TMCnet News
OFS Capital Corporation Announces Second Quarter 2019 Financial ResultsOFS Capital Corporation (NASDAQ:OFS) ("OFS Capital," the "Company," "we," "us," or "our") today announced its financial results for the quarter ended June 30, 2019. FINANCIAL HIGHLIGHTS
"Our net investment income again exceeded our distribution," said Bilal Rashid, OFS Capital's Chairman and Chief Executive Officer. "We are pleased to declare our 27th consecutive quarterly distribution of $0.34 per share since our IPO in late 2012. Since then, we have declared over $9 per share of distributions, including a special dividend of $0.37 per share. We believe that our senior loan facility will further improve our return on equity while improving the overall risk profile of our portfolio. We believe that our advisor's $2.2 billion platform has the breadth and skills to invest across the corporate loan market, and has been investing in such types of loans since its inception in 1994."
HIGHLIGHTS
PORTFOLIO AND INVESTMENT ACTIVITIES During the second quarter of 2019, OFS Capital closed $40.8 million of senior secured debt investments in 22 new portfolio companies. In addition, we made $18.4 million of new senior secured debt investments in existing portfolio companies and one $5.6 million investment in a new structured finance note. The total fair value of OFS Capital's investment portfolio was $484.7 million at June 30, 2019, which was equal to approximately 96% of amortized cost. As of June 30, 2019, the fair value of OFS Capital's debt investment portfolio totaled $424.9 million in 64 portfolio companies, of which 89% and 11% were senior secured loans and subordinated loans, respectively. As of June 30, 2019, we also held approximately $38.7 million in equity investments, at fair value, in 15 portfolio companies in which we also held debt investments, as well as five portfolio companies in which we solely held an equity investment. As of June 30, 2019, our investment portfolio also included three investments in structured finance notes with a fair value of $21.1 million. We had unfunded commitments of $4.1 million to three portfolio companies at June 30, 2019. As of June 30, 2019, floating rate loans as a percentage of fair value comprised 89% of OFS Capital's debt investment portfolio, with the remaining 11% in fixed rate loans. RESULTS OF OPERATIONS Income Investment Income Interest income increased by $3.0 million for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, due to a $3.1 million increase caused by an approximately $100 million increase in the average outstanding performing loan balance offset, in part, by a $0.1 million decrease resulting from a 8 basis point decrease in the recurring earned yield on our portfolio. Fee income decreased $0.2 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to a decrease in syndication fees resulting from a $24 million decrease 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 June 30, 2019 increased $1.5 million over the corresponding period in the prior year primarily due to the issuance of $98.5 million in unsecured notes issued during April and October 2018. Management fee Management fee expense for the three months ended June 30, 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 deployment of the $98.5 million from the issuance of unsecured notes during April and October 2018. Incentive fee Incentive fee expense increased by $0.1 million for the three months ended June 30, 2019 compared to the three months ended June 30, 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 June 30, 2019 increased $0.1 million over the corresponding period in the prior year primarily due to an increase in our allocable portion of OFS Services's overhead. Net Gain (Loss) on Investments We recognized net losses of $3.3 million on senior secured debt during the three months ended June 30, 2019, primarily as a result of the unrealized depreciation of $2.5 million on Constellis Holdings, LLC. We recognized net gains of $0.1 million on subordinated debt during the three months ended June 30, 2019, primarily as a result of net positive impact of portfolio company-specific performance factors. We recognized net gains of $0.1 million on preferred equity investments for the three months ended June 30, 2019, primarily as a result of net positive impact of portfolio company-specific performance factors. We recognized net gains of $1.7 million on common equity and warrant investments for the three months ended June 30, 2019, primarily as a result of unrealized appreciation of $0.7 million and $0.6 million on our investments in Professional Pipe Holdings, LLC and MTE Holding Corp, respectively. We recognized net losses of $0.2 million on Structured Finance Notes for the three months ended June 30, 2019, primarily as a result of unrealized depreciation due to net negative impact of mark-to-market adjustments in the second quarter. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2019, we had $9.4 million in cash, which includes cash of $6.0 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 June 30, 2019, we had $42.6 million available for additional borrowings under our senior secured revolving credit facility with Pacific Western Bank, and had drawn all of our available SBA-guaranteed debentures. RECENT DEVELOPMENTS Formation of Senior Loan Subsidiary On June 20, 2019, OFSCC-FS, LLC, an indirect wholly owned subsidiary of OFS Capital ("OFSCC-FS"), entered into a revolving credit and security agreement with BNP Paribas, which provides for borrowings in an aggregate principal amount up to $150 million. We believe the BNP Facility will enable us to use the flexibility and incremental leverage permitted under the Small Business Credit Availability Act. Borrowings under the BNP Facility will bear interest based on an annual adjusted LIBOR rate for the relevant interest period, plus an applicable spread. The BNP Facility will mature on the earlier of June 20, 2024 or upon certain other events defined in the credit agreement which result in accelerated maturity. On June 11, 2019, OFS Capital Management, LLC, the Company's investment adviser ("OFS Advisor"), agreed to waive a portion of its base management fee by reducing the portion of such fee from 0.4375% per quarter (1.75% annualized) to 0.25% per quarter (1.00% annualized) of the average value of the portion of the total assets held by us through OFSCC-FS (the "OFSCC-FS Assets"), at the end of the two most recently completed calendar quarters to the extent that such portion of the OFSCC-FS Assets are financed using leverage (also calculated on an average basis) that causes our statutory asset coverage ratio to fall below 200%. When calculating our statutory asset coverage ratio, we exclude our SBA guaranteed debentures from its total outstanding senior securities as permitted pursuant to exemptive relief issued by the Securities and Exchange Commission dated November 26, 2013. The waiver will be renewable on an annual basis and the amount of the base management fee waived with respect to the OFSCC-FS Assets shall not be subject to recoupment by OFS Advisor. CONFERENCE CALL OFS Capital will host a conference call to discuss these results on Friday, August 2, 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 August 12, 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 #10133682. 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 second quarter ended June 30, 2019, which we expect to file with the Securities and Exchange Commission later today.
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; management's belief that the BNP Facility will improve the Company's return on equity and the overall risk profile of its portfolio when there can be no assurance that such impact will occur; the belief that the breadth and skill set of OFS Advisor's platform positions the Company to capitalize on investments across the corporate loan market; 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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190802005073/en/ |