Fourth Quarter Net Investment Income of
$0.22 per common share
Quarterly Distribution Increased 11%
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, 2020.
FINANCIAL HIGHLIGHTS
- Fourth quarter net investment income of $3.0 million, or $0.22
per common share.
- Full year 2020 net investment income of $12.3 million, or $0.92
per common share, providing a 107% distribution coverage.
- At December 31, 2020, 96% of our loan portfolio consisted of
floating rate loans, based on fair value. 90% of our debt is fixed
rate.
- At December 31, 2020, 56% of our debt is unsecured; 87% of our
debt matures in 2025 and beyond.
- Closed investments in the fourth quarter of approximately $48.7
million.
- Net asset value ("NAV") per share increased to $11.85 at
December 31, 2020 from $11.18 at September 30, 2020, due to
unrealized appreciation of the portfolio.
- At December 31, 2020, 95% of our loan portfolio consisted of
senior secured loans, based on fair value.
- On March 2, 2021, OFS Capital's Board of Directors declared a
distribution of $0.20 per common share for the first quarter of
2021, payable on March 31, 2021 to stockholders of record as of
March 24, 2021.
"We are pleased to announce another increase in our
distribution," said Bilal Rashid, OFS Capital's Chairman and Chief
Executive Officer. "Our net investment income increased
approximately 10% from the prior quarter, which enabled us to
increase our distribution for the second straight quarter. We
believe there is an opportunity for us to continue to increase net
investment income over time as we increase the pace of our
originations. At the same time, we intend to continue to focus on
capital preservation.”
HIGHLIGHTS ($ in millions, except
for per share data)
Portfolio Overview
At December 31, 2020
Total assets
$
483.8
Investment portfolio, at fair value
$
442.3
Net assets
$
159.0
Net asset value per share
$
11.85
Weighted average yield on performing debt
investments (1)
10.27
%
Weighted average yield on total debt
investments (2)
9.15
%
Weighted average yield on total
investments (3)
8.56
%
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
2020
2019
2020
2019
Total investment income
$
11.1
$
13.4
$
45.5
$
52.5
Net investment income
$
3.0
$
4.6
$
12.3
$
19.1
Net investment income per common share,
basic and diluted
$
0.22
$
0.34
$
0.92
$
1.43
Net increase in net assets resulting from
operations
$
11.4
$
0.7
$
3.7
$
9.6
Quarter Ended December
31,
Year Ended December
31,
Portfolio Activity
2020
2019
2020
2019
Number of new portfolio companies
1
14
15
43
Investments in new portfolio companies
$
5.2
$
45.4
$
49.0
$
147.2
Investments in existing portfolio
companies
$
23.5
$
7.1
$
47.9
$
51.6
Investments in structured finance
notes
$
19.9
—
$
33.5
23
Number of portfolio companies at end of
period
62
85
62
85
PORTFOLIO AND INVESTMENT ACTIVITIES
During the fourth quarter of 2020, we closed a $5.2 million
directly-originated senior secured debt investment in a new
portfolio company. In addition, we made $23.5 million of additional
senior secured debt investments in existing portfolio companies and
$19.9 million in four new structured finance notes.
The total fair value of our investment portfolio was $442.3
million at December 31, 2020, which was equal to approximately 96%
of amortized cost. As of December 31, 2020, the fair value of our
debt investment portfolio totaled $321.4 million in 49 portfolio
companies, of which 95% and 5% were senior secured loans and
subordinated loans, respectively. As of December 31, 2020, we also
held approximately $64.5 million in common and preferred equity
investments, at fair value, in 10 portfolio companies in which we
also held debt investments and 13 portfolio companies in which we
solely held an equity investment. As of December 31, 2020, our
investment portfolio also included twelve investments in structured
finance notes with a fair value of $56.4 million. We had unfunded
commitments of $5.8 million to four portfolio companies at December
31, 2020. As of December 31, 2020, floating rate loans comprised
96% of our debt investment portfolio, with the remaining 4% in
fixed rate loans, as a percentage of fair value.
RESULTS OF OPERATIONS
Income
Interest Income
During the year ended December 31, 2020, interest income
decreased approximately $6.8 million, due to a $1.8 million
decrease in interest income caused by a $16 million decrease in the
average outstanding loan balance and a decrease of $5.0 million in
recurring interest income resulting from a 128 basis point decrease
in the weighted average yield in our debt portfolio. For the year
ended December 31, 2020, acceleration of Net Loan Fees (defined as
loan origination fees, original issue discount, market discount or
premium and loan amendment fees) of $0.2 million were included in
interest income from the repayment of loans prior to their
scheduled due dates.
Fee Income
During the year ended December 31, 2020, fee income consisted of
prepayment fees of $0.6 million resulting from $38.4 million of
unscheduled principal payments, compared to $0.4 million from $56.8
million of unscheduled principal payments during the year ended
December 31, 2019. We recognized syndication fees of $0.7 million
and $0.7 million for the years ended December 31, 2020 and 2019,
respectively, resulting from approximately $46.8 million and $91.5
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
During the year ended December 31, 2020, interest expense
increased by $3.0 million primarily due to an increase of $39.4
million in the average amount of outstanding borrowings, which
included a full year's interest on the $54.3 million of unsecured
notes issued in October 2019 and the issuance of the $25.0 million
of unsecured notes in September 2020.
Management Fees
During the year ended December 31, 2020, management fee expense
decreased by $0.7 million due to a decrease in our average total
assets, primarily due to the sale of debt investments in response
to the uncertainty surrounding the COVID-19 pandemic.
Incentive Fees
During the year ended December 31, 2020, incentive fee expense
decreased by $3.2 million, or $3.6 million prior to the Income
Incentive Fee waiver of $0.4 million compared to the prior year due
to a decrease in net investment income.
Net Gain (Loss) on Investments
During the year ended December 31, 2020, we recognized net
losses of $15.9 million on senior secured debt, primarily as a
result of unrealized losses of $9.2 million and $2.8 million on our
senior secured debt investments in 3rd Rock Gaming Holding, LLC,
and Envocore Holdings, LLC, respectively.
During the year ended December 31, 2020, we recognized net
losses of $16.4 million on subordinated debt, primarily as a result
of unrealized losses of $12.1 million and $4.7 million on our
subordinated debt investments in Online Tech Stores, LLC and Eblens
Holdings, Inc., respectively.
During the year ended December 31, 2020, we recognized net
losses of $2.7 million on preferred equity investments, primarily
as a result of unrealized losses of $3.2 million and $2.0 million
in Contract Datascan Holdings, Inc. and My Alarm Center, LLC,
respectively, offset by an unrealized gain of $1.7 million in TTG
Healthcare, LLC.
During the year ended December 31, 2020, we recognized net gains
of $26.2 million on common equity and warrant investments,
primarily as a result of unrealized gains of $24.2 million and $4.3
million on our common equity investment in Pfanstiehl Holdings,
Inc. and our equity appreciation rights in Southern Technical
Institute, LLC, respectively, offset by net unrealized losses of
$1.2 million in our investment in Professional Pipe Holdings,
LLC.
During the year ended December 31, 2020, we recognized net gains
of $2.1 million on structured finance notes, primarily as a result
of the positive impact of mark-to-market adjustments.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2020, we had $37.7 million of cash, which
includes cash and cash equivalents of $32.2 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
under SBA regulations to a statutory measure of undistributed
accumulated earnings or regulatory capital of SBIC I LP and require
the prior approval from the SBA. At December 31, 2020, the Parent
had $21.2 million of cash and cash equivalents available for
general corporate activities, including approximately $18.3 million
held by SBIC I LP that was available for distribution to the
Parent.
Additionally, at December 31, 2020, we had an unused commitment
of $19.4 million under our senior secured revolving credit facility
with Pacific Western Bank, as well as an unused commitment of
$118.6 million under the revolving credit facility with BNP
Paribas, both subject to borrowing base requirements and other
covenants. Based on fair values and equity capital at December 31,
2020, we could access $111 million under our credit facilities and
remain in compliance with 1940 Act asset coverage requirement.
RECENT DEVELOPMENTS
On February 10, 2021, we issued $100.0 million aggregate
principal amount of 4.75% notes due 2026 (the “Unsecured Notes Due
February 2026”). The Unsecured Notes Due February 2026 will mature
on February 10, 2026 and bear interest at a rate of 4.75% per year
payable on February 10 and August 10 of each year, commencing on
August 10, 2021.
The net proceeds we received from the sale of the Unsecured
Notes Due February 2026 was approximately $96.6 million based on a
public offering price of 98.906% of the aggregate principal amount
of the Unsecured Notes Due February 2026, after deducting the
underwriting discount and commissions payable by us and estimated
offering expenses payable by us.
In connection with, and using the proceeds from, the issuance of
the Unsecured Notes Due February 2026, on February 10, 2021, we
caused notices to be issued to the holders of the $50.0 million
aggregate principal unsecured notes due April 2025 (the "Unsecured
Notes Due April 2025") and $48.5 million aggregate principal
unsecured notes due October 2025 (the "Unsecured Note Due October
2025") regarding our exercise of our option to redeem all of the
issued and outstanding Unsecured Notes Due April 2025 and Unsecured
Notes Due October 2025. We will redeem the Unsecured Notes Due
April 2025 and the Unsecured Notes Due October 2025 on March 12,
2021. The Unsecured Notes Due April 2025 and the Unsecured Notes
Due October 2025 will be redeemed at 100% of their principal amount
($25 per Note), plus the accrued and unpaid interest thereon from
January 31, 2021, through, but excluding, March 12, 2021.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, March 5, 2021, 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
May 17, 2021 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 #10152648.
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, 2020, 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,
2020
2019
Assets
Investments, at fair value
Non-control/non-affiliate investments
(amortized cost of $363,628 and $396,201 respectively)
$
328,665
$
372,535
Affiliate investments (amortized cost of
$86,484 and $131,950, respectively)
102,846
135,679
Control investment (amortized cost of
$10,911 and $10,520, respectively)
10,812
8,717
Total investments at fair value (amortized
cost of $461,023 and $538,671, respectively)
442,323
516,931
Cash and cash equivalents
37,708
13,447
Interest receivable
1,298
3,349
Prepaid expenses and other assets
2,484
4,461
Total assets
$
483,813
$
538,188
Liabilities
Revolving line of credits
$
32,050
$
56,450
SBA debentures (net of deferred debt
issuance costs of $1,088 and $1,904, respectively)
104,182
147,976
Unsecured notes (net of discounts and
deferred debt issuance costs of $4,897 and $4,798,
respectively)
172,953
148,052
Interest payable
3,176
3,505
Payable to investment adviser and
affiliates
3,252
4,106
Payable for investments purchased
8,411
10,264
Accrued professional fees
495
621
Other liabilities
338
587
Total liabilities
324,857
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 December 31, 2020 and December 31, 2019, respectively
—
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,409,559 and 13,376,836
shares issued and outstanding as of December 31, 2020 and December
31, 2019, respectively
134
134
Paid-in capital in excess of par
187,124
187,305
Total distributable earnings (accumulated
losses)
(28,302)
(20,812)
Total net assets
158,956
166,627
Total liabilities and net
assets
$
483,813
$
538,188
Number of shares outstanding
13,409,559
13,376,836
Net asset value per share
$
11.85
$
12.46
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,
2020
2019
2020
2019
Investment income
Interest income:
Non-control/non-affiliate investments
$
7,978
$
9,425
$
33,297
$
37,535
Affiliate investments
1,586
2,724
7,380
10,364
Control investment
234
219
840
1,003
Total interest income
9,798
12,368
41,517
48,902
Payment-in-kind interest and dividend
income:
Non-control/non-affiliate investments
181
110
981
399
Affiliate investments
142
358
674
1,257
Control investment
99
86
377
169
Total payment-in-kind interest and
dividend income:
422
554
2,032
1,825
Dividend income:
Affiliate investments
350
240
450
413
Control investment
—
—
—
89
Total dividend income
350
240
450
502
Fee income:
Non-control/non-affiliate investments
101
248
945
1,029
Affiliate investments
449
5
465
221
Control investment
17
3
66
42
Total fee income
567
256
1,476
1,292
Total investment income
11,137
13,418
45,475
52,521
Expenses
Interest and financing expense
4,507
4,265
18,808
15,829
Management fees
1,846
2,209
7,605
8,271
Incentive fees
693
1,138
2,025
4,760
Professional fees
463
401
1,993
1,814
Administration fees
399
497
1,855
1,747
Other expenses
225
351
1,335
1,002
Total expenses before incentive fee
waiver
8,133
8,861
33,621
33,423
Incentive fee waiver
—
—
(441)
—
Total expenses, net of incentive fee
waiver
8,133
8,861
33,180
33,423
Net investment income
3,004
4,557
12,295
19,098
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on
non-control/non-affiliate investments
24
(3,057)
(10,022)
(3,900)
Net unrealized depreciation on
non-control/non-affiliate investments, net of deferred taxes
(55)
(104)
(11,020)
(9,610)
Net unrealized appreciation on affiliate
investments
6,317
71
12,633
5,376
Net unrealized appreciation (depreciation)
on control investment
2,628
(761)
1,704
(1,411)
Net gain (loss) on investments
8,915
(3,851)
(6,704)
(9,545)
Loss on extinguishment of debt
(484)
—
(820)
—
Loss on impairment of goodwill
—
—
(1,077)
—
Net increase in net assets resulting
from operations
$
11,435
$
706
$
3,694
$
9,553
Net investment income per common share -
basic and diluted
$
0.22
$
0.34
$
0.92
$
1.43
Net increase in net assets resulting from
operations per common share - basic and diluted
$
0.85
$
0.05
$
0.28
$
0.71
Distributions declared per common
share
$
0.18
$
0.34
$
0.86
$
1.36
Basic and diluted weighted average shares
outstanding
13,406,436
13,352,873
13,394,005
13,364,244
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 $5 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 beliefs regarding future increases in
net investment income as the pace of originations increase, when
there can be no assurance that any such increases will occur;
management’s plans to continue to focus on capital preservation;
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, 2020 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
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version on businesswire.com: https://www.businesswire.com/news/home/20210305005062/en/
INVESTOR RELATIONS: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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