OFS Capital Corporation Announces Second Quarter 2023 Financial Results

Third Quarter Distribution Increased to $0.34 Per Share

OFS Capital Corporation (NASDAQ: OFS) (“OFS Capital,” the “Company,” “we,” “us,” or “our”) today announced its financial results for the fiscal quarter ended June 30, 2023.

SECOND QUARTER FINANCIAL HIGHLIGHTS

• Net investment income of $0.38 per common share for the quarter ended June 30, 2023, an increase from $0.37 per common share for the quarter ended March 31, 2023.
• Net loss on investments of $0.53 per common share; no new non-accrual loans during the quarter.
• Net asset value (“NAV”) per common share of $12.94, as of June 30, 2023.
• As of June 30, 2023, based on fair value, 95% of our loan portfolio consisted of floating rate loans and approximately 99% of our loan portfolio consisted of senior secured loans.
• For the quarter ended June 30, 2023, the investment portfolio’s weighted-average performing income yield increased to 13.8% from 13.0% during the prior quarter.
• On June 30, 2023, we paid a quarterly distribution of $0.33 per common share, and, on August 1, 2023, our Board of Directors declared a distribution of $0.34 per common share for the third quarter of 2023, a 3.0% increase compared to the prior quarter distribution, payable on September 29, 2023 to stockholders of record as of September 22, 2023.

“We are pleased to announce a distribution increase for the third quarter of 2023,” said Bilal Rashid, OFS Capital’s Chairman and Chief Executive Officer. “Today we reported another increase in our quarterly net investment income, which rose to $0.38 per common share, and was the third consecutive increase in our quarterly net investment income. We believe our balance sheet is well positioned in the current interest rate environment with the vast majority of our loan portfolio being floating rate and the majority of our debt being fixed-rate. At the end of the second quarter, approximately 86% of our outstanding debt matures in 2026 or later, and more than half of our outstanding debt is unsecured.”

The weighted-average yield of our investments is not the same as a return on investment for our stockholders, but rather relates to our investment portfolio and is calculated before the payment of all of our fees and expenses.

As of June 30, 2023, based on fair value, our investment portfolio was comprised of the following:

• Total investments of $494.6 million, which was equal to approximately 106% of amortized cost;
• Debt investments of $313.0 million in 44 portfolio companies;
• Equity investments of $99.6 million in 16 portfolio companies;
• Structured finance securities of $81.9 million in 23 investments; and
• Unfunded commitments of $15.8 million to 10 portfolio companies.

During the quarter ended June 30, 2023, no new loans were placed on non-accrual status.

RESULTS OF OPERATIONS

Investment Income

For the quarter ended June 30, 2023, total investment income increased to $14.5 million from $14.3 million in the prior quarter, primarily due to an increase in total interest income of $0.7 million. The increase in interest income was primarily due to an increase in our portfolio’s weighted-average performing income yield to 13.8% for the quarter ended June 30, 2023 from 13.0% in the prior quarter.

Expenses

For the quarter ended June 30, 2023, total expenses increased by $0.1 million to $9.4 million compared to the prior quarter, primarily due to an increase in interest expense stemming from increasing interest rates on our variable rate revolving credit facility with BNP Paribas.

Net Gain (Loss) on Investments

For the quarter ended June 30, 2023, we recognized a net loss on investments of $7.1 million, primarily due to unrealized depreciation of $4.3 million and $2.7 million on our structured finance securities and equity securities, respectively. For the quarter ended June 30, 2023, our loan portfolio experienced net gains of $1.0 million.

During the quarter ended June 30, 2023, we wrote-off a non-accrual loan and equity investment resulting in a loss of $0.4 million, net of the reversal of previously recognized unrealized depreciation, and a gross realized loss of $10.5 million on our invested capital.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2023, we had $6.8 million in cash, which includes $1.4 million held by our wholly owned small business investment company, OFS SBIC I, LP (“SBIC I LP”), and $3.5 million held by 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/or contractual conditions, including limitations on the amount of cash SBIC I LP and OFSCC-FS can distribute to us.

As of June 30, 2023, we had an unused commitment of $24.5 million under our senior secured revolving credit facility with Pacific Western Bank, as well as an unused commitment of $48.9 million under our revolving credit facility with BNP Paribas, both of which are subject to borrowing base requirements and other covenants. As of June 30, 2023, we had outstanding commitments to fund investments totaling $15.8 million under various undrawn revolvers and other credit facilities.

CONFERENCE CALL

OFS Capital will host a conference call to discuss these results on Friday, August 4, 2023, 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 (844) 763-8274 (Domestic) or (412) 717-9224 (International) approximately 15 minutes prior to the call. A telephone replay of the conference call will be available through August 18, 2023 and may be accessed by calling (877) 344-7529 (Domestic) or (412) 317-0088 (International) and utilizing conference ID #1478311.

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, 2023.

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 million to $20 million in companies with annual EBITDA between $5 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⁽⁴⁾, 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 Company’s balance sheet is well positioned in the current interest rate environment due to a high percentage of floating rate loans in the portfolio and a majority of liabilities that have a fixed rate of interest, when there can be no assurance that such a composition will lead to future success; 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, 2022 filed with the Securities and Exchange Commission under the section “Risk Factors,” and in “Part II, Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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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