Quarterly Distribution Increased by 6% Net
Asset Value Per Share Increased 11% From Prior Quarter-End
OFS Capital Corporation (NASDAQ:OFS) ("OFS Capital," the
"Company," "we," "us," or "our") today announced its financial
results for the quarter ended September 30, 2020.
FINANCIAL HIGHLIGHTS
- Net investment income of $2.71 million, or $0.20 per
share.
- Net asset value ("NAV") per share increased to $11.18 at
September 30, 2020 from $10.10 at June 30, 2020. During the three
months ended September 30, 2020, our portfolio recognized net gains
of $15.3 million.
- No new loans placed on non-accrual status in the quarter.
- At September 30, 2020, 91% and 74% of our loan portfolio and
total portfolio, respectively, consisted of senior secured loans,
based on fair value.
- As of September 30, 2020, 88% of our debt matures in 2024 and
beyond and 54% of our outstanding debt is unsecured.
- On November 3, 2020, OFS Capital's Board of Directors declared
a distribution of $0.18 per share for the fourth quarter of 2020,
payable on December 31, 2020, to stockholders of record as of
December 24, 2020.
“Our net asset value per share increased 11% from June 30, 2020
due to appreciation of the portfolio and we had no new loans placed
on non-accrual status in the quarter,” said Bilal Rashid, OFS
Capital's Chairman and Chief Executive Officer. "We believe that
our portfolio companies continue to perform above our expectations
considering the challenging economic and public health impact of
the on-going COVID-19 pandemic.”
We believe that we have diverse sources of funding. As of
quarter end, we had approximately $18.3 million of cash. In
addition, we had additional capacity on our revolving corporate
credit line with Pacific Western Bank and senior loan facility with
BNP Paribas, which are both subject to a borrowing base and other
covenants. Our senior loan facility with BNP has no LIBOR floor and
matures in 2024.
At September 30, 2020, our asset coverage ratio was 174% and we
remained in compliance with all applicable financial covenant
thresholds under our outstanding debt and our minimum asset
coverage requirement under the 1940 Act.
HIGHLIGHTS
($ in millions, except for per share data)
Portfolio Overview
At September 30, 2020
Total assets
$
481.7
Investment portfolio, at fair value
$
456.3
Net assets
$
149.9
Net asset value per share
$
11.18
Weighted average yield on performing debt
investments (1)
10.10
%
Weighted average yield on total debt
investments (2)
8.99
%
Weighted average yield on total
investments (3)
8.39
%
(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 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 (ii) the annual
effective yield on structured finance notes at the balance sheet
date divided by (b) amortized cost of our debt and structured
finance note investments, excluding debt investments in non-accrual
status 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 on 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 (ii) the annual effective yield on
structured finance notes at the balance sheet date divided by (b)
amortized cost of our debt and structured finance note investments,
including debt investments in non-accrual status 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
2020
2019
Total investment income
$
10.5
$
13.9
Net investment income
$
2.7
$
4.9
Net investment income per common share,
basic and diluted
$
0.20
$
0.36
Net increase in net assets resulting from
operations
$
16.8
$
1.8
Quarter Ended September
30,
Portfolio Activity
2020
2019
Number of new portfolio company
investments
3
4
Investments in new portfolio companies
$
1.5
$
25.5
Investments in existing portfolio
companies
$
7.8
$
13.4
Investments in structured finance
notes
$
0.8
$
2.4
Number of portfolio companies and
structured finance notes at end of period
74
73
PORTFOLIO AND INVESTMENT ACTIVITIES
The total fair value of our investment portfolio was $456.3
million at September 30, 2020, which was equal to approximately 94%
of amortized cost. As of September 30, 2020, the fair value of our
debt investment portfolio totaled $368.5 million in 56 portfolio
companies, of which 91% and 9% were senior secured loans and
subordinated loans, respectively. As of September 30, 2020, we also
held approximately $55.3 million in equity investments, at fair
value, in 14 portfolio companies in which we also held debt
investments, as well as nine portfolio companies in which we solely
held an equity investment. As of September 30, 2020, our investment
portfolio also included nine investments in structured finance
notes with a fair value of $32.5 million. At September 30, 2020, we
had unfunded commitments of $7.4 million to three portfolio
companies. As of September 30, 2020, floating rate loans as a
percentage of fair value comprised 88% of our debt investment
portfolio, with the remaining 12% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Investment Income
Recurring interest income decreased by $2.8 million for the
three months ended September 30, 2020, compared to the three months
ended September 30, 2019, primarily due to a $1.8 million decrease
in the average outstanding performing loan balance, and a $1.0
million decrease resulting from a 100 basis point reduction in the
recurring earned yield on our portfolio primarily due to declines
in LIBOR.
During the three months ended September 30, 2020, we recognized
fee income of $0.1 million primarily due to syndication fees. Fee
income during the third quarter declined $0.2 million compared to
the three months ended September 30, 2020 due to a decrease in
prepayment fees.
Expenses
Interest expense
Interest expense of $4.4 million for the three months ended
September 30, 2020 remained consistent over the corresponding prior
year period. The average dollar borrowings for the three months
ended September 30, 2020 was $332.7 million, an increase from
$325.1 million for the three months ended September 30, 2019.
Management fee
Management fee expense for the three months ended September 30,
2020 decreased $0.3 million over the corresponding prior year
period due to a decrease in our average total assets. This decrease
was primarily attributable to a $66.4 million increase in principal
payments and sales of portfolio investments during the nine months
ended September 30, 2020 compared to the corresponding prior year
period.
Incentive fee
Incentive fee expense decreased $1.0 million for the three
months ended September 30, 2020 compared to the three months ended
September 30, 2019, primarily due to an approximately $0.24 per
share decline in net interest margin—total interest income less
interest expense.
Administration fee
Administration fee expense for the three months ended September
30, 2020 remained stable compared to the corresponding prior year
period.
Net Gain (Loss) on Investments
Our portfolio experienced net gains of $15.3 million in the
third quarter primarily as a result of performance improvements and
expansion of the valuation multiple at Pfanstiehl Holdings, Inc.,
which appreciated $7.9 million. We also experienced net
appreciation on our $5.0 million of Structured Finance Note and
broadly syndicated loan investments, due to increased liquidity in
the broadly syndicated market. These net gains were partially
offset by $5.7 million in net unrealized losses on our debt
investments in Envocore Holding, LLC, Inc., Eblens Holdings, Inc.,
and 3rd Rock Gaming Holding, LLC.
During the three months ended September 30, 2020, we recognized
net gains of $7.1 million on our senior debt investments, primarily
as a result of unrealized appreciation of $3.5 million and $3.4
million on broadly syndicated loans and directly originated loans,
respectively.
During the three months ended September 30, 2020, we recognized
net losses of $4.0 million on our subordinated debt investments,
primarily as a result of unrealized depreciation of $3.4 million on
Eblens Holdings, Inc.
During the three months ended September 30, 2020, we recognized
net gains of $10.8 million on our common equity, warrants and other
investments, primarily as a result of unrealized appreciation of
$7.8 million on Pfanstiehl Holdings, Inc. and $2.4 million on our
equity appreciation rights in Southern Technical Institute,
LLC.
During the three months ended September 30, 2020, we recognized
unrealized appreciation of $1.5 million on our Structured Finance
Note investments, primarily due to the continued return of
liquidity to the broadly syndicated loan market.
Other
Our net asset value per share was also impacted a combined $0.09
per share for a one-time $1.1 million impairment of goodwill and a
$0.2 million loss on extinguishment of debt related to the partial
prepayment of our SBA debentures and reduction in the total
commitment on our senior secured revolving credit facility with
Pacific Western Bank.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2020, we had $18.3 million in cash, which
includes $5.1 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, 2020, we had an
unused commitment of $50.0 million under our senior secured
revolving credit facility with Pacific Western Bank, as well as an
unused commitment of $125.4 million under our BNP revolving credit
facility, both subject to a borrowing base and other covenants.
Based on fair values and equity capital at September 30, 2020, we
could access available lines of credit for $100 million and remain
in compliance with 1940 Act asset coverage requirement.
On October 7, 2020, we executed an amendment to our business
loan agreement with Pacific Western Bank in order to reduce the
total commitment under the senior secured revolving credit facility
from $50 million to $20 million. We expect to benefit from a
reduction in the unused commitment fee of 0.50% on any unused
portion of the total commitment over $15 million. As of November 4,
2020, we had cash on hand of approximately $48.5 million and, after
giving effect to the reduction, an unused commitment of $20 million
under our senior secured revolving credit facility with Pacific
Western Bank, subject to a borrowing base and other covenants.
RECENT DEVELOPMENTS
On March 11, 2020, the World Health Organization declared the
novel coronavirus as a pandemic, and on March 13, 2020 the United
States declared a national emergency with respect to the COVID-19
pandemic. The outbreak of the COVID-19 pandemic has severely
impacted global economic activity and caused significant volatility
and negative pressure in financial markets. The COVID-19 pandemic
and the preventative measures taken to contain or mitigate its
spread have caused, and are continuing to cause, business
shutdowns, cancellations of events and travel, significant
reductions in demand for certain goods and services, reductions in
business activity and financial transactions, supply chain
interruptions, and overall economic and financial market
instability both globally and in the United States. Such effects
will likely continue for the duration of the pandemic, which is
uncertain, and for some period thereafter. The outbreak could have
a continued adverse impact on economic and market conditions on a
global scale. The rapid development and fluidity of this situation
precludes any prediction as to the ultimate adverse impact of the
ongoing COVID-19 pandemic. Nevertheless, the COVID-19 pandemic
presents material uncertainty and risks with respect to the
underlying value of the Company’s portfolio companies, the
Company’s business, financial condition, results of operations and
cash flows, such as the potential negative impact to financing
arrangements, increased costs of operations, changes in law and/or
regulation, and uncertainty regarding government and regulatory
policy. Further, the operational and financial performance of the
portfolio companies in which the Company makes investments have
been, and may continue to be, significantly impacted by the
COVID-19 pandemic, which in turn has, and may continue to have, an
impact on the valuation of the Company’s investments.
Accordingly, the Company cannot predict the extent to which its
business, financial condition, results of operations and cash flows
will be affected at this time. The potential impact to the
Company’s results will depend to a large extent on future
developments and new information that may emerge regarding the
duration and severity of the COVID-19 pandemic and the actions
taken by authorities and other entities to contain the coronavirus
or treat its impact, all of which are beyond the Company’s
control.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, November 6, 2020, 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 16, 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 #10149268.
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, 2020,
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, 2020
December 31, 2019
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $359,108 and $396,201, respectively)
$
324,059
$
372,535
Affiliate investments (amortized cost of
$114,141 and $131,950, respectively)
124,185
135,679
Control investment (amortized cost of
$10,811 and $10,520, respectively)
8,084
8,717
Total investments at fair value (amortized
cost of $484,060 and $538,671, respectively)
456,328
516,931
Cash
18,297
13,447
Interest receivable
2,790
3,349
Receivable for investments sold
1,453
—
Prepaid expenses and other assets
2,807
4,461
Total assets
$
481,675
$
538,188
Liabilities
Revolving lines of credit
$
24,650
$
56,450
SBA debentures (net of deferred debt
issuance costs of $1,415 and $1,904, respectively)
127,355
147,976
Unsecured notes (net of deferred debt
issuance costs of $5,168 and $4,798 respectively)
172,682
148,052
Interest payable
2,055
3,505
Payable to adviser and affiliates
2,773
4,106
Payable for investments purchased
1,494
10,264
Accrued professional fees
426
621
Other liabilities
328
587
Total liabilities
331,763
371,561
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, 2020, and December 31, 2019,
respectively
$
—
$
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,406,402 and 13,376,836
shares issued and outstanding as of September 30, 2020, and
December 31, 2019, respectively
134
134
Paid-in capital in excess of par
186,979
187,305
Total distributable earnings (losses)
(37,201
)
(20,812
)
Total net assets
149,912
166,627
Total liabilities and net
assets
$
481,675
$
538,188
Number of shares outstanding
13,406,402
13,376,836
Net asset value per share
$
11.18
$
12.46
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,
2020
2019
2020
2019
Investment income
Interest income:
Non-control/non-affiliate investments
$
8,014
$
10,181
$
25,319
$
28,110
Affiliate investments
1,708
2,647
5,794
7,640
Control investment
201
262
606
784
Total interest income
9,923
13,090
31,719
36,534
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
275
96
800
289
Affiliate investments
72
347
532
899
Control investment
91
28
278
83
Total payment-in-kind interest and
dividend income
438
471
1,610
1,271
Dividend income:
Affiliate investments
—
—
100
173
Control investment
—
—
—
89
Total dividend income
—
—
100
262
Fee income:
Non-control/non-affiliate investments
80
285
844
781
Affiliate investments
3
6
16
216
Control investment
43
6
49
39
Total fee income
126
297
909
1,036
Total investment income
10,487
13,858
34,338
39,103
Expenses
Interest expense
4,448
4,464
14,301
11,564
Management fee
1,871
2,164
5,759
6,062
Incentive fee
234
1,214
1,332
3,622
Professional fees
422
510
1,530
1,413
Administration fee
436
396
1,456
1,250
Other expenses
364
257
1,110
651
Total expenses before incentive fee
waiver
7,775
9,005
25,488
24,562
Incentive fee waiver
—
—
(441
)
—
Total expenses, net of incentive fee
waiver
7,775
9,005
25,047
24,562
Net investment income
2,712
4,853
9,291
14,541
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on
non-control/non-affiliate investments
(33
)
51
(10,046
)
(843
)
Net realized loss on affiliate
investments
—
—
—
—
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments, net of taxes
4,649
(6,534
)
(10,965
)
(9,506
)
Net unrealized appreciation on affiliate
investments
10,120
4,765
6,316
5,305
Net unrealized appreciation (depreciation)
on control investment
577
(1,373
)
(924
)
(650
)
Net gain (loss) on investments
15,313
(3,091
)
(15,619
)
(5,694
)
Loss on extinguishment of debt
(187
)
—
(336
)
—
Loss on impairment of goodwill
(1,077
)
—
(1,077
)
—
Net increase (decrease) in net assets
resulting from operations
$
16,761
$
1,762
$
(7,741
)
$
8,847
Net investment income per common share –
basic and diluted
$
0.20
$
0.36
$
0.69
$
1.09
Net increase (decrease) in net assets
resulting from operations per common share – basic and diluted
$
1.25
$
0.13
$
(0.58
)
$
0.66
Distributions declared per common
share
$
0.17
$
0.34
$
0.68
$
1.02
Basic and diluted weighted average shares
outstanding
13,399,767
13,366,515
13,389,830
13,361,757
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 diversity of the Company's funding sources; the
belief that OFS Capital's portfolio companies continue to perform
above expectations; the Company's expectations related to the
reduction in the unused commitment fee for its revolving corporate
credit line with Pacific Western Bank; the effect of the COVID-19
pandemic on the Company's business, financial condition, results of
operations and cash flows and those of its portfolio companies,
including the Company's and its portfolio companies' ability to
achieve their respective objectives; the effect of the disruptions
caused by the COVID-19 pandemic on the Company's ability to
continue to effectively manage its business and on the availability
of equity and debt capital and the Company's use of borrowed money
to finance a portion of its investments 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,” and in "Part II, Item 1A. Risk Factors" in our
Quarterly Report in Form 10-Q for the quarter ended September 30,
2020, 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/20201106005066/en/
INVESTOR RELATIONS CONTACT: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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