Fourth Quarter Net Investment Income of
$0.34 per common share Paid $1.36 per common share in Distributions
in 2019
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, 2019.
FINANCIAL HIGHLIGHTS
- Fourth quarter net investment income of $4.6 million, or $0.34
per common share.
- Full year 2019 net investment income of $19.1 million, or $1.43
per common share - an increase of 4% year-over-year and above the
$1.36 regular distribution.
- Paid $1.36 per share in distributions in 2019.
- Closed investments in the fourth quarter of approximately $52.5
million.
- Net asset value ("NAV") per share decreased to $12.46 at
December 31, 2019 from $12.74 at September 30, 2019 due to
unrealized depreciation of the portfolio.
- At December 31, 2019, 90% of our loan portfolio consisted of
senior secured loans, based on fair value.
- On March 11, 2020, OFS Capital's Board of Directors declared a
distribution of $0.34 per share for the first quarter of 2020,
payable on March 31, 2020 to stockholders of record as of March 24,
2020.
"Our net investment income again covered our distribution," said
Bilal Rashid, OFS Capital's Chairman and Chief Executive Officer.
"We are pleased to declare our 29th consecutive quarterly
distribution of $0.34 per share since our IPO in late 2012.
"We also remain focused on capital preservation. 90% of our
total portfolio consisted of senior secured loans, based on our
fair value, while our financing is long term and flexible. Our $2.1
billion platform has been in existence since 1994 and navigated
multiple credit cycles. As a result, we believe we are well
positioned for the future.”
HIGHLIGHTS
($ in millions, except for per share
data)
Portfolio Overview
At December 31, 2019
Total assets
$
538.2
Investment portfolio, at fair value
$
516.9
Net assets
$
166.6
Net asset value per share
$
12.46
Weighted average yield on performing debt
investments (1)
10.40
%
Weighted average yield on total debt
investments (2)
9.94
%
Weighted average yield on total
investments (3)
9.59
%
The weighted average yield of investments is not the same as a
return on investment for our stockholders but, rather, relates to
portion of our investment portfolio and is calculated before the
payment of all of our fees and expenses.
(1)
The weighted average yield on our
performing debt and structured finance note investments is computed
as (a) the sum of 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) the sum of the amortized cost of our debt and
structured finance note investments, in each case, excluding assets
on non-accrual basis as of the balance sheet date.
(2)
The weighted average yield on total debt
and structured finance note investments is computed as (a) the sum
of 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)
the sum of the amortized cost of our debt and structured finance
note investments, in each base, 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 sum of 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, plus the effective cash yield on
our performing preferred equity investments divided by (b) the sum
of the amortized cost of our total investment portfolio, in each
case, including assets on non-accrual basis as of the balance sheet
date.
Quarter Ended December
31,
Year Ended December
31,
Operating Results
2019
2018
2019
2018
Total investment income
$
13.4
$
12.6
$
52.5
$
42.8
Net investment income
$
4.6
$
5.3
$
19.1
$
18.4
Net investment income per common share,
basic and diluted
$
0.34
$
0.40
$
1.43
$
1.38
Net increase (decrease) in net assets
resulting from operations
$
0.7
$
(4.1
)
$
9.6
$
9.6
Quarter Ended December
31,
Year Ended December
31,
Portfolio Activity
2019
2018
2019
2018
Number of new portfolio companies
14
8
43
32
Investments in new portfolio companies
$
45.4
$
45.7
$
147.2
$
201.1
Investments in existing portfolio
companies
$
7.1
$
33.9
$
51.6
$
71.1
Investments in structured finance
notes
—
—
$
23.4
—
Number of portfolio companies at end of
period
85
50
85
50
PORTFOLIO AND INVESTMENT ACTIVITIES
During the fourth quarter of 2019, we closed fifteen senior
secured debt investments in fourteen new portfolio companies
totaling $43.9 million. In addition, we made $7.1 million of
additional investments in existing portfolio companies and a $1.5
million equity investment in a new portfolio company.
The total fair value of our investment portfolio was $516.9
million at December 31, 2019, which was equal to approximately 96%
of amortized cost. As of December 31, 2019, the fair value of OFS
Capital's debt investment portfolio totaled $451.8 million in 79
portfolio companies, of which 90% and 10% were senior secured loans
and subordinated loans, respectively. As of December 31, 2019, we
also held approximately $43.5 million in common and preferred
equity investments, at fair value, in 15 portfolio companies in
which we also held debt investments and six portfolio companies in
which we solely held an equity investment. As of December 31, 2019,
our investment portfolio also included four investments in
structured finance notes with a fair value of $21.6 million. We had
unfunded commitments of $4.8 million to four portfolio companies at
December 31, 2019. As of December 31, 2019, floating rate loans
comprised 93% of OFS Capital’s debt investment portfolio, with the
remaining 7% in fixed rate loans, as a percentage of fair
value.
RESULTS OF OPERATIONS
Income
Interest Income
Interest income increased approximately $10.0 million, due to a
$12.7 million increase in recurring interest income caused by a
$103 million increase in the average outstanding loan balance
during 2019 along with a decrease of $1.8 million in recurring
interest income resulting from a 43 basis point decrease in the
weighted average yield in our debt portfolio during the year ended
December 31, 2019. Acceleration of Net Loan Fees (defined as loan
origination fees, original issue discount, market discount or
premium and loan amendment fees) of $0.3 million from the repayment
of loans prior to their scheduled due dates were included in
interest income for the year ended December 31, 2019.
Fee Income
Fee income consisted of prepayment fees of $0.4 million
resulting from $56.8 million of unscheduled principal payments
during the year ended December 31, 2019, compared to $0.9 million
from $50.0 million of unscheduled principal payments during the
year ended December 31, 2018. We recognized syndication fees of
$0.7 million and $0.7 million for the years ended December 31, 2019
and 2018, respectively, resulting from approximately $91.5 million
and $64.0 million in loan originations during that 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 increased by $6.6 million primarily due to an
increase of $100.9 million in the average amount of outstanding
borrowings, specifically due to a full year of interest expense
relating to the $98.5 million of unsecured notes issued in April
2018 and October 2018, the establishment of the revolving credit
facility with BNP Paribas in June 2019 ("BNP Facility"), and the
issuance of the $54.3 million of unsecured notes in October
2019.
Management Fees
Management fee expense increased by $2.0 million due to an
increase in our average total assets, primarily due to an increase
in net investment activity from our increase in leverage through
the utilization of the BNP Facility and the issuance of $54.3
million of unsecured notes in October 2019.
Incentive Fees
Incentive fee expense increased by $0.4 million primarily due to
a $0.7 million increase in net investment income relating to the
increase in our leverage throughout the fiscal year.
Net Gain (Loss) on Investments
We recognized net losses of $9.8 million on senior secured debt
during the year ended December 31, 2019, primarily as a result of
an unrealized loss of $9.0 million on our senior secured debt
investment in Constellis Holdings, LLC, offset by unrealized gains
of $2.2 million in our remaining senior secured debt investments.
We also realized a loss of $2.9 million on the sale of MAI
Holdings, LLC.
We recognized net losses of $2.0 million on subordinated debt
during the year ended December 31, 2019, primarily as a result of
unrealized losses of $1.5 million and $0.6 million on our
subordinated debt investments in Online Tech Stores, LLC and Master
Cutlery, LLC, respectively, due to the negative impact of specific
performance factors.
We recognized net losses of $0.1 million on preferred equity
investments for the year ended December 31, 2019, primarily as a
result of a $2.3 million unrealized gain on TRS Services, LLC,
offset by $2.3 million of unrealized losses on our remaining
preferred equity investments. We also realized a loss of $0.1
million on the sale of Maverick Healthcare Equity, LLC.
We recognized net gains of $3.8 million on common equity and
warrant investments for the year ended December 31, 2019, as a
result of unrealized gains of $3.6 million and $1.6 million on our
common equity investments in Pfanstiehl Holdings, Inc. and
Professional Pipe Holdings LLC, respectively, offset by net
unrealized losses of $1.4 million in our remaining common equity
and warrant investments due to net negative impact of portfolio
company-specific performance factors.
We recognized net losses of $1.5 million on Structured Finance
Notes for the year ended December 31, 2019, as a result of net
unrealized losses of $1.5 million, primarily driven by $0.9 million
and $0.6 million of unrealized losses on Elevation CLO 2017-7, Ltd.
and THL Credit Wind River 2019-3 CLO Ltd., respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2019, we had $13.4 million of cash, which
includes cash and cash equivalents of $1.9 million held by OFS SBIC
I, LP ("SBIC I LP"), our wholly owned SBIC. 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
Corporation as parent company (the "Parent"). Any such
distributions to the Parent from SBIC I LP are generally restricted
to a statutory measure of undistributed accumulated earnings of
SBIC I LP under SBA regulation. At December 31, 2019, the Parent
had $13.4 million of cash and cash equivalents available for
general corporate activities, including approximately $1.9 million
held by SBIC I LP that was available for distribution to the
Parent.
As part of our plans to focus on lower-yielding, first lien
senior secured loans to larger borrowers, which we believe will
improve our overall risk profile, SBIC I LP intends, over time, to
repay its outstanding SBA debentures prior to the scheduled
maturity date of its debentures. We do not expect to make new
investments through SBIC I LP, other than follow-on investments. We
believe that investing in more senior loans to larger borrowers is
consistent with our view of the private loan market and will reduce
our overall leverage on a consolidated basis.
Additionally, as of December 31, 2019, we had $69.0 million of
borrowings available through our senior secured revolving credit
facility with Pacific Western Bank, as well as unused commitments
of $93.6 million under the BNP Facility.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, March 13, 2020, 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 23, 2020 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 #10139792.
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, 2019, which is
to be filed with the Securities and Exchange Commission.
OFS Capital Corporation and
Subsidiaries
Consolidated Statements of Assets and
Liabilities
(Dollar amounts in thousands, except
per share data)
December 31,
2019
2018
Assets
Investments, at fair value
Non-control/non-affiliate investments
(amortized cost of $396,201 and $312,223, respectively)
$
372,535
$
297,749
Affiliate investments (amortized cost of
$131,950 and $90,751, respectively)
135,679
89,103
Control investment (amortized cost of
$10,520 and $10,337, respectively)
8,717
9,945
Total investments at fair value (amortized
cost of $538,671 and $413,311, respectively)
516,931
396,797
Cash and cash equivalents
13,447
38,172
Interest receivable
3,349
2,787
Prepaid expenses and other assets
4,461
3,665
Total assets
$
538,188
$
441,421
Liabilities
Revolving line of credits
$
56,450
$
12,000
SBA debentures (net of deferred debt
issuance costs of $1,904 and 2,280, respectively)
147,976
147,600
Unsecured notes (net of discounts and
deferred debt issuance costs of $4,798 and $3,299,
respectively)
148,052
95,226
Interest payable
3,505
2,791
Payable to investment adviser and
affiliates
4,106
3,700
Payable for investments purchased
10,264
4,151
Accrued professional fees
621
637
Other liabilities
587
293
Total liabilities
371,561
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 December 31, 2019 and December 31, 2018, respectively
—
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,376,836 and 13,357,337
shares issued and outstanding as of December 31, 2019 and December
31, 2018, respectively
134
134
Paid-in capital in excess of par
187,305
187,540
Total distributable earnings (accumulated
losses)
(20,812
)
(12,651
)
Total net assets
166,627
175,023
Total liabilities and net
assets
$
538,188
$
441,421
Number of shares outstanding
13,376,836
13,357,337
Net asset value per share
$
12.46
$
13.10
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,
2019
2018
2019
2018
Investment income
Interest income:
Non-control/non-affiliate investments
$
9,425
$
8,039
$
37,535
$
27,547
Affiliate investments
2,724
2,747
10,364
10,055
Control investment
219
261
1,003
1,005
Total interest income
12,368
11,047
48,902
38,607
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
110
144
399
668
Affiliate investments
358
267
1,257
1,321
Control investment
86
28
169
110
Total payment-in-kind interest and
dividend income:
554
439
1,825
2,099
Dividend income:
Non-control/non-affiliate investments
—
—
—
—
Affiliate investments
240
—
413
130
Control investment
—
—
89
185
Total dividend income
240
—
502
315
Fee income:
Non-control/non-affiliate investments
248
323
1,029
987
Affiliate investments
5
748
221
760
Control investment
3
14
42
66
Total fee income
256
1,085
1,292
1,813
Total investment income
13,418
12,571
52,521
42,834
Expenses
Interest and financing expense
4,265
3,036
15,829
9,232
Management fees
2,209
1,749
8,271
6,335
Incentive fees
1,138
1,368
4,760
4,409
Professional fees
401
386
1,814
1,245
Administration fees
497
349
1,747
1,601
Other expenses
351
362
1,002
1,649
Total expenses before incentive fee
waiver
8,861
7,250
33,423
24,471
Incentive fee waiver
—
—
—
(22
)
Total expenses, net of incentive fee
waiver
8,861
7,250
33,423
24,449
Net investment income
4,557
5,321
19,098
18,385
Net realized and unrealized gain (loss)
on investments
Net realized loss on
non-control/non-affiliate investments
(3,057
)
37
(3,900
)
(4,966
)
Net realized gain on affiliate
investments
—
4,205
—
187
Net unrealized depreciation on
non-control/non-affiliate investments
(104
)
(5,409
)
(9,610
)
(2,484
)
Net unrealized appreciation (depreciation)
on affiliate investments
71
(7,199
)
5,376
(803
)
Net unrealized depreciation on control
investment
(761
)
(1,050
)
(1,411
)
(747
)
Net loss on investments
(3,851
)
(9,416
)
(9,545
)
(8,813
)
Net increase in net assets resulting
from operations
$
706
$
(4,095
)
$
9,553
$
9,572
Net investment income per common share -
basic and diluted
$
0.34
$
0.40
$
1.43
$
1.38
Net increase in net assets resulting from
operations per common share - basic and diluted
$
0.05
$
(0.31
)
$
0.71
$
0.72
Distributions declared per common
share
$
0.34
$
0.34
$
1.36
$
1.73
Basic and diluted weighted average shares
outstanding
13,371,510
13,352,873
13,364,244
13,348,203
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 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 plans to focus on capital preservation
and belief that the Company is well positioned for the future;
management’s plans to focus on lower-yielding, first lien senior
secured loans to larger borrowers and the potential impact of that
plan on the Company’s overall risk profile; SBIC I LP’s intention
to repay its outstanding SBA debentures prior to their scheduled
maturity dates; the expectation that any future investments by SBIC
I LP will only be in the form of follow-on investments;
management’s views of the private loan market and belief that
investing in more senior loans to larger borrowers will reduce the
Company’s overall leverage on a consolidated basis; 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, 2019
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/20200313005082/en/
INVESTOR RELATIONS CONTACT: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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