Declares a $0.34 Per Share Distribution
Fourth Quarter Net Investment Income of $0.39 Per Share
CHICAGO--(BUSINESS WIRE)--
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, 2016.
FINANCIAL HIGHLIGHTS
-
Fourth quarter net investment income of $3.7 million, or $0.39 per
share—an increase of 13% from the third quarter and above the fourth
quarter $0.34 per share distribution.
-
Net investment income for the year ended December 31, 2016 was 107% of
the aggregate distribution during 2016 and quarterly net investment
income covered the distribution in each quarter.
-
Net asset value ("NAV") per share increased to $14.82 at December 31,
2016 from $14.67 per share at September 30, 2016 and there were no
cash non-accruals.
-
Two-thirds of our loan portfolio was floating rate and the weighted
average yield of our loan portfolio was 12.08% as of December 31, 2016.
-
100% of our debt is fixed rate with a weighted average cost of 3.60%
as of December 31, 2016; 94% of our debt matures in 2022 and beyond.
-
Closed investments totaled $28.1 million in the fourth quarter of 2016.
-
On March 9, 2017, OFS Capital's Board of Directors declared a
distribution of $0.34 per share for the first quarter of 2017, payable
on March 31, 2017 to shareholders of record as of March 17, 2017.
"Reflecting on 2016, we are pleased that our net investment income
continues to significantly exceed our distribution and our NAV remains
stable. Looking ahead, we believe we are well positioned for a potential
increase in interest rates. And, overall, we are proud of the total
return we have generated since our initial public offering in late 2012,
over which time, we have declared more than $5.50 per share to our
shareholders," said Bilal Rashid, OFS Capital's Chairman and Chief
Executive Officer. "We attribute our results to the strength of our
direct origination and underwriting platform, and our commitment to
strong, long-term performance and excellence is enhanced by the
alignment of interests of our stockholders and our external manager,
which owns more than 30% of the company."
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HIGHLIGHTS
($ in millions, except for per share data)
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Portfolio Overview
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At December 31, 2016
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Total assets
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$
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305.0
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Investment portfolio, at fair value
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$
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281.6
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Net assets
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$
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143.8
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Net asset value per share
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$
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14.82
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Weighted average yield (1) |
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12.08
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%
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(1) The weighted average yield on our debt 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.divided by (b) amortized cost excluding
assets on non-accrual basis as of the balance sheet date.
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Quarter Ended December 31,
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Year Ended December 31,
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Operating Results
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2016
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2015
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2016
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2015
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Total investment income
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$
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8.2
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$
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8.9
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$
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31.1
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$
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32.3
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Net investment income
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$
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3.7
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$
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4.3
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$
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14.1
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$
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13.4
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Net investment income per common share, basic and
diluted
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$
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0.39
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$
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0.44
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$
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1.46
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$
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1.39
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Adjusted net investment income (a Non-GAAP measure
described below)
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$
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3.7
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$
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4.4
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$
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14.0
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$
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14.3
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Adjusted net investment income (a Non-GAAP measure
described below) per share, basic and diluted
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$
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0.39
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$
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0.46
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$
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1.44
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$
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1.47
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Net increase in net assets resulting from operations
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$
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4.8
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$
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6.2
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$
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13.8
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$
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18.2
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Quarter Ended December 31,
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Year Ended December 31,
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Portfolio Activity
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2016
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2015
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2016
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2015
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Number of new portfolio companies
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3
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5
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8
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14
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Investments in new portfolio companies
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$
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26.1
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$
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42.4
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$
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49.4
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$
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78.7
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Investments in existing portfolio companies
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$
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2.0
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$
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—
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$
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18.8
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$
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45.3
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Number of portfolio companies at end of period
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41
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39
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41
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39
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PORTFOLIO AND INVESTMENT ACTIVITIES
During the fourth quarter of 2016, OFS Capital closed two new senior
secured debt investments in two portfolio companies totaling $13.0
million, one of which also included a new common equity investment of
$0.7 million, and also closed one new subordinated debt investment of
$12.4 million. In addition, OFS Capital made a $1.0 million senior
secured debt investment and a $1.0 million subordinated debt investment
in existing portfolio companies.
The total fair value of OFS Capital's investment portfolio was $281.6
million at December 31, 2016, which was equal to approximately 101% of
amortized cost. As of December 31, 2016, the fair value of OFS Capital's
debt investment portfolio totaled $244.4 million in 39 portfolio
companies, of which 74% and 26% were senior secured loans and
subordinated loans, respectively. As of December 31, 2016, we also held
approximately $37.3 million in equity investments, at fair value, in 17
portfolio companies in which we also held debt investments and two
portfolio company in which we solely held an equity investment. We had
unfunded commitments of $2.6 million to three portfolio companies at
December 31, 2016. As of December 31, 2016, floating rate loans
comprised 66% of OFS Capital's debt investment portfolio, with the
remaining 34% in fixed rate loans, as a percentage of fair value.
RESULTS OF OPERATIONS
Interest Income:
Interest income decreased $1.4 million primarily due to a $1.0 million
decrease in interest income and a $0.4 million decrease in accelerated
loan origination fees, original issue discount, market discount or
premium, and loan amendment fees (collectively, "Net Loan Fees"). The
$1.0 million decrease in interest income was primarily due to a $3.6
million decrease caused by a 13% decrease in the average outstanding
loan balance during 2016, offset by an increase of $2.6 million caused
by a 19 basis point increase in the weighted average yield in our
portfolio during the year ended December 31, 2016. The 13% decrease in
the weighted average principal balance of investments and increase in
our average portfolio yield was primarily a result of the WM Asset Sale,
in which we sold a portfolio of 20 senior secured debt investments with
an aggregate outstanding principal balance of $67.8 million to Madison
Capital Funding LLC on May 28, 2015. the proceeds of which had only been
partially reinvested in higher yielding assets subsequent to the WM
Asset Sale. Acceleration of Net Loan Fees of $0.6 million and $1.0
million were included in interest income for the year ended December 31,
2016 and 2015, respectively. Acceleration of Net Loan Fees occur and are
recognized on certain loans that are repaid prior to their scheduled due
date.
Dividend Income:
Preferred equity cash and PIK dividend income increased approximately
$0.3 million primarily as a result of additional preferred equity
securities purchased during 2015. Common equity dividend income
increased by $0.2 million primarily due to an additional common equity
security purchased during the fourth quarter of 2015.
Fee Income:
Fee income decreased $0.3 million primarily due to a decrease in
prepayment fees, capital structuring fees. We recorded prepayment fees
of $0.9 million resulting from $25.0 million of unscheduled principal
payments during the year ended December 31, 2016, compared to $1.1
million from $47.5 million of unscheduled principal payments during
2015. We recognized capital structuring fees of $0.4 million and $0.7
million for the years ended December 31, 2016 and 2015, respectively,
upon the closing of $37.3 million and $89.0 million of debt and equity
investments, respectively.
Expenses
Interest expense decreased by $1.7 million, primarily due to a
year-over-year decrease of $0.8 million in cash interest expense on our
secured revolving line of credit with Wells Fargo Bank, N.A. ("WM Credit
Facility") and a $1.6 million write-off of deferred debt issuance costs,
both related to our permanent reduction of the WM Credit Facility and
the termination of the WM Credit Facility on May 28, 2015, offset by an
increase of $0.7 million in cash interest expense incurred on our SBA
debentures. Interest expense on our SBA debentures increased due to an
increase in the weighted average interest rate and the weighted average
debentures outstanding during the year ended December 31, 2016, as a
result of additional debenture draws of $22.6 million during the nine
months ended September 30, 2015, which pooled on September 23, 2015.
Management fee expense decreased by $0.7 million, due to a decrease in
the average total assets subject to the base management fee.
Incentive fee expense increased by $0.7 million, due to a 11% increase
in pre-incentive fee net investment income compared to the prior year,
which resulted in a $0.8 million increase in the incentive fee catch-up
provision (the amount of pre-incentive fee income that exceeds the
hurdle rate but is less than 2.5%) and a $0.1 million increase in the
incentive fee due to the amount of pre-incentive fee income that
exceeded 2.5%, partially offset by a $0.1 million decrease in the
Capital Gains Fee, which represents the reversal of the accrued Capital
Gains Fee at December 31, 2015.
Administrative fee expense decreased by $0.3 million, primarily due to a
decrease in the allocable amount of incentives of our officers and their
respective staffs, which OFS Services passed along to us under our
administration agreement.
Net gain (loss) on investments
Net gain (loss) on investments consists of the sum of: (a) realized
gains and losses from the sale of debt or equity securities, or the
redemption of equity securities; and (b) changes in net unrealized
appreciation/depreciation on debt and equity investments. In the period
in which a realized gain or loss is recognized, such gain or loss will
generally be offset by the reversal of previously recognized unrealized
appreciation or depreciation, and the net gain recognized in that period
will generally be smaller. The unrealized appreciation or depreciation
on debt securities is also reversed when those investments are redeemed
or paid off prior to maturity. In such instances, the reversal on
unrealized appreciation or depreciation will be reported as a net loss
or gain, respectively, and may be partially offset by the acceleration
of any premium or discount on the debt security in interest income and
any prepayment fees on the debt security in fee income.
We changed the primary method used to value certain of our investments
as of December 31, 2016, from the income approach to the market approach
("Valuation Methodology Change"), primarily due to the nature of
evidence available under the discounted cash flow method, and to better
align with industry practice. The methodology change resulted in a
fourth quarter 2016 net increase to the carrying value of the
investments and corresponding net increase in unrealized
appreciation/depreciation on investments in the consolidated statement
of operations of $1.6 million.
We recognized net gains of $0.4 million on senior secured debt during
the year ended December 31, 2016, primarily as a result of the net
positive impact of market based transactions on our fair values, offset
by the net impact of portfolio company-specific performance factors, the
pay-off of certain senior secured debt investments, and $0.4 million as
a result of theValuation Methodology Change.
We recognized net losses of $2.4 million on subordinated debt during the
year ended December 31, 2016, principally due to the net impact of
portfolio company-specific performance factors and $0.5 million as a
result of the Valuation Methodology Change.
We recognized net losses of $2.6 million on preferred equity investments
for the year ended December 31, 2016, primarily due to the net impact of
portfolio company-specific performance factors offset by $2.1 million as
a result of the Valuation Methodology Change.
We recognized net gains of $4.2 million on common equity and warrant
investments for the year ended December 31, 2016, primarily due to the
net impact of portfolio company-specific performance factors and $0.4
million as a result of the Valuation Methodology Change. In addition, we
realized gains of $2.1 million from the redemption of an equity
investment. We held this investment from the first quarter of 2014 and
recognized unrealized gains of $2.1 million and $0.5 during the years
ended December 31, 2015 and 2014, respectively. The net impact of this
transaction was a recognized net loss of $0.5 during the year ended
December 31, 2016 due to the reversal of the accumulated unrealized
gains in excess of the recognized realized gain.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2016, we had $17.7 million in cash and cash equivalents
and $149.9 million in outstanding SBA-guaranteed debentures. As of
December 31, 2016, we had $15.5 million available for additional
borrowings on our senior secured revolving credit facility with Pacific
Western Bank and had drawn all of our available SBA-guaranteed
debentures.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results on
Wednesday, March 15, 2017, 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 March 25, 2017
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
#10102681.
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, 2016.
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OFS Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)
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December 31,
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2016
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2015
|
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Assets
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Investments, at fair value
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Non-control/non-affiliate investments (amortized cost of $178,279
and $175,529, respectively)
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$
|
173,219
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$
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177,290
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Affiliate investments (amortized cost of $76,306 and $63,113,
respectively)
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81,708
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66,393
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Control investments (amortized cost of $24,722 and $13,613,
respectively)
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|
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26,700
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|
13,613
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Total investments at fair value (amortized cost of $279,307 and
$252,255 respectively)
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281,627
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|
257,296
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Cash and cash equivalents
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17,659
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|
32,714
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Interest receivable
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|
|
1,770
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|
|
|
789
|
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Prepaid expenses and other assets
|
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|
|
3,974
|
|
|
|
3,877
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Total assets
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|
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$
|
305,030
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|
|
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$
|
294,676
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|
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Liabilities
|
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|
|
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|
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SBA debentures (net of deferred debt issuance costs of $3,037 and
$3,420, respectively)
|
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|
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$
|
146,843
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|
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$
|
146,460
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Revolving line of credit
|
|
|
|
9,500
|
|
|
|
—
|
|
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Interest payable
|
|
|
|
1,599
|
|
|
|
1,548
|
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Management and incentive fees payable
|
|
|
|
2,119
|
|
|
|
2,238
|
|
|
Administration fee payable
|
|
|
|
435
|
|
|
|
488
|
|
|
Accrued professional fees
|
|
|
|
477
|
|
|
|
433
|
|
|
Other liabilities
|
|
|
|
279
|
|
|
|
497
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|
Total liabilities
|
|
|
|
161,252
|
|
|
|
151,664
|
|
|
|
|
|
|
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Commitments and Contingencies
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Net Assets
|
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|
|
|
|
|
|
|
Preferred stock, par value of $0.01 per share, 2,000,000 shares
authorized, -0- shares issued and
outstanding as of December
31, 2016 and December 31, 2015, respectively
|
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|
$
|
—
|
|
|
|
$
|
—
|
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|
Common stock, par value of $0.01 per share, 100,000,000 shares
authorized, 9,700,297 and 9,691,170
shares issued and
outstanding as of December 31, 2016 and December 31, 2015,
respectively
|
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|
|
97
|
|
|
|
97
|
|
|
Paid-in capital in excess of par
|
|
|
|
134,300
|
|
|
|
134,446
|
|
|
Accumulated undistributed net investment income
|
|
|
|
6,731
|
|
|
|
4,612
|
|
|
Accumulated undistributed net realized gain (loss)
|
|
|
|
330
|
|
|
|
(1,184
|
)
|
|
Net unrealized appreciation on investments
|
|
|
|
2,320
|
|
|
|
5,041
|
|
|
Total net assets
|
|
|
|
143,778
|
|
|
|
143,012
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
|
|
$
|
305,030
|
|
|
|
$
|
294,676
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
|
9,700,297
|
|
|
|
9,691,170
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|
|
Net asset value per share
|
|
|
|
$
|
14.82
|
|
|
|
$
|
14.76
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
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|
OFS Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollar amounts in thousands, except per share data)
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|
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|
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|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
Year Ended December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
7,659
|
|
|
7,589
|
|
|
27,594
|
|
|
28,970
|
|
Dividend income
|
|
|
|
284
|
|
|
12
|
|
|
1,908
|
|
|
1,361
|
|
Fee income
|
|
|
|
266
|
|
|
1,272
|
|
|
1,592
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
|
8,209
|
|
|
8,873
|
|
|
31,094
|
|
|
32,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
1,366
|
|
|
1,313
|
|
|
5,302
|
|
|
5,313
|
|
Write-of of deferred debt issuance costs
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,646
|
|
Management fees
|
|
|
|
1,192
|
|
|
1,124
|
|
|
4,516
|
|
|
5,225
|
|
Incentive fee
|
|
|
|
926
|
|
|
1,113
|
|
|
3,333
|
|
|
2,627
|
|
Professional fees
|
|
|
|
323
|
|
|
257
|
|
|
1,200
|
|
|
1,114
|
|
Administration fee
|
|
|
|
295
|
|
|
489
|
|
|
1,304
|
|
|
1,637
|
|
General and administrative expenses
|
|
|
|
371
|
|
|
297
|
|
|
1,294
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
4,473
|
|
|
4,593
|
|
|
16,949
|
|
|
18,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
3,736
|
|
|
4,280
|
|
|
14,145
|
|
|
13,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on investments
|
|
|
|
1,087
|
|
|
1,896
|
|
|
(317
|
)
|
|
4,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
|
$
|
4,823
|
|
|
$
|
6,176
|
|
|
$
|
13,828
|
|
|
$
|
18,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per common share - basic and diluted
|
|
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
1.46
|
|
|
$
|
1.39
|
|
Net increase in net assets resulting from operations per common
share - basic and diluted
|
|
|
|
$
|
0.50
|
|
|
$
|
0.64
|
|
|
$
|
1.43
|
|
|
$
|
1.89
|
|
Dividends and distributions declared per common share
|
|
|
|
$
|
0.34
|
|
|
$
|
0.34
|
|
|
$
|
1.36
|
|
|
$
|
1.36
|
|
Basic and diluted weighted average shares outstanding
|
|
|
|
9,697,277
|
|
|
9,690,140
|
|
|
9,692,634
|
|
|
9,670,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measure - Adjusted Net
Investment Income ("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 a
basis of methodology other than in accordance with generally accepted
accounting principles of the United States of America ("non-GAAP").
Adjusted NII represents net investment income, (1) excluding write-offs
of deferred debt issuance costs associated with our permanent reductions
of the WM Credit Facility, (2) adding back the amount of net investment
income incentive fee expenses associated with the write-offs that we
would have incurred had the write-offs not occurred, and (3) excluding
the net capital gains incentive fee (fee adjustments) in periods in
which they occur. Our management agreement with OFS Advisor provides
that a capital gains incentive fee is determined and paid annually with
respect to realized capital gains (but not unrealized capital gains) to
the extent such realized capital gains exceed realized and unrealized
capital losses for such year. 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 gains
associated with the capital gains incentive fee. In addition, management
believes that providing Adjusted NII may facilitate a more complete
analysis and greater transparency into OFS Capital's ongoing operations,
particularly in comparing underlying results from period to period, and
afford investors a view of results that may be more easily compared to
those of other companies.
The following table provides a reconciliation from net investment income
(the most comparable GAAP measure) to Adjusted NII for the periods
presented:
|
|
|
Quarter Ended December 31,
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
3,736
|
|
|
$
|
4,280
|
|
|
$
|
14,145
|
|
|
$
|
13,411
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred financing closing costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,646
|
|
|
Incentive fee
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(945
|
)
|
|
Write-off of deferred financing closing costs, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital gains incentive fee
|
|
—
|
|
|
139
|
|
|
(139
|
)
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net investment income
|
|
$
|
3,736
|
|
|
$
|
4,419
|
|
|
$
|
14,006
|
|
|
$
|
14,251
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net investment income per common share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.39
|
|
|
$
|
0.46
|
|
|
$
|
1.44
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
9,697,277
|
|
|
9,690,140
|
|
|
9,700,297
|
|
|
9,670,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 to $20
million in companies with annual EBITDA between $3 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 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; OFS Capital's expectations regarding performance in a rising
interest 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,
2016 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: http://www.businesswire.com/news/home/20170315005658/en/
OFS Capital Corporation
INVESTOR RELATIONS:
Steve Altebrando,
646-652-8473
saltebrando@ofsmanagement.com
Source: OFS Capital Corporation
News Provided by Acquire Media