Net Investment Income of $0.36 per common
share Increased 24% year-over-year
Declares 26th 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 March 31, 2019.
FINANCIAL HIGHLIGHTS
- Net investment income of $4.83
million, or $0.36 per share, an increase of 24%
year-over-year and above the $0.34 quarterly distribution.
- Closed investments in the first quarter
of 2019 totaled approximately $63.6 million.
- Net asset value ("NAV") per share
decreased to $13.04 at March 31,
2019 from $13.10 at December 31, 2018 due
to unrealized depreciation of the portfolio. No new
non-accruals.
- At March 31, 2019, 88% of our loan
portfolio consisted of senior secured loans, based on fair
value.
- As of March 31, 2019, our total debt
was 87% fixed rate and 87% of our debt matures in 2024 and
beyond.
- On April 30, 2019, OFS
Capital's Board of Directors declared a distribution
of $0.34 per share for the second quarter of 2019,
payable on June 28, 2019 to stockholders of record as
of June 21, 2019.
"Our net investment income again exceeded our distribution,"
said Bilal Rashid, OFS Capital's Chairman and Chief Executive
Officer. "Since our 2012 IPO, we have declared 26 consecutive $0.34
per share quarterly distributions totaling over $9 per share
in regular and special distributions.
We are working to establish an additional credit facility, which
if consummated, would enable the Company to benefit from the
incremental leverage permitted under last years’ Small Business
Credit Availability Act.”
HIGHLIGHTS
($ in millions, except for per share data)
Portfolio Overview At March 31, 2019
Total assets $ 460.2 Investment portfolio, at fair value $ 437.7
Net assets $ 174.3 Net asset value per share $ 13.04 Weighted
average yield on performing debt investments (1) 11.80 % Weighted
average yield on total debt investments (2) 11.45 % Weighted
average yield on total investments (3) 10.74 % (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 March 31,
Operating Results 2019
2018 Total investment income $ 12.3 $ 9.0 Net investment
income $ 4.8 $ 3.8 Net investment income per common share, basic
and diluted $ 0.36 $ 0.29
Net increase in net assets resulting from
operations
$
3.7
$
3.5
Quarter Ended March 31,
Portfolio Activity 2019 2018
Number of new portfolio companies 3 7 Investments in new portfolio
companies $ 35.6 $ 73.0 Investments in existing portfolio companies
$ 12.7 $ 25.2 Investments in structured finance notes $ 15.3 $ —
Number of portfolio companies at end of period 51 39
PORTFOLIO AND INVESTMENT ACTIVITIES
During the first quarter of 2019, OFS Capital closed $31.5
million of senior secured debt investments in three new portfolio
companies, as well as $4.1 million of equity investments in two of
these portfolio companies. In addition, we made $12.7 million of
new senior secured debt investments in existing portfolio companies
and $15.3 million of new investments in structured finance
notes.
The total fair value of OFS Capital’s investment portfolio was
$437.7 million at March 31, 2019, which was equal to approximately
96% of amortized cost. As of March 31, 2019, the fair value of OFS
Capital's debt investment portfolio totaled $385.7 million in 46
portfolio companies, of which 88% and 12% were senior secured loans
and subordinated loans, respectively. As of March 31, 2019, we also
held approximately $36.2 million in equity investments, at fair
value, in 15 portfolio companies in which we also held debt
investments, 5 portfolio companies in which we solely held an
equity investment and 2 investments in structured finance notes
with a fair value of $15.8 million. We had unfunded commitments of
$9.4 million to five portfolio companies at March 31, 2019. As of
March 31, 2019, floating rate loans as a percentage of fair value
comprised 88% of OFS Capital’s debt investment portfolio, with the
remaining 12% in fixed rate loans.
RESULTS OF OPERATIONS
Income
Investment Income
Interest income increased by $2.6 million for the three months
ended March 31, 2019, compared to the three months ended March 31,
2018, due to a $3.6 million increase caused by an approximately
$106.0 million increase in the average outstanding performing loan
balance offset, in part, by a ($1.0) million decrease resulting
from a 96 basis point decrease in the recurring earned yield on our
portfolio. Fee income increased $0.5 million for the three months
ended March 31, 2019 compared to the three months ended March 31,
2018, primarily due to an increase in syndication fees resulting
from approximately $60.5 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 March 31, 2019
increased $1.8 million over the corresponding period in the prior
year due to the issuance of $98.5 million in unsecured notes issued
during 2018.
Management fee
Management fee expense for the three months ended March 31, 2019
increased $0.5 million over the corresponding period in the prior
year due to an increase in our average total assets, resulting from
the issuance of $98.5 million of unsecured notes during 2018.
Incentive fee
Incentive fee expense increased by $0.4 million for the three
months ended March 31, 2019 compared to the three months ended
March 31, 2018 primarily due to additional net investment income
resulting from the increase in the size of the portfolio.
Administration fee
Administration fee expense for the three months ended March 31,
2019 decreased $0.1 million over the corresponding period in the
prior year primarily due to an decrease in our allocable portion of
OFS Services’s overhead.
Net Gain (Loss) on Investments
We recognized net losses of $0.1 million on senior secured debt
during the three months ended March 31, 2019, primarily as a result
of the unrealized depreciation of $1.9 million on MAI Holdings,
Inc., offset by unrealized appreciation of $2.2 million on broadly
syndicated loans due to net positive impact of mark-to-market
adjustments in the first quarter. Additional unrealized losses of
$0.5 million for the three months ended March 31, 2019 were
primarily a result from net negative impact of portfolio
company-specific performance factors. We also recognized a realized
gain of $0.1 million as a result of the partial sale of Cenexel
Clinical Research Holdings, Inc. (f/k/a JBR Clinical Research
Holdings, Inc.).
We recognized net gains of $0.2 million on subordinated debt
during the three months ended March 31, 2019, primarily due to
unrealized appreciation of $0.3 million recognized on our
subordinated debt investment in Online Tech Stores, LLC. We
recognized net losses of $0.1 million for the three months ended
March 31, 2019, primarily as a result from net negative impact of
portfolio company-specific performance factors.
We recognized net losses of $1.7 million on preferred equity
investments for the three months ended March 31, 2019, primarily as
a result of unrealized depreciation of $0.8 million recognized on
our investment in TRS Services, LLC Class A units. Additional
unrealized losses of $0.9 million for the three months ended March
31, 2019 were primarily due to the net negative impact of portfolio
company-specific performance factors.
We recognized net gains of $0.2 million on common equity and
warrant investments for the three months ended March 31, 2019,
primarily as a result of unrealized appreciation of $2.5 million
stemming from the positive impact of portfolio company-specific
performance factors, offset by unrealized depreciation of $2.3
million in Contract Datascan Holdings, Inc. as a result of negative
portfolio company-specific performance factors.
We recognized net gains of $0.4 million on structured finance
notes for the three months ended March 31, 2019, primarily as a
result of unrealized appreciation due to net positive impact of
mark-to-market adjustments in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2019, we had $15.2 million in cash, which
includes cash of $12.9 million held by our wholly owned
small business investment company OFS SBIC I, LP ("SBIC I LP"), 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 March 31, 2019, we
had $14.2 million available for additional borrowings
under our senior secured revolving credit facility with Pacific
Western Bank, as lender ("PWB Credit Facility") and had drawn all
of our available SBA-guaranteed debentures.
RECENT DEVELOPMENTS
Amendment to the PWB Credit Facility
On April 10, 2019, the Business Loan Agreement with Pacific
Western Bank was amended to, among other things: (i) increase the
maximum amount available under our PWB Credit Facility from $50.0
million to $100.0 million; (ii) change the interest rate from a
variable rate of Prime Rate plus a 0.75% margin to a variable rate
of Prime Rate plus a 0.25% margin (with a floor of 5.25%); (iii)
extend the maturity date from January 31, 2020 to February 28,
2021; (iv) increase the minimum quarterly net investment income
covenant from $2.0 million to $3.0 million; (v) reduce the
statutory asset coverage ratio test from 200% to 150%; and (vi) add
a total liabilities to Net Asset Value (as defined in the amended
Business Loan Agreement) covenant of 300%.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, May 3, 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
May 13, 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 #10131169.
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 first quarter ended March 31, 2019,
which we expect to file with the Securities and Exchange Commission
later today.
OFS Capital Corporation and
SubsidiariesConsolidated Statement of Assets and
Liabilities(Dollar amounts in thousands, except per share
data)
March 31,2019 December 31,2018
(unaudited) Assets Investments, at fair value:
Non-control/non-affiliate investments
(amortized cost of $323,794 and $312,223,respectively)
$ 310,090 $ 297,749 Affiliate investments (amortized cost of
$120,199 and $90,751, respectively) 117,431 89,103 Control
investments (amortized cost of $10,368 and $10,337, respectively)
10,146 9,945 Total investments at fair value
(amortized cost of $454,361 and $413,311, respectively) 437,667
396,797 Cash 15,156 38,172 Interest receivable 3,787 2,787 Prepaid
expenses and other assets 3,592 3,665
Total
assets $ 460,202 $ 441,421
Liabilities Revolving line of credit $ 35,750 $ 12,000 SBA
debentures (net of deferred debt issuance costs of $2,188 and
$2,280, respectively) 147,692 147,600 Unsecured notes (net of
deferred debt issuance costs of $3,176 and $3,299 respectively)
95,349 95,226 Interest payable 1,478 2,791 Payable to adviser and
affiliates 3,767 3,700 Payable for investments purchased 1,027
4,151 Accrued professional fees 662 637 Other liabilities 219
293
Total liabilities 285,944 266,398
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 March 31, 2019, and December 31, 2018,
respectively
$ — $ —
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,361,134and 13,357,337
shares issued and outstanding as of March 31, 2019, andDecember 31,
2018, respectively
134 134 Paid-in capital in excess of par 187,604 187,540 Total
distributable earnings (losses) (13,480 ) (12,651 )
Total net
assets 174,258 175,023
Total
liabilities and net assets $ 460,202 $ 441,421
Number of shares outstanding 13,361,134 13,357,337
Net asset value per share $ 13.04 $ 13.10
OFS Capital Corporation and
SubsidiariesCondensed Consolidated Statements of Operations
(unaudited)(Dollar amounts in thousands, except per share
data)
Three Months Ended March
31,
2019 2018 Investment income Interest
income: Non-control/non-affiliate investments $ 8,642 $ 5,758
Affiliate investments 2,333 2,085 Control investment 259 239
Total interest income 11,234 8,082 Payment-in-kind interest
and dividend income: Non-control/non-affiliate investments 97 224
Affiliate investments 252 461 Control investment 27 27
Total payment-in-kind interest and dividend income 376 712
Dividend income: Affiliate investments 173 130 Control investment —
33 Total dividend income 173 163 Fee income:
Non-control/non-affiliate investments 342 26 Affiliate investments
205 2 Control investment 15 18 Total fee income 562
46
Total investment income 12,345 9,003
Expenses Interest and financing expense 3,455 1,634
Management fee 1,843 1,360 Incentive fee 1,163 736 Professional
fees 535 201 Administration fee 437 583 Other expenses 84
695 Total expenses before incentive fee waiver 7,517 5,209
Incentive fee waiver — (22 )
Total expenses, net of
incentive fee waiver 7,517 5,187
Net
investment income 4,828 3,816
Net realized and
unrealized gain (loss) on investments Net realized gain (loss)
on non-control/non-affiliate investments (804 ) 461 Net realized
loss on affiliate investments — (541 ) Net unrealized appreciation
(depreciation) on non-control/non-affiliate investments 658 (1,563
) Net unrealized appreciation (depreciation) on affiliate
investments (1,120 ) 1,245 Net unrealized appreciation on control
investment 170 75
Net loss on
investments (1,096 ) (323 )
Net increase in net
assets resulting from operations $ 3,732 $ 3,493
Net investment income per common share – basic and diluted $
0.36 $ 0.29 Net increase in net assets resulting from
operations per common share – basic and diluted $ 0.28 $ 0.26
Distributions declared per common share $ 0.34 $ 0.71
Basic and diluted weighted average shares outstanding 13,357,464
13,340,502
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, 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 Company's efforts to establish an additional
credit facility and the Company's ability to benefit from increased
leverage permitted under the Small Business Credit Availability
Act, when there can be no assurance that such a facility will be
consummated or that the Company can benefit from additional
leverage; 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20190503005080/en/
INVESTOR RELATIONS:Steve Altebrando646-652-8473saltebrando@ofsmanagement.com
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