OFS Capital (OFS) 4 Nov 222022 Q3 Earnings call transcript

Good day, and welcome to the OFS Capital Corporation Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.

Now I'll turn the call over to Mr. Altebrando. Steve sir. ahead, go Please

the morning, everyone, on and joining Also Jeff you Executive Treasurer. Officer and call today thank Cerny, and the Capital; Chairman of for Chief are Financial Officer and us. OFS Good Company's Bilal Chief Rashid,

results we the quarter documents Relations obtained the filed note can our that this section announcing XX-Q. Investor website a be issued Please our at of release Form press morning third and of ofscapital.com. our Each under

and note to please of webcast statements defined Such such begin, concerning performance Before Capital made and and subject under and expectations statements other laws. we results differ this statements. call could are assumptions, uncertainties known factors OFS actual cause materially not that may on management that anticipated securities from opinions various constitute results as by statements and guarantees future to forward-looking reflect applicable risks, are unknown

management's are filings The the with factors our uncertainties described and the in risk other way SEC. in control, time time factors including from to beyond some

those we of are also statements be on assumptions these could prove a assumptions the reasonable, based those any and forward-looking believe incorrect. could result, inaccurate, Although as assumptions

these forward-looking You should place undue reliance not statements. on

any Capital of statements herein, speak OFS the call. forward-looking only date to no undertakes and duty update as made statements all forward-looking of this

and section principles. website generally to GAAP accounting the financial the non-GAAP measures Relations of measures These directly accepted comparable to reconciliation are non-GAAP measures. Information. Tax call, in under available this measures non-GAAP be prepared accordance will our in most heading During with referring we of Investor non-GAAP the not is financial A the

Bilal over the and to turn Chief Executive I'll Rashid. Officer, Chairman that, call With

in see morning. rising quarter, Thank this balance In the interest positioning sheet the to third you, benefits environment. rate of Steve. our greater began we Good

our loans is Our floating with senior balance debt. fixed-rate mostly and portfolio comprised of long-term secured rate financed sheet is primarily

continue. to these interest to rates, continuing tailwinds Fed we increase the With expect

second net $X.XX up interest per share the in adjusted primarily quarter. third increase $X.XX our coupons rate income due portfolio. rising Our loan investment was increased the to This from quarter, in on share per to

result the X.X% and the increase fourth increased quarter $X.XX Board a solid over positioned. over a believe increase per well to quarter of a share, prior last our As XX% the We this distribution. portfolio remains performance, year's distribution

well a At approximately nonaccruals fair as There XX% new the was of our multiple no industries. portfolio quarter, percentage loan is end value, third diversified the were of senior secured of across quarter. this and

and care, in Equally industries. are important largest manufacturing. long-standing of is avoidance services business exposures Our sector our technology, cyclical health highly

Additionally, since we interest we companies low manageable. to of have corporate levels believe recognize the the historically great our rates that the that remains cost compared increased borrowing for financial crisis, portfolio while

credit as portfolio we to conservatively manage We done through our continue cycles. multiple have

continues flexibility. financing us operational to Our provide

At our half in debt matures XXXX the or unsecured. end is approximately the third of and our outstanding debt quarter, of XX% later of

to date the June million facility last on nonrecourse our facility with years Paribas by senior in quarter's we BNP loan noted XXXX. of maturity to we the extended As $XXX BDC. three June, call, This is

credit of mark-to-market no is line corporate Our flexible provisions. with

has interest Lastly, rate debt positioning unsecured as rates, at rate historically you last in we strong million we which this rising of $XXX recall, in may locked year, believe low enhanced fixed environment. also our

down X% would compared represents share. decline, We net our a last per quarter's XXXX. At from at quarter. like level it despite our value to Turning net $XX.XX third asset to increase of the note that $XX.XX its end end, prepandemic at to quarter stood asset the value

the result investment equity one markdowns the in to on depreciation due a of unrealized The equity particular. portfolio, decrease last quarter of was portion primarily as especially

discuss detail. more in this will Jeff

equity making loans, secured senior that shareholders selectively create additional help over investments the While we in term. for invest long primarily continue us we our value believe to

XX we $XX warrants invested in Since our than of more equity, including million the companies. portfolio have IPO,

capital. we X.Xx To net invested to date, million, gains have realized which of approximately on multiple $XX equates

September $XX which As million is multiple. XX, gain remaining invested $XX approximately a capital net to of the approximately equates our on unrealized million, X.Xx of

We utilizing in this the making remain economic sheet uncertain strength balance investments environment. of disciplined and our in

has In in which and year loan has a addition, our $X.X record. multiple track we industries the experience adviser, asset markets approximately across also expect classes to credit expertise the of benefit from structured and manages billion and XX-plus

I'll this our color Cerny, the Chief point, and you Financial details to quarter. call Jeff turn to At for more over Officer, the give

morning, everyone. Good Bilal. Thanks,

of As net quarter, $X.XX $X.XX per to adjusted and net income investment dividend of income, net our income per investment Not contribute income quarter-over-quarter, share share. compares This environment income. income, of net interest we adjusted our rate per did Bilal net higher Comparing investment are quarter we income categories to all posted for investment more adjusted including income and than in investment results, and $X.XX up rising XX%. mentioned, the we share. saw of quarter-over-quarter only fee the improvements investment income prior strong

will to rising environment. cautious of strong increase We the likelihood in and sheet originations the economy. balance take rate remain to a state believe continue the approach positioning of will overall We uncertainty this given our that our the performance

from value $XX.XX last asset decreased share $XX.XX net quarter. per Our to

net unrealized XXXX. investment by post-secondary to It worth our As was in made level had Bilal in the Education. and investment some that portfolio. decline that only the prepandemic noting company-specific the for-profit depreciation, X% asset is We the the nearly ago, fair particular, in this third education education equity related years to eight quarter in decline is it of its primarily noted, The the was approximately due sector decision experienced remains investment sector. Department quarter value portfolio above end in value one the decline, in the at despite U.S. a of post-secondary our a for-profit

rate with equity cost of a view We an zero. appreciation situation this and a was the as one-off basis investment

no any value, accruing are We fair third this investments quarter We had during the total nonaccruals at X.X% of and just currently position. have not on investment we on new income nonaccrual. our

up $XX.X the income prior for income from was the quarter, in the to statement. million quarter. million investment Total $XX.X Turning

primarily As mentioned, in rate this the both I was and an as income due fee investment reflecting to as dividend environment income. increases interest rising increase previously in well

expenses a $X fee of for quarter. million capital were Total accounting gains to up quarter's of last primarily from due of million, our last noncash the reversal $X.X a portion

share capital the fee earlier, gains last just mentioned the back for share quarter's $X.XX was investment of $X.XX is I after third investment compared net I As adding significant the per discussed. to net increase income accrual per a This quarter. adjusted income noncash reversal of adjusted

announced adjusted of we share, share from morning, this investment due $X.XX quarter Earlier a stronger per the an $X.XX a to income. net prior distribution per increase from the

with fourth in rates largely last to quarter the primarily the increased third distribution outstanding benefited has tailwinds floating loan and the quarter being portfolio Compared higher year, interest believe being us by rate fixed XX%. rate. distribution We from our earnings debt our

that unsecured. It our later and matures quarter's at outstanding XX% was of debt debt our quarter's end, is in end XX% outstanding at approximately worth noting of XXXX or

this our quarter-over-quarter this debt-to-equity investments was Excluding debt, of lower quarter. to increased on to balances Much X.XXx. were modestly depreciation unrealized as attributable ratio the our debt our approximately SBIC

debt-to-equity our target of to to long-term X.X continue X.Xx. approximately ratio We

in Turning portfolio our that believe our macroeconomic capital seniority tough we companies environment. our in continued investments, selectivity We a structure pleased the in to of our and will are underwriting future. portfolio the the performance by benefit

In in incremental remain several which funding. growth, investments. for environment, cautious we regard gives the originations, and informational companies we evaluating these in for portfolio macro with new today's to are While especially to us Company its knowing our and advantages team, continue our relationship of identify management making opportunities opinion,

the XX, portfolio of is The senior And secured. majority of of are loans. loan XX% our investments in as September

portfolio In rate been addition, loan there a benchmark meaningful and rates. was in XX% has of the interest increase floating

increased September And LIBOR. continues quarter's by quarter, For rates just X.X% the again which this additional instance, points, an almost the over impact XX X.XX% to last basis increased to on XX. this three-month Fed week, by LIBOR

we our our continued interest for investment is the quarter that Given anticipate this in on of tailwinds meaningful run-up the XX% debt net beyond. and fixed rates outstanding and rate, fact fourth income

overall structured As XX% includes of X% subordinated securities. equity X% a senior loans, our secured and investment cost, notes debt, portfolio XX% finance percentage approximately

of remains had fair value. we size $X.X investment portfolio of portfolio million $XXX diversified. or of on approximately portfolio's the totaling the quarter, an a X% investments average approximately XX total Our At basis with end million value fair the

and For our of amortization investment rising the XX.X%, points the fees. of the environment. last floating portfolio interest This loan rate reflective is and yield rate of XXX this is quarter deferred on income the includes basis ended September meaningful nature substantial of which all increase portfolio from quarter in the XX, was

over With turn the back that, call to Bilal. I'll

with served floating and in that see sheet to pleased rate the are of we our has loan rising being closing, rate our of In well environment, debt vast positioning being portfolio balance Jeff. you, fixed outstanding majority rate. our Thank this interest XX% us

expect with We from being solid. our fair of secured. senior We our quality loan focus of and on to the preservation portfolio continue believe value XX% capital fundamentals benefit to portfolio at our remain overall

primarily Our long outstanding our debt maturing financing XXXX and in is with beyond. term all of

our our that our continue on this guide debt uncertain us. plan. We long-standing unsecured. us business environment, will we this is operational of experience believe half outstanding believe execute approximately flexibility economic addition, to In Through to gives

just billion X.X% with more a of the last our over beginning while invested attractive XX.X the of cumulative net generating Since XXXX, yields OFS loss portfolio. $X.X years on realized has than

value Our prepandemic X% increased has from approximately levels. net asset

reputation continue our believe size, the lastly, And we experience will business. adviser to our benefit of and

management billion relationships. and long-standing $X.X corporate With has group, capital broad a platform adviser within including asset $XX-plus a our billion credit expertise, markets banking

the multiple Our through corporate credit gone platform has XX last over years. cycles credit

of has OFS is ownership BDC. holding stake important a to shareholders interest reiterate Capital's in strong with the It also alignment XX% a that adviser

open With for call that, please up Operator, questions. the