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.
We recognized net gains of $1.7 million on common equity and
warrant investments for the three months ended June 30, 2019,
primarily as a result of unrealized appreciation of $0.7 million
and $0.6 million on our investments in Professional Pipe Holdings,
LLC and MTE Holding Corp, respectively.
We recognized net losses of $0.2 million on Structured Finance
Notes for the three months ended June 30, 2019, primarily as a
result of unrealized depreciation due to net negative impact of
mark-to-market adjustments in the second quarter.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2019, we had $9.4 million in cash, which includes
cash of $6.0 million held by our wholly owned small business
investment company OFS SBIC I, LP ("SBIC I LP"), and $149.9 million
in outstanding SBA-guaranteed debentures. 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, 2019, we had $42.6 million available
for additional borrowings under our senior secured revolving credit
facility with Pacific Western Bank, and had drawn all of our
available SBA-guaranteed debentures.
RECENT DEVELOPMENTS
Formation of Senior Loan Subsidiary
On June 20, 2019, OFSCC-FS, LLC, an indirect wholly owned
subsidiary of OFS Capital ("OFSCC-FS"), entered into a revolving
credit and security agreement with BNP Paribas, which provides for
borrowings in an aggregate principal amount up to $150 million. We
believe the BNP Facility will enable us to use the flexibility and
incremental leverage permitted under the Small Business Credit
Availability Act. Borrowings under the BNP Facility will bear
interest based on an annual adjusted LIBOR rate for the relevant
interest period, plus an applicable spread. The BNP Facility will
mature on the earlier of June 20, 2024 or upon certain other events
defined in the credit agreement which result in accelerated
maturity.
On June 11, 2019, OFS Capital Management, LLC, the Company's
investment adviser ("OFS Advisor"), agreed to waive a portion of
its base management fee by reducing the portion of such fee from
0.4375% per quarter (1.75% annualized) to 0.25% per quarter (1.00%
annualized) of the average value of the portion of the total assets
held by us through OFSCC-FS (the "OFSCC-FS Assets"), at the end of
the two most recently completed calendar quarters to the extent
that such portion of the OFSCC-FS Assets are financed using
leverage (also calculated on an average basis) that causes our
statutory asset coverage ratio to fall below 200%. When calculating
our statutory asset coverage ratio, we exclude our SBA guaranteed
debentures from its total outstanding senior securities as
permitted pursuant to exemptive relief issued by the Securities and
Exchange Commission dated November 26, 2013. The waiver will be
renewable on an annual basis and the amount of the base management
fee waived with respect to the OFSCC-FS Assets shall not be subject
to recoupment by OFS Advisor.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, August 2, 2019, 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 12, 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 #10133682.
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, 2019,
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, 2019
December 31, 2018
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $369,053 and $312,223, respectively)
$
351,990
$
297,749
Affiliate investments (amortized cost of
$123,105 and $90,751, respectively)
121,997
89,103
Control investments (amortized cost of
$10,400 and $10,337, respectively)
10,731
9,945
Total investments at fair value (amortized
cost of $502,558 and $413,311, respectively)
484,718
396,797
Cash
9,404
38,172
Interest receivable
3,733
2,787
Receivable for investment sold
2,003
—
Prepaid expenses and other assets
5,013
3,665
Total assets
$
504,871
$
441,421
Liabilities
Revolving line of credit
$
38,250
$
12,000
SBA debentures (net of deferred debt
issuance costs of $2,094 and $2,280, respectively)
147,786
147,600
Unsecured notes (net of deferred debt
issuance costs of $3,051 and $3,299 respectively)
95,474
95,226
Interest payable
2,677
2,791
Payable to adviser and affiliates
3,850
3,700
Payable for investments purchased
42,280
4,151
Accrued professional fees
891
637
Other liabilities
531
293
Total liabilities
331,739
266,398
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,
2019, and December 31, 2018, respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,366,461
and 13,357,337 shares issued and
outstanding as of June 30, 2019, and December 31, 2018,
respectively
134
134
Paid-in capital in excess of par
187,814
187,540
Total distributable earnings (losses)
(14,816
)
(12,651
)
Total net assets
173,132
175,023
Total liabilities and net
assets
$
504,871
$
441,421
Number of shares outstanding
13,366,461
13,357,337
Net asset value per share
$
12.95
$
13.10
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,
2019
2018
2019
2018
Investment income
Interest income:
Non-control/non-affiliate investments
$
9,287
$
6,326
$
17,929
$
12,084
Affiliate investments
2,660
2,768
4,993
4,853
Control investment
263
250
522
489
Total interest income
12,210
9,344
23,444
17,426
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
96
122
193
346
Affiliate investments
300
285
552
746
Control investment
28
27
55
54
Total payment-in-kind interest and
dividend income
424
434
800
1,146
Dividend income:
Affiliate investments
—
—
173
130
Control investment
89
94
89
127
Total dividend income
89
94
262
257
Fee income:
Non-control/non-affiliate investments
154
387
496
413
Affiliate investments
5
3
210
5
Control investment
18
16
33
34
Total fee income
177
406
739
452
Total investment income
12,900
10,278
25,245
19,281
Expenses
Interest and financing expense
3,645
2,169
7,100
3,803
Management fee
2,055
1,548
3,898
2,908
Incentive fee
1,245
1,135
2,408
1,871
Professional fees
368
200
903
401
Administration fee
417
358
854
941
Other expenses
310
310
394
1,005
Total expenses before incentive fee
waiver
8,040
5,720
15,557
10,929
Incentive fee waiver
—
—
—
(22
)
Total expenses, net of incentive fee
waiver
8,040
5,720
15,557
10,907
Net investment income
4,860
4,558
9,688
8,374
Net realized and unrealized gain (loss)
on investments
Net realized loss on
non-control/non-affiliate investments
(90
)
(5,464
)
(894
)
(5,003
)
Net realized loss on affiliate
investments
—
(3,477
)
—
(4,018
)
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments, net of taxes
(3,630
)
5,411
(2,972
)
3,848
Net unrealized appreciation on affiliate
investments
1,660
3,928
540
5,173
Net unrealized appreciation on control
investment
553
39
723
114
Net gain (loss) on investments
(1,507
)
437
(2,603
)
114
Net increase in net assets resulting
from operations
$
3,353
$
4,995
$
7,085
$
8,488
Net investment income per common share –
basic and diluted
$
0.36
$
0.34
$
0.73
$
0.63
Net increase in net assets resulting from
operations per common share – basic and diluted
$
0.25
$
0.37
$
0.53
$
0.64
Distributions declared per common
share
$
0.34
$
0.34
$
0.68
$
1.05
Basic and diluted weighted average shares
outstanding
13,361,193
13,348,793
13,359,338
13,344,670
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 $3 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 the BNP Facility will
improve the Company's return on equity and the overall risk profile
of its portfolio when there can be no assurance that such impact
will occur; the belief that the breadth and skill set of OFS
Advisor’s platform positions the Company to capitalize on
investments across the corporate loan market; 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.
1 Registration does not imply a certain
level of skill or training
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190802005073/en/
INVESTOR RELATIONS: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
OFS Capital (NASDAQ:OFS)
Historical Stock Chart
From Jun 2024 to Jul 2024
OFS Capital (NASDAQ:OFS)
Historical Stock Chart
From Jul 2023 to Jul 2024