UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): May 8, 2015

 

OFS Capital Corporation

(Exact name of Registrant as specified in its charter)

 

Delaware 814-00813 46-1339639
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(I.R.S. Employer
Identification No.)

 

10 S. Wacker Drive, Suite 2500

Chicago, Illinois

60606
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (847) 734-2000

 

Not applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

    

  Item 2.02 Results of Operations and Financial Condition

 

On May 8, 2015, OFS Capital Corporation issued a press release announcing its financial results for the quarter ended March 31, 2015. On May 4, 2015, the Company’s board of directors declared a 2015 second quarter distribution of $0.34 per share, payable June 30, 2015 to shareholders of record as of June 16, 2015. The text of the press release is included as Exhibit 99.1 to this Form 8-K.

 

The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Exchange Act of 1933, except as expressly set forth by specific reference in such filing.

 

  Item 9.01. Financial Statements and Exhibits.

 

  (a) Not applicable.

 

  (b) Not applicable.

 

  (c) Not applicable.

 

  (d) Exhibits.

 

Exhibit
No.
  Description
   
99.1   Press Release, dated May 8, 2015

 

 
 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  OFS Capital Corporation
     
Date: May 8, 2015 By: /s/ Bilal Rashid
    Chief Executive Officer

 

 

 

Exhibit 99.1

 

OFSThreeTrees (2) OFS CAPITAL CORPORATION

 

 

OFS CAPITAL CORPORATION ANNOUNCES FIRST QUARTER 2015 FINANCIAL RESULTS

Declares a $0.34 Per Share Distribution

 

Average Yield of Portfolio Increased by 68 Basis Points in Q1 of 2015

 

Chicago, IL—May 8, 2015—OFS Capital Corporation (NASDAQ: OFS) (“OFS Capital”, “we”, “us”, or “our”) today announced its financial results for the fiscal quarter ended March 31, 2015.

 

 

RECENT CORPORATE DEVELOPMENTS:

 

·During the first quarter of 2015, net investment income was $2.7 million, or $0.28 per share, and adjusted net investment income (a non-GAAP measure described below) was $2.8 million, or $0.29 per share.
·During the first quarter of 2015, OFS Capital increased its weighted average yield on debt investments (at fair value) by 68 basis points, to 10.24%, from 9.56% at December 31, 2014.
·OFS Capital’s small business investment company fund, OFS SBIC I, LP (“SBIC I LP”) debt investments were $189.5 million (at fair value) as of March 31, 2015, accounting for 64% of OFS Capital’s total loan portfolio, with an average weighted yield of 12.13%.
·During the first quarter of 2015, OFS Capital closed investments in five portfolio companies totaling approximately $24.8 million.
·On May 4, 2015, OFS Capital’s Board of Directors declared a distribution of $0.34 per share for the second quarter of 2015, payable on June 30, 2015 to shareholders of record as of June 16, 2015.

  

“This quarter, we reached another important milestone by increasing the average yield on our portfolio to more than 10%,” said Bilal Rashid, Chairman and Chief Executive Officer of OFS Capital. “As part of our continued focus on growing our earnings, we are optimizing our portfolio as well as our capital structure, and we continue to position ourselves to meet the growing demand for loans from middle market companies.”

 

HIGHLIGHTS

($ in millions, except for per share data)

 

Portfolio Overview As of March 31, 2015
Total assets $347.3
Investment portfolio, at fair value $316.2
Net assets $137.6
Net asset value per share $14.24
Weighted average yield on debt investments (at fair value) 10.24%

 

 
 

 

Operating Results Quarter ended March 31, 
2015 2014
Total investment income $7.6 $5.0
Net investment income $2.7 $1.4
Net investment income per common share, basic and diluted $0.28 $0.15
Adjusted net investment income (a Non-GAAP measure described below) $2.8 $1.4
Adjusted net investment income (a Non-GAAP measure described below) per share, basic and diluted $0.29 $0.15
Net increase in net assets resulting from operations $3.2 $2.1

 

Portfolio Activity Quarter ended March 31, 
2015 2014
Number of new portfolio companies 3 1
Investments in new portfolio companies $18.0 $3.0
Number of follow-on investments 2 1
Investments in existing portfolio companies $6.8 $0.8
Number of portfolio companies at end of period 60 56

 

PORTFOLIO AND INVESTMENT ACTIVITIES

 

During the first quarter of 2015, OFS Capital closed investments in five portfolio companies totaling approximately $24.8 million, consisting of $18.0 million of investments in three new portfolio companies and $6.8 million of follow-on investments in two portfolio companies. Specifically, SBIC I LP made two new debt investments consisting of $6.0 million of a senior secured debt investment and $10.0 million of a subordinated debt investment, as well as $6.8 million of follow-on debt investments during the first quarter of 2015. In addition, OFS Capital made a new equity investment of $2.0 million during the first quarter of 2015.

 

The total fair value of OFS Capital’s investment portfolio was $316.2 million as of March 31, 2015, which was equal to 99.7% of cost. The portfolio included outstanding loans of approximately $302.4 million in aggregate principal amount (with an aggregate fair value of $294.9 million) in 58 portfolio companies. Of this $302.4 million, SBIC I LP held debt investments of approximately $191.8 million in aggregate principal amount ($189.5 million fair value) in 25 portfolio companies. SBIC I LP also held equity securities with an aggregate fair value of $19.3 million. Of this $19.3 million, $18.4 million was invested in 15 portfolio companies in which SBIC I LP also held debt investments and $0.9 million was invested in one portfolio company in which SBIC I LP solely held an equity investment. In addition, OFS Capital held an equity investment of $2.0 million.

 

As of March 31, 2015, floating rate loans comprised 70% of OFS Capital’s debt investment portfolio, with the remaining 30% in fixed rate loans, as a percentage of fair value. As of March 31, 2015, 73% of OFS Capital’s investment portfolio at fair value was comprised of senior secured loans, 20% of subordinated loans, and 7% of equity investments. The weighted average yield on debt investments was 10.24% at March 31, 2015. OFS Capital had unfunded commitments of $7.6 million in six portfolio companies at quarter’s end.

 

RESULTS OF OPERATIONS

 

Investment income

 

Total investment income increased by approximately $2.6 million, or 52%, for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. The $2.6 million increase in total investment income was due to an increase in interest income, and dividend and fee income. The increase in interest income was primarily attributable to an increase in debt investments originated by SBIC I LP (“SBIC I LP Investments”) during the three months ended March 31, 2015, which typically have a higher yield than the debt investments held by OFS Capital WM, LLC (“OFS Capital WM”), our wholly-owned subsidiary (“OFS Capital WM Investments”). The increase in dividend and fee income was primarily attributable to our recognition of dividend income contractually earned but not declared on certain of our preferred equity investments primarily held by SBIC I LP during the three months ended March 31, 2015, as well as fee income recognized by SBIC I LP in connection with certain of its debt investments. The increase in total investment income from SBIC I LP Investments was offset by a decrease in interest income from OFS Capital WM Investments due to a decrease in OFS Capital WM Investments since the quarter ended March 31, 2014.

 

 
 

  

Interest Income:

 

For the three months ended March 31, 2015, we generated total interest income from non-control/non-affiliate investments in the amount of approximately $5.8 million, of which approximately $3.9 million was generated by SBIC I LP Investments and $1.9 million by OFS Capital WM Investments. For the three months ended March 31, 2014, interest income from non-control/non-affiliate investments was approximately $3.8 million, of which approximately $0.5 million was generated by SBIC I LP Investments and $3.3 million by OFS Capital WM Investments. The increase in interest income from non-control/non-affiliate investments generated by SBIC I LP Investments of approximately $3.4 million was attributable to an increase in debt investments originated by SBIC I LP since the quarter ended March 31, 2014. The decrease in interest income from non-control/non-affiliate investments generated by OFS Capital WM Investments of approximately $1.4 million was primarily due to the decrease in OFS Capital WM Investments since the quarter ended March 31, 2014.

 

SBIC I LP holds all of our affiliate investments. For the three months ended March 31, 2015 and 2014, SBIC I LP generated total interest income from affiliate investments in the amount of approximately $1.3 million and $0.8 million, respectively. The increase in total interest income from affiliate investments of approximately $0.5 million was primarily due to an increase in debt investments originated by SBIC I LP since the quarter ended March 31, 2014. 

 

SBIC I LP held our only control investment in Tangible Software, Inc. (“Tangible”) until December 17, 2014, when the Tangible investment was restructured. The post-restructured debt investment was categorized as an affiliate investment. For the three months ended March 31, 2014, SBIC I LP generated total interest income from control investment in the amount of approximately $0.3 million.

 

Dividend and Fee Income:

 

During the three months ended March 31, 2015 and 2014, SBIC I LP generated dividend and fee income of approximately $0.5 million and $0.1 million, respectively. The increase of approximately $0.4 million was primarily due to our recognition of approximately $0.3 million in dividend income contractually earned but not declared on certain of our preferred equity investments primarily held by SBIC I LP during the three months ended March 31, 2015, as well as fee income of approximately $0.1 million recognized by SBIC I LP in connection with certain of its debt investments.

 

Total expenses

 

Total expenses increased by approximately $1.3 million, or 35%, for the three months ended March 31, 2015, as compared to the three months ended March 31, 2014.

 

Interest expense increased by approximately $0.2 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014, due to an increase of approximately $0.5 million in interest expense incurred on our Small Business Administration (“SBA”) debentures, which increased substantially at March 31, 2015 compared with the debenture balance at March 31, 2014, offset by a 2015 decrease of approximately $0.3 million in interest expense on OFS Capital WM’s credit facility (“OFS Capital WM Credit Facility”), primarily due to lower borrowings on the facility in 2015.

 

 
 

  

Amortization and write-off of deferred financing closing costs increased by approximately $0.4 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014, primarily due to a write-off of deferred financing closing costs in the amount of approximately $0.4 million in connection with our March 2015 permanent reduction of the OFS Capital WM Credit Facility from $100.0 million to $75.0 million.

 

Management fee expense totaled approximately $1.6 million for the three months ended March 31, 2015, consisting of approximately $1.5 million of base management fee expense we incurred to OFS Advisor and approximately $0.1 million of loan management fee charged by MCF Capital Management, LLC (“MCF Capital”), the loan manager for OFS Capital WM. Management fee expense totaled approximately $1.3 million for the three months ended March 31, 2014, consisting of approximately $1.1 million of base management fee expense we incurred to OFS Advisor and approximately $0.2 million of loan management fee charged by MCF Capital. The base management fee to OFS Advisor increased by approximately $0.4 million primarily due to an increase in our average total assets at March 31, 2015 and December 31, 2014 (“2015 Management Fee Base”), as compared to our average total assets at March 31, 2014 and December 31, 2013 (“2014 Management Fee Base”). The increase in the 2015 Management Fee Base as compared to the 2014 Management Fee Base was largely attributable to the higher SBIC I LP Investments balance at March 31, 2015 as compared to March 31, 2014. The loan management fee charged by MCF Capital decreased by $0.1 million due to a decrease in OFS Capital WM Investments in 2015 as compared with 2014.

 

For the three months ended March 31, 2015 we incurred an incentive fee expense to OFS Advisor in the amount of approximately $0.4 million. We did not incur an incentive fee expense for the three months ended March 31, 2014.

 

Net realized and unrealized gain on investments

 

For the three months ended March 31, 2015, we recorded total net realized and unrealized gain on investments in the amount of approximately $0.5 million, consisting of approximately $0.1 million of net realized gain on sale of three of our debt investments, $0.4 million of net unrealized depreciation on non-control/non-affiliate investments, and $0.8 million of net unrealized appreciation on affiliate investments.

 

For the three months ended March 31, 2014, we recorded total net realized and unrealized gain on investments in the amount of approximately $0.7 million, consisting of approximately $0.9 million of net unrealized appreciation on non-control/non-affiliate investments, $0.5 million of net unrealized appreciation on affiliate investments, and $0.8 million of unrealized depreciation on control investment (Tangible).

  

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2015 and December 31, 2014, we had cash and cash equivalents of $21.3 million and $12.4 million, respectively. During the three months ended March 31, 2015, we had net cash provided by operating activities of $7.0 million, primarily due to $11.0 million of cash we received from principal payments on our portfolio investments, cash collections of $18.3 million from sale of our portfolio investments, including $7.2 million of cash collection from an investment we sold in December 2014, as well as our $3.2 million net increase in net assets resulting from operations. These cash receipts were offset by $24.6 million of cash we used to purchase portfolio investments.

 

Net cash provided by financing activities was $1.8 million for the three months ended March 31, 2015, primarily attributable to $13.3 million of draws from our SBA debentures (net of the fees), offset by the $8.3 million of net repayments on the OFS Capital WM Credit Facility, and $3.1 million of cash we paid in dividends and distributions.

 

As of March 31, 2015, OFS Capital WM had $64.3 million in debt outstanding on its $75.0 million revolving credit facility, and $8.2 million remaining in borrowing availability. As of the same date, SBIC I LP had leverage commitments of $149.9 million from the SBA, and $140.9 million of outstanding SBA-guaranteed debentures, leaving incremental borrowing capacity of $9.0 million under present SBIC regulations.

 

 
 

  

Our primary uses of funds are investments in debt and equity investments, interest payments on indebtedness, payment of other expenses, and cash distributions to our shareholders.

 

For the three months ended March 31, 2015, we made distributions of approximately $3.3 million, of which approximately 21% represented a return of capital and 79% represented ordinary income.

 

CONFERENCE CALL

 

OFS Capital will host a conference call to discuss these results on Friday, May 8, 2015 at 11:00 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 the Company’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 18, 2015 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 # 10065012.

 

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 quarter ended March 31, 2015, which is to be filed with the Securities and Exchange Commission.

 

 
 

 

         
OFS Capital Corporation and Subsidiaries
         
Consolidated Balance Sheets (unaudited)
(Dollar amounts in thousands, except per share data)    
   March 31,   December 31, 
   2015   2014 
Assets          
Investments, at fair value          
Non-control/non-affiliate investments (cost of $258,984 and $258,004, respectively)  $255,295   $254,666 
Affiliate investments (cost of $58,147 and $55,569, respectively)   60,889    57,568 
Total investments at fair value   316,184    312,234 
Cash and cash equivalents   21,297    12,447 
Interest receivable   1,230    676 
Receivable from investment sold   -    7,223 
Prepaid expenses and other assets   525    556 
Intangible asset, net of accumulated amortization of $258 and $209, respectively   2,242    2,291 
Goodwill   1,077    1,077 
Deferred financing closing costs, net of accumulated amortization of $2,658 and $2,540, respectively   4,754    4,972 
Total assets  $347,309   $341,476 
           
Liabilities          
Accrued professional fees  $434   $462 
Interest payable   742    1,315 
Management and incentive fees payable   2,049    1,229 
Administration fee payable   541    273 
Other payables   241    247 
Deferred loan fee revenue   504    572 
SBA debentures payable   140,880    127,295 
Revolving line of credit   64,348    72,612 
Total liabilities   209,739    204,005 
           
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 March 31, 2015 and December 31, 2014   -    - 
Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 9,662,940 and  9,650,834          
shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively   97    97 
Paid-in capital in excess of par   143,529    143,381 
Distributions in excess of net investment income   (8,286)   (7,844)
Accumulated net realized loss   (844)   (844)
Net unrealized appreciation on investments   3,074    2,681 
Total net assets   137,570    137,471 
           
Total liabilities and net assets  $347,309   $341,476 
           
Number of shares outstanding   9,662,940    9,650,834 
Net asset value per share  $14.24   $14.24 

 

 
 

 

OFS Capital Corporation and Subsidiaries
         
Consolidated Statements of Operations (unaudited)
(Dollar amounts in thousands, except share and per share data)
         
   Three Months Ended March 31, 
   2015   2014 
         
Investment income          
Interest income          
Non-control/non-affiliate investments  $5,815   $3,786 
Affiliate investments   1,343    827 
Control investment   -    302 
Total interest income   7,158    4,915 
Dividend and fee income          
Non-control/non-affiliate investments   185    8 
Affiliate investments   278    64 
Control investment   -    25 
Total dividend and fee income   463    97 
           
Total investment income   7,621    5,012 
           
Expenses          
Interest expense   1,230    991 
Amortization of deferred financing closing costs   117    150 
Write-off of deferred financing closing costs   430    - 
Amortization of intangible asset   49    63 
Management fees   1,555    1,264 
Incentive fee   375    - 
Professional fees   315    454 
Administration fee   541    475 
General and administrative expenses   260    215 
           
Total expenses   4,872    3,612 
           
Net investment income   2,749    1,400 
           
Net realized and unrealized gain (loss) on investments          
Net realized gain on non-control/non-affiliate investments   90    - 
Net change in unrealized appreciation/depreciation on          
non-control/non-affiliate investments   (353)   926 
Net change in unrealized appreciation/depreciation on affiliate investments   746    519 
Net change in unrealized depreciation on control investment   -    (794)
           
Net realized and unrealized gain on investments   483    651 
           
Net increase in net assets resulting from operations  $3,232   $2,051 
           
Net investment income per common share - basic and diluted  $0.28   $0.15 
Net increase in net assets resulting from operations          
per common share - basic and diluted  $0.33   $0.21 
Dividends and distributions declared per common share  $0.34   $0.34 
Basic and diluted weighted average shares outstanding   9,650,969    9,631,155 

 

 
 

  

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 financing closing costs associated with our permanent reductions of the OFS Capital WM Credit Facility, and (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. 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 March 31, 
   2015   2014 
   (Dollar amounts in thousands, except per share data) 
         
Net investment income  $2,749   $1,400 
           
Write-off of deferred financing closing costs   430    - 
Incentive fee   (336)   - 
Write-off of deferred financing closing costs, net   94    - 
           
Adjusted net investment income  $2,843   $1,400 
           
Adjusted net investment income per common share:          
Basic and diluted  $0.29   $0.15 
           
Weighted average shares outstanding:          
Basic and diluted   9,650,969    9,631,155 

 

Adjusted NII may not be comparable to similar measures presented by other companies, as it is a non-GAAP financial measure that is not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, Adjusted NII should be considered in addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

 

 
 

 

ABOUT OFS CAPITAL

 

OFS Capital 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 shareholders 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 minority 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 made in this press release may contain forward-looking statements that involve substantial risks and uncertainties, some of which are beyond the control of OFS Capital’s management, and are difficult to predict.  Such forward-looking statements are not historical facts but, rather, reflect assumptions, estimates, and projections by OFS Capital concerning anticipated results and provide no guarantee of future performance.  All forward-looking statements speak only as of the date of this press release, and OFS Capital undertakes no duty to update any forward-looking statements herein made.

 

 

 

INVESTOR RELATIONS CONTACT:

Steve Altebrando

646-783-8473

saltebrando@ofsmanagement.com