Net Investment Income of $0.36 per common
share
Declares 28th 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 September 30, 2019.
FINANCIAL HIGHLIGHTS
- Net investment income of $4.85 million, or $0.36 per share, an
increase of 3% year-over-year and above the $0.34 quarterly
distribution.
- Closed investments in the third quarter of 2019 totaled
approximately $41.3 million, including $22.7 million of senior
loans financed by the BNP credit facility.
- Net asset value ("NAV") per share decreased to $12.74 at
September 30, 2019 from $12.95 at June 30, 2019. No new
non-accruals.
- At September 30, 2019, 90% and 78% of our loan portfolio and
total portfolio, respectively, consisted of senior secured loans,
based on fair value.
- On November 6, 2019, OFS Capital's Board of Directors declared
a distribution of $0.34 per share for the fourth quarter of 2019,
payable on December 31, 2019 to stockholders of record as of
December 24, 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 28th consecutive quarterly
distribution of $0.34 per share since our IPO in late 2012. Over
the last five years, our total net investment income has exceeded
our total regular distribution.
We also remain focused on capital preservation. Our $2.2 billion
platform has been in existence since 1994 and navigated multiple
credit cycles. As a result, we believe we are well positioned for
the future.”
HIGHLIGHTS
($ in millions, except for per
share data)
Portfolio Overview
At September 30, 2019
Total assets
$
518.3
Investment portfolio, at fair value
$
502.2
Net assets
$
170.4
Net asset value per share
$
12.74
Weighted average yield on performing debt
investments (1)
10.78
%
Weighted average yield on total debt
investments (2)
10.51
%
Weighted average yield on total
investments (3)
9.96
%
(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 September
30,
Operating Results
2019
2018
Total investment income
$
13.9
$
11.0
Net investment income
$
4.9
$
4.7
Net investment income per common share,
basic and diluted
$
0.36
$
0.35
Net increase in net assets resulting from
operations
$
1.8
$
5.2
Quarter Ended September
30,
Portfolio Activity
2019
2018
Number of new portfolio companies
4
6
Investments in new portfolio companies
$
25.5
$
38.2
Investments in existing portfolio
companies
$
13.4
$
9.1
Investments in structured finance
notes
$
2.4
$
—
Number of portfolio companies at end of
period
73
47
PORTFOLIO AND INVESTMENT ACTIVITIES
During the third quarter of 2019, OFS Capital closed $25.5
million of senior secured debt investments in four new portfolio
companies. In addition, we made $13.4 million of new senior secured
debt investments in existing portfolio companies and a $2.4 million
investment in a new structured finance note.
The total fair value of OFS Capital’s investment portfolio was
$502.2 million at September 30, 2019, which was equal to
approximately 96% of amortized cost. As of September 30, 2019, the
fair value of OFS Capital's debt investment portfolio totaled
$437.9 million in 67 portfolio companies, of which 90% and 10% were
senior secured loans and subordinated loans, respectively. As of
September 30, 2019, we also held approximately $42.0 million in
equity investments, at fair value, in 14 portfolio companies in
which we also held debt investments, as well as six portfolio
companies in which we solely held an equity investment. As of
September 30, 2019, our investment portfolio also included four
investments in structured finance notes with a fair value of $22.2
million. We had unfunded commitments of $4.7 million to four
portfolio companies at September 30, 2019. As of September 30,
2019, floating rate loans as a percentage of fair value comprised
90% of OFS Capital’s debt investment portfolio, with the remaining
10% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Investment Income
Interest income increased by $2.8 million for the three months
ended September 30, 2019, compared to the three months ended
September 30, 2018, primarily due to a $3.2 million increase caused
by an approximately $104 million increase in the average
outstanding performing loan balance offset, in part, by a $0.4
million decrease resulting from a 33 basis point decrease in the
recurring earned yield on our portfolio. We recognized fee income
of $0.3 million for the three months ended September 30, 2019,
primarily due to $0.2 million of prepayment fees and $0.1 million
of syndication fees resulting from the $17.0 million 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 September 30, 2019
increased $2.1 over the corresponding period in the prior year
primarily due to the issuance of $48.5 million in unsecured notes
in October 2018, borrowings under the BNP credit facility during
the third quarter of 2019, as well as an increase in the average
dollar amount of borrowings under our senior secured revolving
credit facility with Pacific Western Bank.
Management fee
Management fee expense for the three months ended September 30,
2019 increased $0.5 million over the corresponding period in the
prior year due to an increase in our average total assets,
resulting primarily from the deployment of the $98.5 million from
the issuance of unsecured notes during April and October 2018 and
the deployment of $46.7 million from the BNP credit facility.
Incentive fee
Incentive fee expense remained stable for the three months ended
September 30, 2019 compared to the three months ended September 30,
2018 as net investment income did not significantly change compared
to the corresponding period.
Administration fee
Administration fee expense for the three months ended September
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 $4.0 million on senior secured debt
during the three months ended September 30, 2019, primarily as a
result of unrealized depreciation of $4.1 million on Constellis
Holdings, LLC and $0.8 million on MAI Holdings, Inc., offset by
unrealized appreciation of $0.6 million on TRS Services, LLC.
We recognized net losses of $0.9 million on subordinated debt
during the three months ended September 30, 2019, primarily as a
result of unrealized depreciation of $0.9 million on Online Tech
Stores, LLC.
We recognized net gains of $2.4 million on preferred equity
investments for the three months ended September 30, 2019,
primarily as a result of unrealized appreciation of $2.9 million on
TRS Services, LLC Class A units, offset by unrealized depreciation
of $0.5 million on Contract Datascan Series A units.
We recognized net gains of $0.8 million on common equity and
warrant investments for the three months ended September 30, 2019,
primarily as a result of unrealized appreciation of $1.3 million on
Pfanstiehl Holdings, Inc. and $0.9 million on Professional Pipe
Holdings, LLC, offset by unrealized depreciation of $1.5 million on
MTE Holdings Corporation.
We recognized unrealized depreciation of $1.4 million on
structured finance notes for the three months ended September 30,
2019, primarily as a result of unrealized depreciation due to net
negative impact of mark-to-market adjustments in the third
quarter.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2019, we had $8.0 million in cash, which
includes cash of $4.0 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 September 30,
2019, we had $29.2 million available for additional borrowings
under our senior secured revolving credit facility with Pacific
Western Bank, as well as an unused commitment of $103.4 million
under our BNP revolving credit facility.
RECENT DEVELOPMENTS
Registered unsecured bond offering
In October and November 2019, we closed the public offering of
$54.3 million in aggregate principal amount of 5.95% notes due 2026
(the "Unsecured Notes Due October 2026"), which included a partial
exercise of the underwriters overallotment option. The total net
proceeds to us from the Unsecured Notes Due October 2026, after
deducting underwriting discounts of approximately $1.7 million and
estimated offering expenses of $0.3 million, were approximately
$52.3 million. The Unsecured Notes Due October 2026 will mature on
October 31, 2026 and bear an effective interest rate, including
amortization of deferred debt issuance costs, of 6.48%. Because the
Unsecured Notes Due October 2026 are not secured by any of our
assets, they are effectively subordinated to all existing and
future secured unsubordinated indebtedness (or any indebtedness
that is initially unsecured as to which we subsequently grant a
security interest), to the extent of the value of the assets
securing such indebtedness, including, without limitation,
borrowings under the PWB Credit Facility. The Unsecured Notes Due
October 2026 may be redeemed in whole or in part at any time or
from time to time at our option on or after October 31, 2021 at the
redemption price of 100% of the aggregate principal amount thereof
plus accrued and unpaid interest. The indenture governing the
Unsecured Notes Due October 2026 contain covenants substantially
identical to the Unsecured Notes.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, November 8, 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
November 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 #10136690.
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 third quarter ended September 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)
September 30, 2019
December 31, 2018
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $392,289 and $312,223, respectively)
$
368,634
$
297,749
Affiliate investments (amortized cost of
$120,570 and $90,751, respectively)
124,227
89,103
Control investments (amortized cost of
$10,342 and $10,337, respectively)
9,300
9,945
Total investments at fair value (amortized
cost of $523,201 and $413,311, respectively)
502,161
396,797
Cash
7,974
38,172
Interest receivable
3,298
2,787
Prepaid expenses and other assets
4,854
3,665
Total assets
$
518,287
$
441,421
Liabilities
Revolving lines of credit
$
92,475
$
12,000
SBA debentures (net of deferred debt
issuance costs of $1,999 and $2,280, respectively)
147,881
147,600
Unsecured notes (net of deferred debt
issuance costs of $2,925 and $3,299 respectively)
95,600
95,226
Interest payable
2,045
2,791
Payable to adviser and affiliates
4,049
3,700
Payable for investments purchased
5,075
4,151
Accrued professional fees
339
637
Other liabilities
417
293
Total liabilities
347,881
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 September 30, 2019, and December 31, 2018,
respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,371,451 and 13,357,337
shares issued and outstanding as of September 30, 2019, and
December 31, 2018, respectively
134
134
Paid-in capital in excess of par
187,890
187,540
Total distributable earnings (losses)
(17,618
)
(12,651
)
Total net assets
170,406
175,023
Total liabilities and net
assets
$
518,287
$
441,421
Number of shares outstanding
13,371,451
13,357,337
Net asset value per share
$
12.74
$
13.10
OFS Capital Corporation and
Subsidiaries
Condensed Consolidated
Statements of Operations (unaudited)
(Dollar amounts in thousands,
except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Investment income
Interest income:
Non-control/non-affiliate investments
$
10,181
$
7,424
$
28,110
$
19,508
Affiliate investments
2,647
2,455
7,640
7,308
Control investment
262
255
784
744
Total interest income
13,090
10,134
36,534
27,560
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
96
178
289
524
Affiliate investments
347
308
899
1,054
Control investment
28
28
83
82
Total payment-in-kind interest and
dividend income
471
514
1,271
1,660
Dividend income:
Affiliate investments
—
—
173
130
Control investment
—
58
89
185
Total dividend income
—
58
262
315
Fee income:
Non-control/non-affiliate investments
285
251
781
664
Affiliate investments
6
7
216
12
Control investment
6
18
39
52
Total fee income
297
276
1,036
728
Total investment income
13,858
10,982
39,103
30,263
Expenses
Interest expense
4,464
2,393
11,564
6,196
Management fee
2,164
1,678
6,062
4,586
Incentive fee
1,214
1,170
3,622
3,041
Professional fees
510
458
1,413
859
Administration fee
396
311
1,250
1,252
Other expenses
257
282
651
1,287
Total expenses before incentive fee
waiver
9,005
6,292
24,562
17,221
Incentive fee waiver
—
—
—
(22
)
Total expenses, net of incentive fee
waiver
9,005
6,292
24,562
17,199
Net investment income
4,853
4,690
14,541
13,064
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on
non-control/non-affiliate investments
51
—
(843
)
(5,003
)
Net realized loss on affiliate
investments
—
—
—
(4,018
)
Net unrealized appreciation (depreciation)
on non-control/non- affiliate investments, net of taxes
(6,534
)
(923
)
(9,506
)
2,925
Net unrealized appreciation on affiliate
investments
4,765
1,223
5,305
6,396
Net unrealized appreciation (depreciation)
on control investment
(1,373
)
189
(650
)
303
Net gain (loss) on investments
(3,091
)
489
(5,694
)
603
Net increase in net assets resulting
from operations
$
1,762
$
5,179
$
8,847
$
13,667
Net investment income per common share –
basic and diluted
$
0.36
$
0.35
$
1.09
$
0.98
Net increase in net assets resulting from
operations per common share – basic and diluted
$
0.13
$
0.39
$
0.66
$
1.02
Distributions declared per common
share
$
0.34
$
0.34
$
1.02
$
1.39
Basic and diluted weighted average shares
outstanding
13,366,515
13,350,484
13,361,757
13,346,630
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; the belief that the Company is well positioned for
the future when there can be no assurance of future results; 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/20191108005117/en/
INVESTOR RELATIONS: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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