Declares 24th Consecutive
$0.34 Per Share Distribution
Net Investment Income Exceeds
Distribution
OFS Capital Corporation (NASDAQ:OFS) ("OFS Capital," the
"Company," "we," "us," or "our") today announced its financial
results for the third quarter ended September 30, 2018.
FINANCIAL HIGHLIGHTS
- Net investment income of $4.69
million, or $0.35 per share exceeds quarterly
distribution.
- Net asset value ("NAV") per share
increased to $13.75 at September 30,
2018 from $13.70 per share at June 30,
2018.
- At September 30, 2018, 82% of our
loan portfolio consisted of senior secured loans, based on fair
value, and 79% were floating rate.
- In October 2018 and November 2018, we
issued $48.5 million of seven year, fixed-rate bonds including $5.0
million of additional notes issued pursuant to the partial exercise
of the underwriters overallotment option; as of today, our
long-term debt was 100% fixed rate and 92% of our debt matures in
2024 and beyond.
- Closed investments in the third quarter
of 2018 totaled approximately $47.5 million. As
of November 2, 2018, we closed approximately $29.0
million of additional new investments during the fourth
quarter of 2018.
- On October 30, 2018, OFS
Capital's Board of Directors declared a distribution
of $0.34 per share for the fourth quarter of 2018,
payable on December 31, 2018 to stockholders of record as
of December 17, 2018.
"Our net investment income again exceeded our distribution,"
said Bilal Rashid, OFS Capital's Chairman and Chief Executive
Officer. " We have declared 24 consecutive $0.34 per share
quarterly distributions since our 2012 IPO-we believe that we are
part of a select group of BDCs that has been able to maintain its
distribution over this time. In total, we have declared $8.36 per
share in regular and special distributions. Given the recent
decline in the broader market, we believe that our shares are now
generating an attractive yield approximating 12.5%.
We have a senior secured focused loan portfolio and our NAV
increased this quarter. We think our portfolio is well positioned
for rising interest rates, as a vast majority of our loans are
floating rate while our liabilities are fixed rate."
HIGHLIGHTS
($ in millions, except for per share data)
Portfolio Overview
At September 30, 2018
Total assets $ 408.5 Investment portfolio, at fair value $ 396.0
Net assets $ 183.6 Net asset value per share $ 13.75 Weighted
average yield on performing debt investments (1) 12.14% Weighted
average yield on total debt investments (2) 11.73% Weighted average
yield on total investments (3) 11.00%
(1) The weighted average yield on our performing debt
investments is computed as (a) the annual stated accruing interest
on our debt investments at the balance sheet date, plus the
annualized accretion of loan origination fees, original issue
discount, market discount or premium, and loan amendment fees
divided by (b) amortized cost of our debt investments, excluding
assets on non-accrual basis as of the balance sheet date.
(2) The weighted average yield on our total debt investments is
computed as (a) the annual stated accruing interest on our debt
investments at the balance sheet date, plus the annualized
accretion of loan origination fees, original issue discount, market
discount or premium, and loan amendment fees divided by (b)
amortized cost of our debt 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 on our debt investments
at the balance sheet date, plus the annualized accretion of loan
origination fees, original issue discount, market discount or
premium, and loan amendment fees, 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
2018 2017 Total investment income $ 11.0 $ 9.1
Net investment income $ 4.7 $ 4.4 Net investment income per common
share, basic and diluted $ 0.35 $ 0.33 Net increase in net assets
resulting from operations $ 5.2 $ 1.2
Quarter
Ended September 30, Portfolio Activity 2018
2017 Number of new portfolio companies 6 3
Investments in new portfolio companies $ 38.2 $ 40.5 Investments in
existing portfolio companies $ 9.1 $ 1.9 Number of portfolio
companies at end of period 47 40
PORTFOLIO AND INVESTMENT ACTIVITIES
During the third quarter of 2018, OFS Capital closed $38.2
million of senior secured debt investments, in six new portfolio
companies. In addition, we made $8.8 million of new senior secured
debt investments in existing portfolio companies.
The total fair value of OFS Capital’s investment portfolio was
$396.0 million at September 30, 2018, which was equal to
approximately 99% of amortized cost. As of September 30, 2018, the
fair value of OFS Capital's debt investment portfolio totaled
$357.7 million in 42 portfolio companies, of which 82% and 18% were
senior secured loans and subordinated loans, respectively. As of
September 30, 2018, we also held approximately $38.3 million in
equity investments, at fair value, in 15 portfolio companies in
which we also held debt investments and 5 portfolio companies in
which we solely held an equity investment. We had unfunded
commitments of $8.5 million to four portfolio companies at
September 30, 2018. As of September 30, 2018, floating rate loans
comprised 79% of OFS Capital’s debt investment portfolio, with the
remaining 21% in fixed rate loans, as a percentage of fair
value.
RESULTS OF OPERATIONS
Income
Interest Income
Interest income increased by $2.8 million for the three months
ended September 30, 2018, compared to the three months ended
September 30, 2017, due to a $2.3 million increase in recurring
interest income caused by a $81.6 million increase in the average
outstanding loan balance, and an increase of $0.5 million in
recurring interest income resulting from a 60 basis point increase
in the weighted average yield in our portfolio. Acceleration of
loan origination fees, original issue discount, market discount or
premium, and loan amendment fees of approximately $132,000 and
$296,000 were included in interest income for the three months
ended September 30, 2018 and 2017, respectively.
Expenses
Interest expense
Interest expense for the three months ended September 30, 2018
increased $0.9 million over the corresponding period in the prior
year due to an increase in borrowings under our revolving line of
credit with Pacific Western Bank (the "PWB Credit Facility") and
the $50.0 million issuance of the unsecured notes due April 2025.
The average dollar amount of borrowings outstanding under the PWB
Credit Facility during the three months ended September 30, 2018
and 2017 was $9.7 million and $11.1 million, respectively.
Management fee
Management fee expense for the three months ended September 30,
2018 increased $0.4 million over the corresponding period in the
prior year due to an increase in our average total assets,
primarily due to the deployment of funds from the April 2017 equity
offering.
Incentive fee
Incentive fee expense increased by $0.1 million for the three
months ended September 30, 2018 compared to the three months ended
September 30, 2017 primarily due to an increase in net investment
income.
Administration fee
Administration fee expense for the three months ended September
30, 2018, remained stable over the corresponding period in the
prior year primarily due to similar allocable portion of OFS
Capital Services’s overhead expenses.
Net Gain (Loss) on Investments
We recognized net losses of $0.4 million on senior secured debt
during the three months ended September 30, 2018, primarily as a
result of the net negative impact of portfolio company-specific
performance factors and the impact of changes to certain market
loan indices.
We recognized net losses of $0.4 million on subordinated debt
during the three months ended September 30, 2018, primarily as a
result of the negative impact of portfolio company-specific
performance factors.
We recognized net gains of $0.1 million on preferred equity
investments for the three months ended September 30, 2018,
primarily as a result of unrealized depreciation on certain
portfolio investments due to the net negative impact of portfolio
company-specific performance factors.
We recognized net gains of $1.2 million on common equity and
warrant investments for the three months ended September 30, 2018,
primarily as a result of unrealized appreciation stemming from the
positive impact of portfolio company-specific performance
factors.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2018, we had $6.0 million in cash and
cash equivalents, which includes cash and cash equivalents
of $5.0 million held by our wholly owned small business
investment company, 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 September 30, 2018, we had $33.0 million available
for additional borrowings under our PWB Credit Facility and had
drawn all of our available SBA-guaranteed debentures.
RECENT DEVELOPMENTS
Registered unsecured bond offering
In October 2018 and November 2018, the Company closed the public
offering of $48,525 in aggregate principal amount of its 6.5% notes
due 2025 (the "Unsecured Notes Due October 2025"), which included a
partial exercise of the underwriters overallotment option. The
total net proceeds to the Company from the Unsecured Notes Due
October 2025, after deducting underwriting discounts of
approximately $1,516 and estimated offering expenses of $350, were
approximately $46,659. The Unsecured Notes Due October 2025 will
mature on October 31, 2025. Because the Unsecured Notes Due
October 2025 are not secured by any of the Company's assets, they
are effectively subordinated to all existing and future secured
unsubordinated indebtedness (or any indebtedness that is initially
unsecured as to which the Company 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 2025 may be
redeemed in whole or in part at any time or from time to time at
the Company’s option on or after October 31, 2020 at the
redemption price of 100% of the aggregate principal amount thereof
plus accrued and unpaid interest.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, November 2, 2018, 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
November 12, 2018 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 #10125833.
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, 2018,
which will be filed with the Securities and Exchange Commission
later today.
OFS Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Dollar amounts in thousands,
except per share data) September 30, 2018
December 31, 2017 (unaudited) Assets
Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $281,575 and $209,360,respectively)
$ 272,764 $ 197,374 Affiliate investments (amortized cost of
$106,754 and $70,402, respectively) 112,305 69,557 Control
investments (amortized cost of $10,306 and $10,213, respectively)
10,964 10,568 Total investments at fair value
(amortized cost of $398,635 and $289,975, respectively) 396,033
277,499 Cash and cash equivalents 6,043 72,952 Interest receivable
2,637 2,734 Prepaid expenses and other assets 3,825 4,593
Total assets $ 408,538 $ 357,778
Liabilities Revolving line of credit $ 17,000 $ 17,600 SBA
debentures (net of deferred debt issuance costs of $2,375 and
$2,657, respectively) 147,505 147,223 Unsecured notes (net of
deferred debt issuance costs of $1,688 and $0, respectively) 48,312
— Interest payable 976 1,596 Payable to adviser and affiliates
(Note 3) 3,348 2,463 Payable for investments purchased 6,777 —
Accrued professional fees 686 433 Other liabilities 336 127
Total liabilities 224,940 169,442
Commitments and contingencies
Net assets
Preferred stock, par value of $0.01 per
share, 2,000,000 shares authorized, -0- sharesissued and
outstanding as of September 30, 2018, and December 31,
2017,respectively
$ — $ —
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,352,824and 13,340,217
shares issued and outstanding as of September 30, 2018, andDecember
31, 2017, respectively
134 133 Paid-in capital in excess of par 187,846 187,398
Accumulated undistributed net investment income 7,599 9,404
Accumulated undistributed net realized gain (loss) (9,120 ) 3,881
Net unrealized depreciation on investments (2,861 ) (12,480 )
Total net assets 183,598 188,336
Total liabilities and net assets $ 408,538 $ 357,778
Number of shares outstanding 13,352,824
13,340,217 Net asset value per share $ 13.75 $ 14.12
OFS Capital Corporation and
Subsidiaries Condensed Consolidated Statements of Operations
(unaudited) (Dollar amounts in thousands, except per share
data)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018 2017
Investment income Interest income: Non-control/non-affiliate
investments $ 7,424 $ 5,485 $ 19,508 $ 14,520 Affiliate investments
2,455 1,601 7,308 5,089 Control investment 255 236
744 1,302 Total interest income 10,134 7,322 27,560
20,911 Payment-in-kind interest and dividend income:
Non-control/non-affiliate investments 178 350 524 976 Affiliate
investments 308 394 1,054 1,120 Control investment 28 27
82 104 Total payment-in-kind interest and
dividend income 514 771 1,660 2,200 Dividend income:
Non-control/non-affiliate investments
-
-
-
50 Affiliate investments
-
33 130 118 Control investment 58 92 185 262
Total dividend income 58 125 315 430 Fee income:
Non-control/non-affiliate investments 251 679 664 1,027 Affiliate
investments 7 208 12 431 Control investment 18 17 52
135 Total fee income 276 904 728
1,593
Total investment income 10,982 9,122
30,263 25,134
Expenses Interest expense
2,393 1,503 6,196 4,229 Management fee 1,678 1,310 4,586 3,726
Incentive fee 1,170 1,090 3,041 2,249 Professional fees 458 284 859
840 Administration fee 311 274 1,252 982 Other expenses 282
259 1,287 1,050 Total expenses before
incentive fee waiver 6,292 4,720 17,221 13,076 Incentive fee waiver
-
-
(22 )
-
Total expenses, net of incentive fee waiver 6,292
4,720 17,199 13,076
Net investment
income 4,690 4,402 13,064 12,058
Net realized and
unrealized gain (loss) on investments
Net realized loss on
non-control/non-affiliateinvestments
-
(5,204 ) (5,003 ) (5,041 ) Net realized gain (loss) on affiliate
investments
-
3,617 (4,018 ) 4,491
Net unrealized appreciation (depreciation)
onnon-control/non-affiliate investments
(923 ) 1,196 2,925 (7,350 )
Net unrealized appreciation (depreciation)
on affiliateinvestments
1,223 (2,901 ) 6,396 (2,243 ) Net unrealized appreciation on
control investment 189 65 303 1,845
Net gain (loss) on investments 489 (3,227 )
603 (8,298 )
Net increase in net assets resulting
from operations $ 5,179 $ 1,175 $ 13,667 $
3,760
Net investment income per common share –
basicand diluted
$ 0.35 $ 0.33 $ 0.98 $ 1.00
Net increase in net assets resulting from
operations percommon share – basic and diluted
$ 0.39 $ 0.09 $ 1.02 $ 0.31 Distributions declared per common share
$ 0.34 $ 0.34 $ 1.05 $ 1.02 Basic and
diluted weighted average shares outstanding 13,350,484
13,331,690 13,346,630 12,089,895
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 1940 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 the status of the
Company as a result of its quarterly distributions; management's
views related to the yield generated by OFS Capital's shares; and
expectations regarding future portfolio performance in a rising
rate environment; 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, 2017 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20181102005147/en/
INVESTOR RELATIONS CONTACT:Steve
Altebrando646-652-8473saltebrando@ofsmanagement.com
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