investments
$
9,089
$
8,233
$
17,616
$
17,305
Affiliate investments
911
1,692
1,815
4,086
Control investment
221
209
490
405
Total interest income
10,221
10,134
19,921
21,796
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
275
264
593
525
Affiliate investments
80
191
151
460
Control investment
101
102
199
187
Total payment-in-kind interest and
dividend income
456
557
943
1,172
Dividend income:
Affiliate investments
—
—
—
100
Control investment
136
—
136
—
Total dividend income
136
—
136
100
Fee income:
Non-control/non-affiliate investments
603
279
870
764
Affiliate investments
—
8
37
13
Control investment
—
3
—
6
Total fee income
603
290
907
783
Total investment income
11,416
10,981
21,907
23,851
Expenses
Interest expense
4,241
4,931
9,066
9,853
Management fee
1,876
1,869
3,710
3,888
Incentive fee
809
215
809
1,098
Professional fees
489
460
876
1,108
Administration fee
439
500
1,007
1,020
Other expenses
327
399
654
746
Total expenses before incentive fee
waiver
8,181
8,374
16,122
17,713
Incentive fee waiver
—
—
—
(441)
Total expenses, net of incentive fee
waiver
8,181
8,374
16,122
17,272
Net investment income
3,235
2,607
5,785
6,579
Net realized and unrealized gain (loss)
on investments
Net realized loss on
non-control/non-affiliate investments
(10,841)
(1,040)
(10,750)
(10,013)
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments, net of taxes
17,866
6,808
19,384
(15,614)
Net unrealized appreciation (depreciation)
on affiliate investments
11,465
(880)
13,391
(3,804)
Net unrealized appreciation (depreciation)
on control investment
716
163
1,104
(1,501)
Net gain (loss) on investments
19,206
5,051
23,129
(30,932)
Loss on extinguishment of debt
—
—
(2,299)
(149)
Net increase (decrease) in net assets
resulting from operations
$
22,441
$
7,658
$
26,615
$
(24,502)
Net investment income per common share –
basic and diluted
$
0.24
$
0.19
$
0.43
$
0.49
Net increase (decrease) in net assets
resulting from operations per common share – basic and diluted
$
1.67
$
0.57
$
1.98
$
(1.83)
Distributions declared per common
share
$
0.22
$
0.17
$
0.42
$
0.51
Basic and diluted weighted average shares
outstanding
13,411,998
13,392,608
13,410,524
13,384,808
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 quarters ended March 31, 2021 and June
30, 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/20210806005077/en/
Steve Altebrando 646-652-8473 saltebrando@ofsmanagement.com
OFS Capital (NASDAQ:OFS)
Historical Stock Chart
From Aug 2024 to Sep 2024
OFS Capital (NASDAQ:OFS)
Historical Stock Chart
From Sep 2023 to Sep 2024