OFS Capital (OFS) 5 Mar 242023 Q4 Earnings call transcript

Good morning, and welcome to the OFS Capital Corporation Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Steve Altebrando, Vice President of Capital Markets. Please go ahead.

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

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

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

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

these forward-looking undue should herein, as Capital any update speak call. date statements on not of undertakes place to only the forward-looking of You statements all statements. forward-looking this duty OFS reliance and made no

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

Earlier Thank quarter announced morning, our this results. fourth we you, Steve.

in was investment the income the was net share, quarter which quarter. third income Our $X.XX per per below $X.XX investment net in our fourth of share

in the recall, remains $X.XX per quarter. you fourth income was the distribution nonrecurring driver of primary some net investment the which may our in income, of income As in the our third had quarter, share. Even investment we above investment drop so, net

solid. new this on We of X accrual performance the status. no quarter, overall investment in nonaccruals placed companies portfolio the believe remains back our We and we had

portfolio the our floating from rate. that loan positioning sheet being rate vast our majority majority believe we fixed our balance we the and Additionally, being of of debt benefited with

positions. $XX.XX in share net at $XX.XX of declined unrealized a per due to depreciation fourth value from in quarter primarily Our per couple asset XX, share the to September

XXXX, for we to environment. portfolio well our positioned ahead continue is macroeconomic current Looking the believe to

historically As avoided well-diversified part of our have industries. cyclical highly business portfolio we believe health largest our positioned sector manufacturing, in We investing technology. and defensively services with is our long-standing investment exposures in care, discipline, that

fair We being of top will senior continue our value the believe benefit is this that at capital at of economic secured. portfolio loan to the us in XXX% environment. structure

to meantime, terms remain expect the see M&A companies. interest active portfolio an on year existing in In later we In in activity new originations, get we more in our of increase as the clarity we rates. supporting

At outstanding fourth or continues financing XX% is of the company. the and of benefit matures XX% end debt quarter, debt to of our unsecured. XXXX Our approximately outstanding our our later, in

matures million $XXX loan with June XXXX. BNP in senior nonrecourse facility Our Paribas

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

of XXXX, $XXX locked which notably rate in debt that discussed million of average unsecured lower we has in market before, current and As we of a is pricing. than X.X%, weighted have fixed coupon

our early was Since of of we mature the in quarter, which million the debt, SBIC retired remaining due XXXX. end $XX.X fourth to

XX-year from benefit across multiple new classes year, that and asset and $X and our markets anticipate Going more we to cycles. experience credit continue which the in industries billion expertise approximately multiple manages a into structured the has we record known has of will adviser, through credit than the track

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

Good morning, Bilal. Thanks, everyone.

share our $X.XX income net once per again share we distribution As fourth of the the Bilal mentioned, for quarter. posted during declared covering $X.XX per quarter, investment

stock Our of at year-end. current an annualized rate price distribution on represents based XX.X% common the yield our

remains share. at for quarterly our We also the that distribution quarter per $X.XX announced

value net $XX.XX. Our to asset by $X.XX decreased per share

couple a due this depreciation was mentioned, of decline to unrealized in concentrated Bilal positions. primarily As

X and sponsor loan During following the nonaccruals an value. in fair from at nonaccrual and $X.X quarter, private amendment, of back infusion included improvement was no on This a status on equity value the accrual an at the equity were an status placed we which had fair loan's X.X% year-end. loan total value of had fair our of investments December million XX. as new

as the Total to our largely decline by income a fourth XX investment lower was in the $XX.X fourth quarter. in third to balance income Turning down in related some income the income million. realized a basis investment partly due the point overall as yield, nonrecurring approximately This was quarter to quarter. resulted statement. in This in X% to well prepayments investment investment

as of the reinvest XXXX. not $XX.X remaining debentures, early to investments in SBIC On March redemption. mature of preparing We to completed we proceeds repaid due were which from certain we this X, did million redeem our were

Total in average declines and down incentive to lower the due portfolio expenses and to approximately X% management fees the as investment due during net primarily interest debt of the during outstanding expense million our period, were in well decrease the income. quarter a as lower related to investment $X.X balances

outstanding of of floating I and end, XXXX rate. As $X.XX or positioning, unsecured. in that outstanding net while that income fourth that noting XX% is fixed was was value income and is outstanding has investment balance fair net distribution our we at Net our our XX% from worth matures is debt It for believe share our investment given quarter. debt rate, debt the our portfolio also per later for benefited quarter at the loan of income investment of XX% mentioned, sheet covered XX% $X.XX fourth our quarter,

regulatory was asset Excluding the ratio debt, was SBIC regulatory ratio and debt-to-equity our XXX%. X.XXx approximately coverage our

remain investments. in companies weaknesses of few our in despite The a environment our macroeconomic our portfolio this of uncertain investments. to solid overall Turning performance

to in slow originations the in the our fourth capital and quarter. M&A underwriting. with remain see regard during committed selective senior We cautious being activity and are structure We to new continue to

is typical saw the million sitting as than SBA in year-end fourth on we the retire prepayments $XX.X As in a and prepare position mentioned, we cash to I larger debentures. some at quarter, much heavier remaining we're

companies the our support add-on identify and portfolio market few for to as also quarter. they we a growth, funded fourth opportunities investments continue new middle We in

to we The million $XX.X and portfolio was fund under of XX, to commitments as value our credit in facilities had portfolio December at XXX% various loans fair in majority of secured senior of As are of our loan companies. investments our XX. investments December

end on X% unique loans, we Based and comprised XX% XX% our million a the of structured had securities. secured value was on amortized subordinated cost finance investments At basis. fair quarter investment in end, senior debt, quarter, approximately issuers portfolio as of securities approximately totaling $XXX the XX of equity X%

due yield of the portfolio interest-bearing average points basis fees to quarter. nonrecurring structured loan about of ended portion that our income in amortization income was in prepayments on the performing as was decline quarter in down fees. to the deferred occurred the finance some all certain XX.X%. as largely third For December includes the XX, the prepayment fourth weighted and investments interest, investment The XX well quarter This

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

we Jeff. portfolio you, the shape X good nonaccruals In Thank in on new placed status. in with our remains quarter closing, accrual back no believe with investment being and

and we value loan with XXX% in on being overall fundamentals portfolio. Our quality confident of secured, portfolio fair at our remain preservation our capital focus senior the and of remains

a us and our more X.X% which billion has has risk-adjusted the on cumulative believe the while We invested investment just have we years, long-standing past BDC in experience loss $X.X served returns our discipline net with than of XX Since generating XXXX, beginning on well. relied attractive realized over the portfolio. of

adviser than of the a believe our platform asset long-standing due experience more management equipped successfully has to business to expertise, is billion We size, relationships. and $XX banking our especially billion $X group, navigate with with adviser reputation markets broad capital corporate our credit market this a including and affiliated

over past through XX-plus years. has multiple credit platform credit the corporate cycles Our gone

aligned Our ownership in as strongly affiliates they approximately maintain adviser with an and are BDC. also stake the shareholders XX%

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

from is question Penn Mitchel first Our Instructions] with Oppenheimer. [Operator

questions, A just couple quick of housekeeping.

what your percent are loans second of liens? -- Your

Mitchell, just this loan happy start notice and did About our that but XX% is out address Jeff. we break that, liens, our for are on your... to to you'll [indiscernible] portfolio second of

be income, of there pick sort a there adjustment. Okay. -- but there I'm was -- appear some that for forward, to catch-up is run going if Great. the the or it the doesn't Or quarter? Great. And was because curious affiliate rate

a loan, back status, was recognized loan form some reserved previously mentioned, due that accrual we the had of I of there on put the as past infusion. in And Yes, interest pickup equity a we PIK. an

guys Got portfolio. Is Do always the looks about that it. question. audit a that -- thought Got like And third-party I correct? employees last opinion it. valuation talked one the you you at of periodically sort guys valuation. service

Xs by every So them Level a investments For X of all the them, third have all we quarter. Level valued party, all of our

So a... it's not

market the else values anything guys you And Is it. value? have where that it? Got

If . right. Level a That's X. it's

Got me. it. That's for all

now the question-and-answer concludes concluded. attending presentation. Thank you also our and for This today's session, has conference

You may now disconnect.