Market Overview

OFS Capital Corporation Announces Second Quarter 2019 Financial Results

Share:

Net Investment Income of $0.36 per common share

Declares 27th Consecutive $0.34 per common share Distribution

OFS Capital Corporation (NASDAQ:OFS) ("OFS Capital," the "Company," "we," "us," or "our") today announced its financial results for the quarter ended June 30, 2019.

FINANCIAL HIGHLIGHTS

  • Net investment income of $4.86 million, or $0.36 per share, an increase of 6% year-over-year and above the $0.34 quarterly distribution.
  • Closed senior loan facility in June 2019; new subsidiary will primarily invest in first lien loans to larger borrowers.
  • Closed investments in the second quarter of 2019 totaled approximately $64.7 million.
  • Net asset value ("NAV") per share decreased to $12.95 at June 30, 2019 from $13.04 at March 31, 2019 due to unrealized depreciation of the portfolio. No new non-accruals.
  • At June 30, 2019, 89% of our loan portfolio consisted of senior secured loans, based on fair value.
  • On July 30, 2019, OFS Capital's Board of Directors declared a distribution of $0.34 per share for the third quarter of 2019, payable on September 30, 2019 to stockholders of record as of September 23, 2019.

"Our net investment income again exceeded our distribution," said Bilal Rashid, OFS Capital's Chairman and Chief Executive Officer. "We are pleased to declare our 27th consecutive quarterly distribution of $0.34 per share since our IPO in late 2012. Since then, we have declared over $9 per share of distributions, including a special dividend of $0.37 per share.

We believe that our senior loan facility will further improve our return on equity while improving the overall risk profile of our portfolio. We believe that our advisor's $2.2 billion platform has the breadth and skills to invest across the corporate loan market, and has been investing in such types of loans since its inception in 1994."

HIGHLIGHTS

($ in millions, except for per share data)

Portfolio Overview

 

At June 30, 2019

Total assets

 

$

504.9

 

Investment portfolio, at fair value

 

$

484.7

 

Net assets

 

$

173.1

 

Net asset value per share

 

$

12.95

 

Weighted average yield on performing debt investments (1)

 

11.41

%

Weighted average yield on total debt investments (2)

 

11.10

%

Weighted average yield on total investments (3)

 

10.49

%

(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 our 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 the annual effective yield on our structured finance notes at the balance sheet date divided by (b) amortized cost of our debt and structured finance note investments, excluding assets on non-accrual basis 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 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 divided by (b) amortized cost of our debt and structured finance note investments, including assets on non-accrual basis 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 June 30,

Operating Results

 

2019

 

2018

Total investment income

 

$

12.9

 

 

$

10.3

 

Net investment income

 

$

4.9

 

 

$

4.6

 

Net investment income per common share, basic and diluted

 

$

0.36

 

 

$

0.34

 

Net increase in net assets resulting from operations

 

$

3.4

 

 

$

5.0

 

 

Quarter Ended June 30,

Portfolio Activity

2019

2018

Number of new portfolio companies

22

5

Investments in new portfolio companies

$

40.8

$

44.2

Investments in existing portfolio companies

$

18.4

$

2.8

Investments in structured finance notes

5.6

$

Number of portfolio companies at end of period

69

42

PORTFOLIO AND INVESTMENT ACTIVITIES

During the second quarter of 2019, OFS Capital closed $40.8 million of senior secured debt investments in 22 new portfolio companies. In addition, we made $18.4 million of new senior secured debt investments in existing portfolio companies and one $5.6 million investment in a new structured finance note.

The total fair value of OFS Capital's investment portfolio was $484.7 million at June 30, 2019, which was equal to approximately 96% of amortized cost. As of June 30, 2019, the fair value of OFS Capital's debt investment portfolio totaled $424.9 million in 64 portfolio companies, of which 89% and 11% were senior secured loans and subordinated loans, respectively. As of June 30, 2019, we also held approximately $38.7 million in equity investments, at fair value, in 15 portfolio companies in which we also held debt investments, as well as five portfolio companies in which we solely held an equity investment. As of June 30, 2019, our investment portfolio also included three investments in structured finance notes with a fair value of $21.1 million. We had unfunded commitments of $4.1 million to three portfolio companies at June 30, 2019. As of June 30, 2019, floating rate loans as a percentage of fair value comprised 89% of OFS Capital's debt investment portfolio, with the remaining 11% in fixed rate loans.

RESULTS OF OPERATIONS

Income

Investment Income

Interest income increased by $3.0 million for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, due to a $3.1 million increase caused by an approximately $100 million increase in the average outstanding performing loan balance offset, in part, by a $0.1 million decrease resulting from a 8 basis point decrease in the recurring earned yield on our portfolio. Fee income decreased $0.2 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to a decrease in syndication fees resulting from a $24 million decrease 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 June 30, 2019 increased $1.5 million over the corresponding period in the prior year primarily due to the issuance of $98.5 million in unsecured notes issued during April and October 2018.

Management fee

Management fee expense for the three months ended June 30, 2019 increased $0.5 million over the corresponding period in the prior year due to an increase in our average total assets, resulting from the deployment of the $98.5 million from the issuance of unsecured notes during April and October 2018.

Incentive fee

Incentive fee expense increased by $0.1 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily due to additional net investment income resulting from the increase in the size of the portfolio.

Administration fee

Administration fee expense for the three months ended June 30, 2019 increased $0.1 million over the corresponding period in the prior year primarily due to an increase in our allocable portion of OFS Services's overhead.

Net Gain (Loss) on Investments

We recognized net losses of $3.3 million on senior secured debt during the three months ended June 30, 2019, primarily as a result of the unrealized depreciation of $2.5 million on Constellis Holdings, LLC.

We recognized net gains of $0.1 million on subordinated debt during the three months ended June 30, 2019, primarily as a result of net positive impact of portfolio company-specific performance factors.

We recognized net gains of $0.1 million on preferred equity investments for the three months ended June 30, 2019, primarily as a result of net positive impact of portfolio company-specific performance factors.

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