Market Overview

OFS Capital Corporation Announces Third Quarter Financial Results

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Declares a $0.34 Per Share Distribution

OFS Capital Corporation (NASDAQ:OFS) ("OFS Capital", "we", "us", or
"our") today announced its financial results for the quarter ended
September 30, 2017.

FINANCIAL HIGHLIGHTS

  • Net investment income of $4.4 million, or $0.33 per share.
  • Closed investments totaled $42.4 million in the third quarter of 2017;
    as of September 30, 2017, 76% of our loan portfolio was senior secured.
  • 73% of the fair value of our loan portfolio was floating rate, and the
    weighted average yield of our performing loan portfolio was 11.50% as
    of September 30, 2017(1).
  • At September 30, 2017, we had one loan investment on non-accrual.
  • 90% of our debt is fixed rate with a weighted average cost of 3.43% as
    of September 30, 2017, with maturities in 2022 and beyond.
  • On October 31, 2017, OFS Capital's Board of Directors declared a
    distribution of $0.34 per share for the fourth quarter of 2017,
    payable on December 29, 2017 to stockholders of record as of December
    15, 2017.

"We remain focused on generating strong distributions for our
shareholders," said Bilal Rashid, OFS Capital's Chairman and Chief
Executive Officer. "We closed $108.6 million in investments over the
last two quarters. We believe that we are well positioned to grow
earnings as we prudently deploy the $53.9 million of cash on hand at the
end of the third quarter. Our commitment to capital preservation, and
strong long-term performance is enhanced by the alignment of interests
of our stockholders and our external manager, which continues to own
approximately 2.9 million shares, or 22% of the outstanding OFS
Capital common stock."

       
(1)     See Highlights contained in this press release for further
information on our weighted average yield. Including assets on non-
accrual, the weighted average yield of our debt investment portfolio
was 11.17% at September 30, 2017.
 

HIGHLIGHTS

($ in millions, except for per share data)

     
Portfolio Overview At September 30, 2017
Total assets $ 356.5
Investment portfolio, at fair value $ 296.6
Net assets $ 188.7
Net asset value per share $ 14.15
Weighted average yield (1) 11.50 %
Weighted average yield, including loans on non-accrual (1) 11.17 %
 
   
(1) The weighted average yield on our debt 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, divided by (b)
amortized cost of debt investments, excluding assets on non-accrual
basis as of the balance sheet date. The weighted average yield of
our debt 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 September 30,
Operating Results 2017   2016
Total investment income $ 9.1 $ 7.4
Net investment income $ 4.4 $ 3.3
Net investment income per common share, basic and diluted $ 0.33 $ 0.34
Net increase in net assets resulting from operations per common
share, basic and diluted
$ 0.09 $ 0.25
 
     
Quarter ended September 30,
Portfolio Activity 2017   2016
Number of new portfolio companies 3 2
Investments in new portfolio companies $ 40.5 $ 14.3
Investments in existing portfolio companies $ 1.9 $ 2.1
Number of portfolio companies at end of period 40 38
 

PORTFOLIO AND INVESTMENT ACTIVITIES

During the third quarter of 2017, OFS Capital closed $40.5 million of
investments in three new portfolio companies, including a $21.3 million
senior secured debt investment together with a $2.9 million preferred
equity investment, an $8.7 million subordinated debt investment together
with a $0.7 million common equity investment, and a $6.9 million senior
secured debt investment. In addition, OFS Capital closed $1.0 million of
new senior secured debt investments in two existing portfolio companies,
which included a delayed draw funding of $0.5 million, and a $1.0
million preferred equity investment in an existing portfolio company.

The total fair value of OFS Capital's investment portfolio was $296.6
million at September 30, 2017, which was equal to approximately 98% of
amortized cost. As of September 30, 2017, the fair value of OFS
Capital's debt investment portfolio totaled $257.1 million in 37
portfolio companies, of which 76% and 24% were senior secured loans and
subordinated loans, respectively. As of September 30, 2017, we also held
approximately $39.5 million in equity investments, at fair value, in 17
portfolio companies in which we also held debt investments and three
portfolio companies in which we solely held an equity investment. We had
unfunded commitments of $4.5 million to three portfolio companies at
September 30, 2017. As of September 30, 2017, floating rate loans
comprised 73% of OFS Capital's debt investment portfolio, with the
remaining 27% in fixed rate loans, as a percentage of fair value.

RESULTS OF OPERATIONS

Income

Interest Income:

Interest income increased by $1.2 million for the three months ended
September 30, 2017 compared to the three months ended September 30,
2016. The $1.2 million increase was due to a $1.1 million increase
primarily attributable to a 19% increase in the average outstanding loan
balance, and a $0.2 million increase in Net Loan Fee amortization,
offset by a $0.1 million decrease primarily attributable to a 30 basis
points decrease in the weighted average yield in our portfolio.
Acceleration of Net Loan Fees of $0.3 million and $0.1 million were
included in interest income for the three months ended September 30,
2017 and 2016, respectively.

Fee Income:

Fee income increased by $0.6 million for the three months ended
September 30, 2017 compared to the three months ended September 30,
2016, primarily due to an increase in prepayment fees and structuring
fees of $0.3 million and $0.4 million, respectively, offset by a $0.1
million decrease in other fees. We recorded prepayment fees of $0.3
million resulting from $17.5 million of unscheduled principal payments
during the three months ended September 30, 2017. We did not receive any
unscheduled principal payments subject to prepayment fees during the
three months ended September 30, 2016. We recorded structuring fees of
$0.5 million in connection with the closing of $30.2 million of
investments during the three months ended September 30, 2017 compared to
structuring fees of $0.1 million in connection with the closing of $9.5
million of investments during the three months ended September 30, 2016.

Expenses

Interest expense for the three and nine months ended September 30, 2017,
increased over the corresponding periods in the prior year due to an
increase in borrowings under our senior secured revolving credit
facility ("PWB Credit Facility"). The average dollar amount of
borrowings under the PWB Credit Facility outstanding during the three
and nine months ended September 30, 2017 was $11.1 million and $5.8
million, respectively. There were no borrowings under the PWB Credit
Facility during the three or nine months ended September 30, 2016.

Management fee expense for the three months ended September 30, 2017,
increased over the corresponding period in the prior year due to an
increase in our average total assets, primarily due to a increase in net
investment activity, including deployment of funds from our follow-on
public offering of 3,625,000 shares of our common stock in April 2017
(the "Offering").

Incentive fee expense increased by $0.3 million for the three months
ended September 30, 2017, compared to the three months ended September
30, 2016 due to an increase in pre-incentive fee net investment income
compared to the prior year, which was primarily attributable to an
increase in the average investment balance as a result of net investment
activity, including deployment of funds from the Offering.

Net gain (loss) on investments

Net gain (loss) on investments consists of the sum of: (a) realized
gains and losses from the sale of debt or equity securities, or the
redemption of equity securities; and (b) changes in net unrealized
appreciation/depreciation on debt and equity investments. In the period
in which a realized gain or loss is recognized, such gain or loss will
generally be offset by the reversal of previously recognized unrealized
appreciation or depreciation, and the net gain recognized in that period
will generally be smaller. The unrealized appreciation or depreciation
on debt securities is also reversed when those investments are redeemed
or paid off prior to maturity. In such instances, the reversal of
unrealized appreciation or depreciation will be reported as a net loss
or gain, respectively, and may be partially offset by the a

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