Quarterly Distribution Increased to $0.28
per Share — 12% Increase Compared to Prior Quarter
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, 2021. On March
1, 2022, OFS Capital’s Board of Directors declared a distribution
of $0.28 per common share for the first quarter of 2022, a 12%
increase compared to the prior quarter, payable on March 31, 2022
to stockholders of record as of March 24, 2022.
FOURTH QUARTER FINANCIAL HIGHLIGHTS
- Net investment income for the quarter ended December 31, 2021
was $0.33 per common share, as compared to $0.24 for the quarter
ended September 30, 2021. The increase was primarily attributable
to increased dividend and fee income.
- Adjusted net investment income (“Adjusted NII”)(1) for the
quarter ended December 31, 2021 was $0.47 per common share as
compared to $0.25 per share for the quarter ended September 30,
2021.
- Net asset value (“NAV”) per share increased to $15.18 at
December 31, 2021 from $14.16 at September 30, 2021 and $11.85 at
December 31, 2020.
- The net gain per common share for the quarter ended December
31, 2021 was $0.94. The net gain per common share was largely
attributable to realized and unrealized gains on equity
securities.
- Earnings per common share for the quarter ended December 31,
2021 was $1.27 as compared to $0.98 per common share for the
quarter ended September 30, 2021.
- At December 31, 2021, based on fair value, 92% of our debt
portfolio consisted of floating rate loans and 95% of our debt
portfolio consisted of senior secured loans; 71% of our borrowings
are fixed rate and mature in 2025 and beyond.
SELECTED FINANCIAL HIGHLIGHTS
Quarter Ended
(unaudited)
(in thousands, except per share data)
December 31, 2021
September 30, 2021
Net Investment Income Per Common
Share
Net investment income per common share
$
0.33
$
0.24
Net Realized/Unrealized Gain (Loss) Per
Common Share
Net realized gain (loss) per common
share
$
(0.98
)
$
0.24
Net unrealized gain per common share
2.07
0.52
Net loss on extinguishment of debt per
common share
(0.15
)
(0.02
)
Net gain per common share
$
0.94
$
0.74
Earnings Per Common Share
Earnings per common share
$
1.27
$
0.98
Net Asset Value
Net asset value per share
$
15.18
$
14.16
Distributions paid per share
$
0.25
$
0.24
Adjusted NII Per Share
Net investment income per share
$
0.33
$
0.24
Capital gain incentive fee accrual per
share
0.14
0.01
Adjusted NII per share
$
0.47
$
0.25
As of
December 31, 2021
September 30, 2021
Balance Sheet Highlights
(unaudited)
Investment portfolio, at fair value
$
507.1
$
526.3
Total assets
569.0
537.2
Net asset value per common share
15.18
14.16
Management Commentary
“Based on strong origination activity and increased portfolio
income, our fourth quarter net investment income increased to $0.33
per share, a 38% increase compared to the prior quarter. Fourth
quarter adjusted net investment income increased to $0.47 per
share, an 88% increase compared to the prior quarter,” said Bilal
Rashid, OFS Capital’s Chairman and Chief Executive Officer. “We are
pleased to increase our distribution for the sixth straight
quarter. Our NAV increased 28% from December 31, 2020 primarily due
to net gains in the portfolio and now exceeds our 2019 year-end NAV
by 22%. In an environment in which interest rates are rising, we
believe our portfolio is well positioned with 92% of our debt
portfolio consisting of floating rates.”
(1) Supplemental information regarding Adjusted NII:
On a supplemental basis, we disclose Adjusted NII (including on
a per share basis), which is a financial measure calculated and
presented on basis other than in accordance with generally accepted
accounting principles of the United States of America (“GAAP”).
Adjusted NII represents net investment income excluding the capital
gains incentive fee in periods in which such expense occurs. GAAP
requires recognition of a capital gains incentive fee in our
financial statements if aggregate net realized and unrealized
capital gains, if any, on a cumulative basis from the date of the
election to be a BDC through the reporting date is positive. Such
fees are subject to further conditions specified in the investment
advisory agreement with OFS Capital Management, LLC, principally
related to the realization of such net gains, before OFS Capital
Management, LLC is entitled to payment, and such recognized fees
are subject to the risk of reversal should unrealized gains
diminish to become losses. Management believes that Adjusted NII is
a useful indicator of operations exclusive of any net capital gains
incentive fee, as net investment income does not include the net
gains, realized or unrealized, associated with the capital gains
incentive fee.
Management believes Adjusted NII facilitates analysis of our
results of operations and provides greater transparency into the
determination of incentive fees. Adjusted NII is not meant as a
substitute for net investment income determined in accordance with
GAAP and should be considered in the context of the entirety of our
reported results of operations, financial position and cash flows
determined in accordance with GAAP. A reconciliation of net
investment income determined in accordance with GAAP to Adjusted
NII is set forth in Schedule I to this press release.
PORTFOLIO AND INVESTMENT
ACTIVITIES
($ in millions, except for per share
data)
Portfolio Overview
As of and for the Year
Ended December 31,
2021
Investment portfolio, at fair value
$
507.1
Weighted-average performing income yield -
interest-bearing investments (2)
10.62
%
Weighted-average realized yield -
interest-bearing investments (3)
9.71
%
Weighted-average realized yield on total
investments (4)
9.10
%
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.
(2)
Income yield is calculated as (a) the
actual amount earned on performing investments, including interest
and prepayment fees and amortization of net loan fees, divided by
(b) the weighted-average of total performing investment amortized
cost.
(3)
Realized yield computed as (a) the actual
amount earned on interest-bearing investments, including interest,
prepayment fees and net loan fees, divided by (b) the
weighted-average of total interest-bearing investments amortized
cost, in each case, including debt investments in non-accrual
status and non-income producing Structured Finance Notes.
(4)
Realized yield computed as (a) the actual
amount earned on all investments including interest, dividends and
prepayment fees, amortization of net loan fees, and dividends
received divided by (b) the weighted-average of total investments
amortized cost or cost.
Quarter Ended
Portfolio Activity
December 31, 2021
September 30, 2021
Investments in new portfolio companies
$
61.6
$
29.7
Investments in existing portfolio
companies
$
13.7
$
26.4
Investments in structured finance
notes
$
—
$
8.5
At December 31, 2021, the total fair value of our investment
portfolio was $507.1 million, which was equal to approximately 110%
of amortized cost. As of December 31, 2021, the fair value of our
debt investment portfolio in 58 portfolio companies totaled $344.6
million, of which 95% and 5% were senior secured loans and
subordinated loans, respectively. As of December 31, 2021, we also
held approximately $87.3 million in common, preferred and other
equity investments, at fair value. As of December 31, 2021, our
portfolio had two non-accrual loans with an aggregate fair value of
$7.7 million, or 2.2% of our total debt portfolio at fair value,
compared to four non-accrual loans with an aggregate fair value of
$12.1 million, or 3.8% of our total debt portfolio at fair value at
December 31, 2020. As of December 31, 2021, our investment
portfolio also included seventeen investments in structured finance
notes with a fair value of $75.2 million. At December 31, 2021, we
had unfunded commitments of $43.7 million to fourteen portfolio
companies. As of December 31, 2021, floating rate loans comprised
92% of our debt investment portfolio, with the remaining 8% in
fixed rate loans, as a percentage of fair value.
RESULTS OF OPERATIONS
(in thousands)
Quarter Ended
(unaudited)
December 31, 2021
September 30, 2021
Total investment income
$
15,267
$
10,589
Expenses:
Interest expense
4,215
4,234
Management and incentive fees
5,366
2,052
Other expenses
1,256
1,068
Total expenses
10,837
7,354
Net investment income
4,430
3,235
Net gain on investments
14,722
10,154
Loss on extinguishment of debt
(2,068
)
(224
)
Net increase in net assets resulting
from operations
$
17,084
$
13,165
Investment Income
For the three months ended December 31, 2021, total investment
income increased by $4.7 million as compared to the three months
ended September 30, 2021, primarily due to an increase in dividend
income of $1.8 million and an increase in other fee income of $1.6
million. Increased fee acceleration as a result of increased
portfolio runoff also contributed to the increase.
Expenses
For the three months ended December 31, 2021, management and
incentive fees increased $3.3 million compared to the three months
ended September 30, 2021, primarily due to an increase in the
Income Incentive Fee of $1.5 million and an increase in the Capital
Gains Fee. The Capital Gains Fee is currently not payable under the
terms of the Advisory Agreement but was calculated in accordance
with GAAP which requires the inclusion of aggregate unrealized
appreciation on investments.
Net Gain (Loss) on Investments
For the three months ended December 31, 2021, net gain on
investments of $14.7 million was primarily due to unrealized
appreciation of $10.1 million on our common equity investment in
Pfanstiehl Holdings, Inc.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2021, we had $43.0 million of cash, which
includes cash and cash equivalents of $15.0 million held by OFS
SBIC I, LP (“SBIC I LP”), our wholly owned SBIC, and OFSCC-FS, LLC
(“OFSCC-FS”), an indirect wholly owned subsidiary. Our use of cash
held by SBIC I LP and OFSCC-FS is restricted by regulatory and
contractual conditions, including limitations on the amount of cash
SBIC I LP and OFSCC-FS can distribute to us.
Additionally, at December 31, 2021, we had an unused commitment
of $25.0 million under our senior secured revolving credit facility
with Pacific Western Bank, as well as an unused commitment of $50.0
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, 2021, we could
access all unused commitments under our credit facilities and
remain in compliance with 1940 Act asset coverage requirement.
On October 28, 2021 and November 1, 2021, OFS Capital issued
$55.0 million unsecured notes (the “2028 Notes”) which bear a fixed
interest rate of 4.95% and mature on October 31, 2028. OFS Capital
utilized a portion of the proceeds from the 2028 Notes to redeem
$25.0 million of unsecured notes which were originally scheduled to
mature in September 2023 and bore an interest rate of 6.25%. On
November 22, 2021, OFS Capital redeemed $54.3 million of unsecured
notes that were originally scheduled to mature in October 2026 and
bore an interest rate of 5.95%. As of December 31, 2021, OFS
Capital has $180.0 million of unsecured notes (71.0% of total debt
outstanding) which mature in 2025 and beyond.
On November 15, 2021, we amended our senior secured revolving
credit facility with Pacific Western Bank to decrease the interest
rate floor from 5.0% to 4.0%, effective as of November 1, 2021.
RECENT DEVELOPMENTS
On February 28, 2022, we prepaid $19.0 million of SBA debentures
that were contractually due March 1, 2025 and September 1,
2025.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, March 4, 2022, at 11:00 a.m. 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 14, 2022 at 9:00 a.m. Eastern Time and may be accessed by
calling (877) 344-7529 (Domestic) or (412) 317-0088 (International)
and utilizing conference ID #8952094.
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, 2021, 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,
2021
2020
Assets
Investments, at fair value
Non-control/non-affiliate investments
(amortized cost of $428,398 and $363,628 respectively)
$
421,567
$
328,665
Affiliate investments (amortized cost of
$17,650 and $86,484, respectively)
72,584
102,846
Control investment (amortized cost of
$11,264 and $10,911, respectively)
12,948
10,812
Total investments at fair value (amortized
cost of $457,312 and $461,023, respectively)
507,099
442,323
Cash
43,048
37,708
Receivable for investments sold
14,893
—
Interest receivable
1,475
1,298
Prepaid expenses and other assets
2,533
2,484
Total assets
$
569,048
$
483,813
Liabilities
Revolving lines of credit
$
100,000
$
32,050
SBA debentures (net of deferred debt
issuance costs of $555 and $1,088, respectively)
69,365
104,182
Unsecured Notes (net of discounts and
deferred debt issuance costs of $4,554 and $4,897,
respectively)
175,446
172,953
Interest payable
3,685
3,176
Payable to investment adviser and
affiliates
6,217
3,252
Payable for investments purchased
8,788
8,411
Accrued professional fees
452
495
Other liabilities
1,351
338
Total liabilities
365,304
324,857
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, 2021 and December 31, 2020, respectively
—
—
Common stock, par value of $0.01 per
share, 100,000,000 shares authorized, 13,422,413 and 13,409,559
shares issued and outstanding as of December 31, 2021 and December
31, 2020, respectively
134
134
Paid-in capital in excess of par
185,113
187,124
Total distributable earnings (accumulated
losses)
18,497
(28,302
)
Total net assets
203,744
158,956
Total liabilities and net
assets
$
569,048
$
483,813
Number of shares outstanding
13,422,413
13,409,559
Net asset value per share
$
15.18
$
11.85
OFS Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
(Dollar amounts in thousands, except
per share data)
(unaudited)
Quarter Ended December
31,
Year Ended December
31,
2021
2020
2021
2020
Investment income
Interest income:
Non-control/non-affiliate investments
$
10,188
$
8,159
$
37,350
$
34,278
Affiliate investments
962
1,611
3,686
7,549
Control investment
332
333
1,348
1,217
Total interest income
11,482
10,103
42,384
43,044
Dividend income:
Non-control/non-affiliate investments
888
—
888
—
Affiliate investments
1,000
467
1,143
955
Control investment
(33
)
—
136
—
Total dividend income
1,855
467
2,167
955
Fee income:
Non-control/non-affiliate investments
1,565
101
2,485
945
Affiliate investments
291
449
653
465
Control investment
74
17
74
66
Total fee income
1,930
567
3,212
1,476
Total investment income
15,267
11,137
47,763
45,475
Expenses
Interest and financing expense
4,215
4,507
17,515
18,808
Management fees
2,009
1,846
7,669
7,605
Income Incentive Fee
1,543
693
2,352
2,025
Capital Gains Fee
1,814
—
1,916
—
Professional fees
440
463
1,670
1,993
Administration fees
416
399
1,758
1,855
Other expenses
400
225
1,433
1,335
Total expenses before Income Incentive Fee
waiver
10,837
8,133
34,313
33,621
Income Incentive Fee waiver
—
—
—
(441
)
Total expenses, net of Income Incentive
Fee waiver
10,837
8,133
34,313
33,180
Net investment income
4,430
3,004
13,450
12,295
Net realized and unrealized gain (loss)
on investments
Net realized gain (loss) on
non-control/non-affiliate investments
(16,371
)
25
(27,114
)
(10,021
)
Net realized gain on affiliate
investments
4,299
—
7,545
—
Income tax expense on net realized
investment gains
(1,027
)
—
(1,027
)
—
Net unrealized appreciation (depreciation)
on non-control/non-affiliate investments
17,487
86
38,551
(11,295
)
Net unrealized appreciation on affiliate
investments
10,422
6,317
28,153
12,633
Net unrealized appreciation (depreciation)
on control investment
(301
)
2,628
1,783
1,704
Deferred tax benefit (expense) on
investments net unrealized appreciation/depreciation
213
(141
)
114
275
Net gain (loss) on investments
14,722
8,915
48,005
(6,704
)
Loss on extinguishment of debt
(2,068
)
(484
)
(4,591
)
(820
)
Loss on impairment of goodwill
—
—
—
(1,077
)
Net increase in net assets resulting
from operations
$
17,084
$
11,435
$
56,864
$
3,694
Net investment income per common share -
basic and diluted
$
0.33
$
0.22
$
1.00
$
0.92
Net increase in net assets resulting from
operations per common share - basic and diluted
$
1.27
$
0.85
$
4.24
$
0.28
Distributions declared per common
share
$
0.25
$
0.18
$
0.91
$
0.86
Basic and diluted weighted average common
shares outstanding
13,419,010
13,406,436
13,413,861
13,394,005
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 19405, 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, adjusted net
investment income, net asset value and net investment gains and
losses and the factors that may affect such results, including
origination activity and portfolio income; management's belief that
the portfolio is well positioned in a rising interest rate
environment, when there can be no assurance that is the case; 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, 2021 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.
5 Registration does not imply a certain level of skill or
training
Schedule
1
Non-GAAP Financial Measure – Adjusted Net
Investment Income
On a supplemental basis, we disclose Adjusted NII (including on
a per share basis), which is a financial measure calculated and
presented on basis other than in accordance with GAAP. Adjusted NII
represents net investment income excluding the capital gains
incentive fee in periods in which such expense occurs. GAAP
requires recognition of a capital gains incentive fee in our
financial statements if aggregate net realized and unrealized
capital gains, if any, on a cumulative basis from the date of the
election to be a BDC through the reporting date is positive. Such
fees are subject to further conditions specified in the investment
advisory agreement with OFS Capital Management, LLC, principally
related to the realization of such net gains, before OFS Capital
Management, LLC is entitled to payment, and such recognized fees
are subject to the risk of reversal should unrealized gains
diminish to become losses. Management believes that Adjusted NII is
a useful indicator of operations exclusive of any net capital gains
incentive fee, as net investment income does not include the net
gains, realized or unrealized, associated with the capital gains
incentive fee. Management believes Adjusted NII facilitates
analysis of our results of operations and provides greater
transparency into the determination of incentive fees. Adjusted NII
is not meant as a substitute for net investment income determined
in accordance with GAAP and should be considered in the context of
the entirety of our reported results of operations, financial
position and cash flows determined in accordance with GAAP.
The following table provides a reconciliation from net
investment income (the most comparable GAAP measure) to Adjusted
NII for the three months ended and years ended December 31, 2021
and December 31, 2020 (dollar amounts in thousands, except per
share data) (unaudited):
Three Months Ended December
31,
Years Ended December
31,
2021
2020
2021
2020
(000's)
Per Share
(000's)
Per Share
(000's)
Per Share
(000's)
Per Share
Net investment income
$
4,430
$
0.33
$
3,004
$
0.22
$
13,450
$
1.00
$
12,295
$
0.92
Capital Gains Fee
1,814
0.14
—
—
1,916
0.14
—
—
Adjusted NII
$
6,244
$
0.47
$
3,004
$
0.22
$
15,366
$
1.14
$
12,295
$
0.92
Although these non-GAAP financial measures are intended to
enhance investors’ understanding of our business and performance,
these non-GAAP financial measures should not be considered an
alternative to GAAP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220304005050/en/
INVESTOR RELATIONS CONTACT: Steve Altebrando 646-652-8473
saltebrando@ofsmanagement.com
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