Fourth Quarter Net Investment Income of
$0.40 per common share Increased 38% year-over-yearPaid
$1.36 per common share in Regular Distributions in 2018Paid
$0.37 per common share in additional Special Distributions in
2018
OFS Capital Corporation (Nasdaq: OFS) (“OFS Capital,” “we,”
“us,” or “our”) today announced its financial results for the
fiscal quarter and the full year ended December 31, 2018.
FINANCIAL HIGHLIGHTS
- Fourth quarter net investment income of
$5.3 million, or $0.40 per common share - an increase of 38%
year-over-year and above the $0.34 quarterly distribution.
- Full year 2018 net investment income of
$18.4 million, or $1.38 per common share - an increase of 8%
year-over-year and above the $1.36 regular distribution.
- Paid $1.73 per share in distributions
in 2018, inclusive of a $0.37 special distribution.
- Closed investments in the fourth
quarter of approximately $79.6 million.
- Net asset value ("NAV") per share
decreased to $13.10 at December 31, 2018 from $13.75 at September
30, 2018 due to unrealized depreciation of the portfolio. No new
non-accruals.
- At December 31, 2018, 88% of our loan
portfolio consisted of senior secured loans, based on fair
value.
- On March 5, 2019, OFS
Capital's Board of Directors declared a distribution
of $0.34 per share for the first quarter of 2019, payable
on March 29, 2019 to stockholders of record as
of March 22, 2019.
"Our net investment income again exceeded our distribution,"
said Bilal Rashid, OFS Capital's Chairman and Chief Executive
Officer. "We have declared 25 consecutive quarterly distributions
of $0.34 per common share since our IPO in late 2012, which we
believe places us in a select group of BDCs that have been able to
maintain their distribution over this time. In total, we have
declared $8.70 per common share in regular and special
distributions and our net investment income over the last four
years exceeded our regular distributions."
“We believe that the breadth and expertise of our advisor puts
us in a strong position to benefit from the increase in the
leverage allowance for BDCs and enhance our net investment income.
Our commitment to capital preservation, and strong long-term
performance is enhanced by the alignment of interests of our
stockholders and our advisor, which owns approximately 22% of the
outstanding OFS Capital common stock."
HIGHLIGHTS($ in millions, except for per share data)
Portfolio Overview At December 31,
2018 Total assets $ 441.4 Investment portfolio, at fair value $
396.8 Net assets $ 175.0 Net asset value per share $ 13.10 Weighted
average yield on performing debt investments (1) 11.50 % Weighted
average yield on total debt investments (2) 11.12 % Weighted
average yield on total investments (3) 10.49 %
(1) The weighted average yield on our performing debt
investments is computed as (a) the annual stated accruing interest
on our debt investments at the balance sheet date, 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 our debt investments, excluding
assets on non-accrual basis as of the balance sheet date.
(2) The weighted average yield on total debt investments is
computed as (a) the annual stated accruing interest on our debt
investments at the balance sheet date, 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 our debt 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 on our debt investments
at the balance sheet date, plus the annualized accretion of loan
origination fees, original issue discount, market discount or
premium, and loan amendment fees, 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 December 31,
Year Ended December 31, Operating
Results 2018 2017
2018 2017 Total investment
income $ 12.6 $ 8.3 $ 42.8 $ 33.4 Net investment income $ 5.3 $ 3.8
$ 18.4 $ 15.9 Net investment income per common share, basic and
diluted
$ 0.40 $ 0.29 $ 1.38 $ 1.28 Net increase in net assets resulting
from operations $ (4.1 ) $ 4.2 $ 9.6 $ 7.9
Quarter Ended December 31, Year
Ended December 31, Portfolio Activity 2018
2017 2018
2017 Number of new portfolio companies 8 4 28 17 Investments
in new portfolio companies $ 45.7 $ 19.3 $ 201.1 $ 118.9
Investments in existing portfolio companies $ 33.9 $ 9.0 $ 71.1 $
24.0 Number of portfolio companies at end of period 50 37 50 37
PORTFOLIO AND INVESTMENT ACTIVITIES
During the fourth quarter of 2018, we closed nine senior secured
debt investments in eight new portfolio companies totaling $45.7
million. In addition, we made $30.6 million of senior secured debt
investments in existing portfolio companies, including $2.6 million
in delayed draw and revolver fundings and equity investments of
$0.7 million.
The total fair value of our investment portfolio was $396.8
million at December 31, 2018, which was equal to approximately
96% of amortized cost. As of December 31, 2018, the fair value
of OFS Capital's debt investment portfolio totaled $363.6 million
in 44 portfolio companies, of which 88% and 12% were senior secured
loans and subordinated loans, respectively. As of December 31,
2018, we also held approximately $33.2 million in common and
preferred equity investments, at fair value, in 13 portfolio
companies in which we also held debt investments and six portfolio
companies in which we solely held an equity investment. We had
unfunded commitments of $8.2 million to four portfolio companies at
December 31, 2018. As of December 31, 2018, floating rate
loans comprised 87% of OFS Capital’s debt investment portfolio,
with the remaining 13% in fixed rate loans, as a percentage of fair
value.
RESULTS OF OPERATIONS
Income
Interest Income
Interest income increased approximately $10.2 million, due to a
$8.9 million increase in recurring interest income caused by a
$76.8 million increase in the average outstanding loan balance
during 2018 along with an increase of $0.7 million in recurring
interest income resulting from a 23 basis point increase in the
weighted average yield in our portfolio during the year ended
December 31, 2018. Acceleration of Net Loan Fees (defined as loan
origination fees, original issue discount, market discount or
premium and loan amendment fees) of $1.1 million and $0.6 million
were included in interest income for the years ended
December 31, 2018 and 2017, respectively, from the repayment
of loans prior to their scheduled due dates.
Fee Income
We recorded prepayment fees of $0.9 million resulting from $50.0
million of unscheduled principal payments during the year ended
December 31, 2018, compared to $1.0 million from $60.2 million
of unscheduled principal payments during 2017. We recognized
capital structuring fees of $0.0 million and $0.5 million for the
years ended December 31, 2018 and 2017, respectively, upon the
closing of $0 and $55.7 million of debt and equity investments,
respectively. We ceased recognition of such fees with the adoption
of ASC 606. We recognized syndication fees of $0.7 million and $0.2
million for the years ended December 31, 2018 and 2017,
respectively, resulting from approximately $64 million and $21
million in loan originations during each period in which OFS
Advisor sourced, structured, and arranged the lending group, and
for which we were additionally compensated.
Expenses
Interest expense
Interest expense increased by $3.4 million primarily due to $3.1
million relating to the April 2018 and October 2018 unsecured note
issuances of $98.5 million (the "Bond Issuances").
Management Fees
Management fee expense increased by $1.3 million due to an
increase in our average total assets, primarily due to an increase
in net investment activity, including the deployment of funds from
the Bond Issuances.
Incentive Fees
Incentive fee expense increased by $1.4 million primarily due to
a $2.5 million increase in net investment income relating to the
deployment of the proceeds from the Bond Issuances.
Net Gain (Loss) on Investments
We recognized net losses of $9.0 million on senior secured debt
during the year ended December 31, 2018, primarily as a result of a
realized loss of $3.5 million on our senior secured debt investment
in Jobson Healthcare recognized upon the sale in the second quarter
of 2018, as well as by the negative net impact of mark-to-market
adjustments in the fourth quarter relating to our broadly
syndicated loan investments resulting in an unrealized loss of $5.5
million.
We recognized net losses of $3.3 million on subordinated debt
during the year ended December 31, 2018, primarily as a result of a
realized loss of $3.5 million on the restructuring of the Southern
Technical Institute, LLC subordinated debt investment, of which
$2.3 million was recognized as unrealized losses in prior years,
and net unrealized depreciation of $2.1 from the negative impact of
specific performance factors, of which $2.1 million related to
Master Cutlery LLC.
We recognized net losses of $2.0 million on preferred equity
investments for the year ended December 31, 2018, as a result of
unrealized losses of $1.4 million relating to TRS Services, LLC,
and other negative net impact of portfolio company-specific
performance factors on other investments resulting in an additional
unrealized loss of $0.6 million.
We recognized net gains of $5.5 million on common equity and
warrant investments for the year ended December 31, 2018, as a
result of net realized gains of $3.7 million, primarily driven by a
$4.1 million realized gain on the sale of All Metals Holdings,
LLC., and the positive impact of portfolio company-specific
performance factors resulting in unrealized appreciation of $1.8
million for the year ended December 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2018, we had $38.2 million in cash and cash
equivalents, which includes cash and cash equivalents of $36.0
million held by our wholly owned small business investment company.
At December 31, 2018, we had $260.4 million in debt, which includes
$149.9 million in outstanding SBA-guaranteed debentures, $98.5
million in unsecured notes and $12.0 million outstanding under our
$50.0 million revolving credit facility with Pacific Western Bank.
As of December 31, 2018, we had $38.0 million available for
additional borrowings on our Pacific Western Bank credit facility
and had drawn all of our available SBA-guaranteed debentures.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, March 8, 2019, at 10:00 AM Eastern Time. Interested
parties may participate in the call via the following:
INTERNET: Log on 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
March 18, 2019 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 #10129192.
For more detailed discussion of the financial and other
information included in this press release, please refer to OFS
Capital’s Form 10-K for the year ended December 31, 2018,
which is to be filed with the Securities and Exchange
Commission.
OFS Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Assets and
Liabilities(Dollar amounts in thousands, except per share
data)
December 31, 2018
2017 Assets Investments, at fair value
Non-control/non-affiliate investments (amortized cost of $312,223
and $209,360, respectively) $ 297,749 $ 197,374 Affiliate
investments (amortized cost of $90,751 and $70,402, respectively)
89,103 69,557 Control investment (amortized cost of $10,337 and
$10,213, respectively) 9,945 10,568 Total investments at
fair value (amortized cost of $413,311 and $289,975, respectively)
396,797 277,499 Cash and cash equivalents 38,172 72,952 Interest
receivable 2,787 2,734 Prepaid expenses and other assets 3,665
4,593
Total assets $ 441,421 $ 357,778
Liabilities Revolving line of credit $ 12,000 $ 17,600 SBA
debentures (net of deferred debt issuance costs of $2,280 and
2,657, respectively) 147,600 147,223 Unsecured notes (net of
discounts and deferred debt issuance costs of $3,299 and $0,
respectively) 95,226 — Interest payable 2,791 1,596 Payable to
investment adviser and affiliates 3,700 2,463 Payable for
investments purchased 4,151 — Accrued professional fees 637 433
Other liabilities 293 127
Total liabilities 266,398
169,442 Commitments and contingencies
Total net assets 175,023 188,336
Total
liabilities and net assets $ 441,421 $ 357,778
Number of shares outstanding 13,357,337 13,340,217 Net asset
value per share $ 13.10 $ 14.12
OFS Capital Corporation and Subsidiaries
Consolidated Statements of Operations(Dollar amounts
in thousands, except per share data)
Quarter Ended December
31, Year Ended December 31, 2018
2017 2018 2017
Investment income Interest income: Non-control/non-affiliate
investments $ 8,039 $ 5,534 $ 27,547 $ 20,078 Affiliate investments
2,747 1,417 10,055 6,506 Control investment 261 238
1,005 1,540 Total interest income 11,047 7,189 38,607
28,124 Payment-in-kind interest and dividend income:
Non-control/non-affiliate investments 144 424 668 1,400 Affiliate
investments 267 256 1,321 1,375 Control investment 28 28
110 132 Total payment-in-kind interest and
dividend income: 439 708 2,099 2,907 Dividend income:
Non-control/non-affiliate investments — — — 50 Affiliate
investments — 22 130 140 Control investment — 30 185
292 Total dividend income — 52 315 482 Fee income:
Non-control/non-affiliate investments 323 82 987 1,086 Affiliate
investments 748 244 760 675 Control investment 14 17
66 152 Total fee income 1,085 343 1,813
1,913
Total investment income 12,571
8,292 42,834 33,426
Expenses Interest and financing expense 3,036 1,584 9,232
5,813 Management fees 1,749 1,273 6,335 4,999 Incentive fee 1,368
713 4,409 2,962 Professional fees 386 275 1,245 1,115
Administration fee 349 332 1,601 1,314 Other Expenses 362
296 1,649 1,346 Incentive fee waiver — — (22 )
—
Total expenses, net of incentive fee waiver 7,228
4,473 24,449 17,549
Net investment
income 5,321 3,819 18,385 15,877
Net realized and unrealized gain (loss) on
investments Net realized gain (loss) on
non-control/non-affiliate investments 37 1,793 (4,966 ) (3,248 )
Net realized gain on affiliate investments 4,205 5,590 187 10,081
Net unrealized depreciation on non-control/non-affiliate
investments (5,409 ) (2,365 ) (2,484 ) (9,715 ) Net unrealized
depreciation on affiliate investments (7,199 ) (2,845 ) (803 )
(5,088 ) Net unrealized appreciation (depreciation) on control
investments (1,050 ) (1,842 ) (747 ) 3
Net gain
(loss) on investments (9,416 ) 331 (8,813 ) (7,967 )
Net increase (decrease) in net assets resulting from
operations $ (4,095 ) $ 4,150 $ 9,572 $ 7,910
Net investment income per common share - basic and
diluted $ 0.40 $ 0.29 $ 1.38 $ 1.28 Net
increase (decrease) in net assets resulting from operations per
common share - basic and diluted $ (0.31 ) $ 0.31 $ 0.72 $ 0.64
Distributions declared per common share $ 0.34 $ 0.34
$ 1.73 $ 1.36 Basic and diluted weighted average
shares outstanding 13,352,873 13,334,909 13,348,203
12,403,706
ABOUT OFS CAPITAL
OFS Capital Corporation is an externally managed, closed-end,
non-diversified management investment company that has elected to
be regulated as a business development company. OFS Capital'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. OFS Capital invests
primarily in privately held middle-market companies in the United
States, including lower-middle-market companies, targeting
investments of $3 million to $20 million in companies with annual
EBITDA between $3 million and $50 million. OFS Capital 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. OFS Capital's
investment activities are managed by OFS Capital Management, LLC,
an investment adviser registered under the Investment Advisers Act
of 1940 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 regarding the Company's status
relative to other BDCs and, in particular those who have paid
consistent distributions since 2012; management's belief that the
expertise of its investment advisor positions the Company to
leverage recent regulatory change to increase net investment
income; the alignment of interest of the Company's stockholder and
the investment advisor and whether such interest impacts the
Company's commitment to capital preservation and long-term
performance; 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, 2018 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.
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INVESTOR RELATIONS :Steve Altebrando646-652-8473saltebrando@ofsmanagement.com
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