Q2 2024 OFS Capital Corp Earnings Call

And income for the quarter decreased from 42 per share in the first quarter to 26 per share this quarter.

Speaker Change: As you recall, the net investment income from last quarter reflected certain nonrecurring items.

Speaker Change: Including significant nonrecurring dividends from two of our equity investments.

Speaker Change: This quarter's net investment income primarily reflects the impact of our de Levered balance sheet, which Jeff will discuss in more detail.

Jeff: That being said we are focused on increasing our net investment income.

Jeff: Primarily by converting certain non interest earning equity positions into.

Jeff: To interest, earning assets as we mentioned on our last call.

Jeff: In that regard we are continuing to explore alternatives for our minority equity investment in <unk>.

Jeff: Our largest equity position.

Speaker Change: The fair value of the position rebounded this quarter appreciating by $7 $8 million to $70 8 million at quarter end.

Speaker Change: The improvement in value is in part attributed to an upswing in fundamental performance following a recent drop.

Speaker Change: As a reminder, this is a position we invested in more than 10 years ago at a modest cost of only $200000.

Speaker Change: To date, we have received approximately $3 $4 million in.

Speaker Change: <unk> power.

Speaker Change: Our approximately 16 times our cost.

Speaker Change: Turning to our portfolio, we believe it is well positioned for the current macroeconomic environment.

Speaker Change: As part of our long standing investment discipline.

Speaker Change: We remain committed to avoiding highly cyclical industries.

Speaker Change: We believe that our loan portfolio remains well diversified and defensively positioned.

Speaker Change: At quarter end, our largest sector exposures at fair value.

Speaker Change: In manufacturing.

Speaker Change: Healthcare wholesale trade and business services.

Speaker Change: Another key part of our investment discipline is investing higher in the capital structure.

Speaker Change: With approximately 100% of our loan portfolio at fair value.

Speaker Change: And first lien and second lien senior secured loans.

Speaker Change: In terms of new originations.

Speaker Change: Mana activity remains subdued, though we anticipate an increase in activity later in the year as we get more clarity on interest rates.

Speaker Change: In the meantime, we remained active in supporting our existing portfolio companies.

Speaker Change: And our view on financing continues to benefit our company.

Speaker Change: At the end of the second quarter.

Speaker Change: 100% of our outstanding debt matures in 2026 on labor and.

Speaker Change: 72% of our outstanding debt is unsecured.

Speaker Change: Our non recourse $150 million.

Speaker Change: Senior loan facility with BNP Paribas matures in June 2027.

Speaker Change: Our corporate line of credit is flexible with no mark to market provisions.

Speaker Change: As we have discussed before we locked in $180 million of fixed rate unsecured debt in 2021 bearing a weighted average coupon of four 8%.

Speaker Change: It is notably lower than current market pricing.

Speaker Change: As we navigate this market environment.

Speaker Change: We have confidence in the experience of our adviser.

Speaker Change: Which manages approximately $4 billion across the known in structured credit markets.

Speaker Change: His expertise in multiple asset classes and industries and has a more than 25 year track record through multiple credit cycles.

Speaker Change: At this point.

Speaker Change: I'll turn the call over to Jeff Cerny, our Chief Financial Officer.

Jeff Cerny: To give you more details and color for the quarter.

Jeff Cerny: Thanks, Paul Good morning, everyone.

Jeff Cerny: As Bilal mentioned, we posted net investment income of 26 per share for the second quarter, which was down from the first quarter, primarily due to two factors first we received certain nonrecurring dividends in the first quarter from a couple of equity investments and second we continued to delever, our balance sheet, resulting in a smaller asset base.

Speaker Change: Our GAAP leverage ratio has decreased from 187 times at December 31 to 162 times at June 30.

Jeff Cerny: Our current distribution rate represents a 15, 3% annualized yield based on the price of our common stock at quarter end.

Jeff Cerny: We also announced that our quarterly distribution will remain at 34 per share for the third quarter.

Jeff Cerny: We are keenly focused on improving net investment income and once again exceeding our distribution rate.

Jeff Cerny: As Bilal discussed we are actively exploring alternatives to monetize some noninterest bearing investments specifically our minority equity stake in fan steel to increase our net investment income.

Bilal: Our net asset value per share increased by approximately 43 this quarter.

Bilal: This increase was primarily due to unrealized depreciation in certain segments of our investment portfolio.

Bilal: Most notably our minority equity position in France steel holdings in certain CLO equity positions.

Bilal: We had no new non accruals this quarter and we believe the overall quality of the portfolio remains stable for 6% of our total investments at fair value were on nonaccrual status at quarter's end.

Bilal: Turning to the income statement total investment income was down approximately $3 $1 million to $11 $2 million this quarter.

Bilal: This was largely due to the factors I previously mentioned, including the nonrecurring dividends of approximately $2 4 million received in the first quarter as well as the smaller asset base driven by repayments as we de Levered the balance sheet.

Bilal: Our regulatory asset coverage ratio stands at a 162% at quarter end.

Bilal: Total expenses were down 10, 5% during this period to $7 $7 million, primarily due to a decrease in interest expense related to our lower average outstanding debt balances from Delevering activities I, just mentioned as well as the resulting lower base management and incentive fees.

Bilal: As I mentioned net investment income was 26 per share for the second quarter.

Bilal: In addition to our intentions to increase net investment income.

Bilal: We believe that our balance sheet positioning was beneficial this quarter given that 92% of our loan portfolio at fair value was floating rate, while approximately 72% of our outstanding debt is fixed rate.

Bilal: It is also worth noting that at quarter end.

Bilal: All of our outstanding debt matures in 2026, or later and approximately 72% of our outstanding debt was unsecured.

Bilal: Turning to our investments we believe the overall performance of our portfolio companies remains relatively stable compared to last quarter. Despite this uncertain macroeconomic environment.

Bilal: We are committed to being senior in the capital structure and selective in our underwriting.

Bilal: We remain cautious about new originations and M&A activity remained slow.

Bilal: We continue to work with our portfolio companies as they identify add on opportunities for growth.

Bilal: As of June 30th.

Bilal: We had $8 $9 million in commitments under various credit facilities to fund investments to our portfolio companies.

Bilal: The majority of our investments are in loans at approximately 100% of our loan portfolio at fair value was senior secured as of June 30th.

Bilal: Based on amortized cost as of quarter end, our investment portfolio was comprised of approximately 69% senior secured loans, 1% subordinated debt, 23% structured finance securities and 7% equity Securities.

Bilal: At the end of the quarter, we had investments in 68 unique issuers totaling $398 $2 million on a fair value basis.

Bilal: The weighted average performing investment income yield on the interest bearing portion of the portfolio improved slightly to 13, 4%.

Bilal: Which is up about 4% quarter over quarter.

Bilal: This includes all interest prepayment fees and amortization of deferred loan fees with that I'll turn the call back over to Bilal.

Bilal: Thank you Jeff in closing, we believe our portfolio remains solid with no new non accruals in the quarter.

Bilal: We are focused on increasing net investment income in the coming quarters spin.

Bilal: Specifically.

Bilal: Pursuing the sale of certain non interest, earning equity positions and redeploying the proceeds into interest earning assets.

Bilal: Our focus remains on capital preservation.

Bilal: Approximately 100% of our loan portfolio at fair value being senior secured.

Bilal: And we remain confident in the overall quality and fundamentals of our portfolio.

Bilal: We have relied on our longstanding experience and investment discipline.

Bilal: We believe has served us well.

Bilal: Since the beginning of 2011.

Bilal: The BDC has invested more than $1 9 billion.

Bilal: With a cumulative net realized loss of just two 7% over the past 13 years.

Bilal: While generating attractive risk adjusted returns on our portfolio.

Bilal: We believe our business is especially equipped to navigate this market successfully due to the size experience and reputation of our adviser.

Bilal: <unk> 4 billion corporate credit platform affiliated with a $29 billion asset management group.

Bilal: Advisor has broad expertise, including long standing banking and capital markets relationships.

Bilal: Corporate credit platform has gone through multiple credit cycles over the last 25 plus years.

Bilal: Our advisor and affiliates are also strongly aligned with shareholders as they maintain an approximately 23% ownership in the company.

Speaker Change: With that operator, please open up the call for questions.

Speaker Change: At this time the conference has concluded thank you.

Speaker Change: You for attending today's presentation you may now disconnect.