OFS Capital(OFS)

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OFS Capital (OFS) Upgraded to Buy: Here's What You Should Know
ZACKS· 2025-03-04 18:05
OFS Capital (OFS) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices.A company's changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate -- the consensus measure of EPS estimates from the sell-side analysts covering the stock -- for the current and following years.The power of a changing ...
OFS Capital(OFS) - 2024 Q4 - Earnings Call Transcript
2025-03-04 18:02
Financial Data and Key Metrics Changes - Net investment income increased by approximately 13% to $0.30 per share for Q4 2024 [6][14] - Net asset value per share increased by 14% to $12.85 per share [6][16] - Total investment income rose almost 7% to $11.6 million [19] - Total expenses increased by 3.5% to $7.6 million [20] Business Line Data and Key Metrics Changes - Significant increase in dividend income attributed to a nonrecurring distribution and other nonrecurring fee income [7][14] - No new non-accruals this quarter, with one loan exiting non-accrual status [9][17] - The loan portfolio remains well-diversified, with 100% in first lien and second lien senior secured loans [10][22] Market Data and Key Metrics Changes - The regulatory asset coverage ratio increased by eight percentage points to 169% [18] - Approximately 72% of outstanding debt was unsecured at quarter end [11][19] Company Strategy and Development Direction - The company is focused on rotating non-interest earning equity positions into interest-earning assets to improve net investment income [7][24] - Continued exploration of monetizing the minority equity investment in Fansteel Holdings [7][16] - Emphasis on capital preservation during uncertain economic times [24][25] Management's Comments on Operating Environment and Future Outlook - The Fed rate cuts in the second half of 2024 positively impacted portfolio companies by reducing interest costs [11] - Confidence in the adviser's experience and expertise in navigating the current market environment [13][25] - The company believes it is well-positioned to navigate the market successfully due to its adviser's size and reputation [25][26] Other Important Information - The company has $18.8 million in unfunded commitments to portfolio companies [22] - The investment portfolio comprised approximately 69% senior secured loans, 25% structured finance securities, and 6% equity securities [22] Q&A Session Summary - The Q&A session was not detailed in the provided content, and thus no specific questions and answers can be summarized. [27]
OFS Capital(OFS) - 2024 Q4 - Annual Report
2025-03-04 12:58
Investment Strategy - The company targets U.S. middle-market companies with annual revenues between $10 million and $1 billion, representing approximately 200,000 potential companies[32]. - The investment strategy focuses on senior secured loans, including first lien, second lien, and unitranche loans, as well as subordinated loans[38]. - The company aims to generate strong risk-adjusted net returns by assembling a diversified portfolio across various industries[38]. - The company focuses on investments in middle-market companies in the U.S., targeting individual investments generally ranging from $3.0 million to $25.0 million[65]. - The loan portfolio is expected to continue comprising a significant portion of Senior Secured First Lien Loans, which provide security interests in the assets of portfolio companies[66]. - Unitranche loans represent a significant growth opportunity, combining senior and subordinated debt into one loan, typically structured as senior secured loans[67]. - The company anticipates that Senior Secured Second Lien Loans will continue to be part of its investment strategy, with no contractual loan amortization in the initial years[68]. - Broadly Syndicated Loans are utilized for leveraged buyouts, mergers, acquisitions, and refinancings, with the company relying on agents for monitoring compliance and payment collection[69]. - Subordinated Loans are typically unsecured and provide high fixed interest rates, but carry a greater risk of loss compared to secured loans[70]. - The company invests in Structured Finance Securities, including mezzanine and subordinated note securities of CLOs, which are leveraged 9 to 13 times[74]. - The investment strategy includes tailoring terms to protect rights and manage risks while incentivizing portfolio companies to improve operating results[76]. - The company expects to hold most middle-market debt investments to maturity, but may sell some earlier based on relative value decisions and liquidity needs[77]. Risk Management - The company employs a rigorous credit analysis and approval process to minimize credit losses through effective underwriting and comprehensive due diligence[29]. - The company utilizes a disciplined investment process that includes ongoing risk assessments and assigns credit ratings to debt investments[46][47]. - The company has access to a proprietary database of borrowers developed over 25 years, aiding in identifying investment opportunities[39]. - The company anticipates that the unique challenges of lending to middle-market companies create high barriers to entry for new lenders[34]. - The investment committees are responsible for reviewing and evaluating potential investments, ensuring adherence to the company's core investment philosophy[61]. - The company monitors the creditworthiness of counterparties involved in repurchase agreement transactions[114]. - The classification of debt investments by risk category showed that 70.5% were rated as average risk, while 25.4% were under special mention[489]. - Non-accrual loans totaled $39.1 million in amortized cost, with a fair value of $20.8 million as of December 31, 2024[490]. Financial Performance - For the year ended December 31, 2024, total investment income decreased by $8,979,000 to $47,964,000 compared to $56,943,000 in 2023[499]. - Net investment income for the year ended December 31, 2024 was $16,712,000, down from $20,160,000 in 2023, reflecting a decrease of 22.1%[499]. - The net gain on investments for the year ended December 31, 2024 was $11,730,000, a significant recovery from a loss of $20,412,000 in 2023[516]. - Total expenses for the year ended December 31, 2024 decreased to $31,252,000 from $36,783,000 in 2023, a reduction of 15.1%[507]. - Interest expense for the year ended December 31, 2024 decreased by $2,834,000 to $16,648,000, primarily due to a reduction in average outstanding debt balances[508]. - The company recognized total PIK income of $2.7 million for the year ended December 31, 2024, representing 5.7% of total investment income[502]. - The average investment portfolio at fair value decreased from $474.5 million in 2023 to $404.7 million in 2024[509]. - Net unrealized appreciation for the year ended December 31, 2024 was $28.9 million, primarily related to common equity investments[518]. - The company fully repaid outstanding SBA debentures totaling $31.9 million during the year ended December 31, 2024[508]. - For the year ended December 31, 2023, the company reported net losses of $20.4 million, including net realized losses of $11.4 million and net unrealized depreciation of $9.0 million[520]. - The net loss of $20.4 million was primarily due to net unrealized depreciation of $14.5 million in the common equity of Pfanstiehl Holdings, Inc.[521]. - The company recognized net realized losses of $11.4 million, mainly from the write-off of a non-accrual loan and equity investment in Eblens Holdings, Inc.[522]. - For the year ended December 31, 2022, the company experienced net losses of $25.8 million, primarily due to unrealized depreciation of $23.0 million on debt investments and Structured Finance Securities[523]. Management Fees and Incentives - OFS Advisor's base management fee is set at an annual rate of 1.75%, calculated based on the average value of total assets, excluding cash and cash equivalents[79]. - For the years ended December 31, 2024, 2023, and 2022, the base management fee was reduced to 0.25% per quarter (1.00% annualized) for OFSCC-FS Assets, resulting in reductions of $1.1 million, $1.2 million, and $1.4 million respectively[80]. - The incentive fee consists of two parts: the Income Incentive Fee, based on pre-incentive fee net investment income, and the Capital Gains Fee, calculated at 20% of positive cumulative realized capital gains[81][85]. - Pre-incentive fee net investment income is compared to a hurdle rate of 2.0% per quarter (8.0% annualized), with no accumulation of amounts on the hurdle rate from quarter to quarter[83]. - For the year ended December 31, 2024, base management fees amounted to $5.993 million, while the Income Incentive Fee was $4.178 million[89]. - The Capital Gains Fee for the year ended December 31, 2022, was reversed, resulting in a reduction of $1.9 million due to decreased net unrealized appreciation[89]. - The structure of the incentive fee allows for the possibility of paying an incentive fee in a quarter where a loss is incurred, provided pre-incentive fee net investment income exceeds the hurdle rate[82]. - The cumulative aggregate realized capital gains and losses are calculated based on the net sales price of investments when sold, impacting the Capital Gains Fee calculation[86]. Regulatory Compliance - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes restrictions on transactions with affiliates and requires a majority of independent directors[104]. - The company has modified its asset coverage requirements, reducing the minimum required asset coverage ratio from 200% to 150% effective May 3, 2019[117]. - The company is subject to periodic examination by the SEC for compliance with the Exchange Act and the 1940 Act[125]. - The company has adopted a code of ethics to establish procedures for personal investments and restrict certain personal securities transactions[129]. - The company has received an existing Order from the SEC allowing greater flexibility to enter into co-investment transactions with certain Affiliated Funds[122]. - The company must meet certain source-of-income and asset diversification requirements to maintain its qualification as a RIC under Subchapter M of the Code[139]. - The company is required to diversify its holdings such that at least 50% of its assets consist of cash and government securities, and no more than 25% is invested in the securities of any one issuer[144]. - Failure to qualify as a RIC would subject the company to corporate-level U.S. federal income tax on all ICTI and Net Capital Gains[149]. - The company may be required to recognize income in excess of distributions from PFICs, which will be subject to the Annual Distribution Requirement[147]. - The company is authorized to borrow funds and sell assets to satisfy distribution requirements, but must meet certain asset coverage tests[146]. - The company may face conflicts of interest when investing alongside affiliated accounts, particularly in distressed situations[153]. Portfolio Composition - As of December 31, 2024, total debt and equity investments amounted to $332.8 million, with a fair value of $274.6 million, compared to $341.2 million and $306.4 million respectively as of December 31, 2023[477]. - The portfolio consisted of 100% first lien and second lien loans based on fair value, with first lien debt investments valued at $189.9 million and second lien debt investments at $34.3 million as of December 31, 2024[478]. - The three largest industries by fair value in the investment portfolio were Manufacturing (36.7%), Health Care and Social Assistance (20.1%), and Administrative and Support and Waste Management (6.5%), totaling approximately 63.3% of the portfolio[479]. - The ten largest investments by issuer accounted for 52.8% of the total portfolio at fair value, with Pfanstiehl Holdings, Inc. being the largest equity investment at a fair value of $89.3 million[480]. - As of December 31, 2024, the company had no Structured Finance Securities that had been optionally redeemed, and sold Structured Finance Securities for net proceeds of $20.1 million during the year[483]. - Total investment purchases and originations for the year ended December 31, 2024, were $93.4 million, significantly up from $41.7 million in 2023[483]. - The company recognized a realized loss of $3.5 million from the write-off of preferred and common equity investments in Master Cutlery, LLC during the year ended December 31, 2024[484]. - As of December 31, 2023, total debt investments on non-accrual status amounted to $34,568,000, with a fair value of $12,139,000[491]. - For the three months ended December 31, 2024, total investment income was $11.6 million, an increase from $10.9 million in the previous quarter[530]. - The company reported net gains of $21.4 million for the three months ended December 31, 2024, primarily due to net unrealized appreciation of $15.6 million on the common equity investment in Pfanstiehl Holdings, Inc.[533]. - As of December 31, 2024, the company held cash of $6.1 million, including $4.8 million held by OFSCC-FS, and received $11.4 million in cash distributions from OFSCC-FS during the year[535]. - The company had an unused commitment of $24.0 million under its Banc of California Credit Facility and $82.7 million under the BNP Facility as of December 31, 2024[536]. - The aggregate amount outstanding of senior securities issued by the company was $248.4 million, with an asset coverage of 169%, exceeding the minimum requirement of 150%[537].
OFS Capital(OFS) - 2024 Q4 - Annual Results
2025-03-03 21:33
Financial Performance - Net investment income increased to $0.30 per common share for Q4 2024, up from $0.27 in Q3 2024[5] - Net gain on investments was $1.60 per common share for Q4 2024, primarily due to net unrealized appreciation of $1.79 per common share[5] - Total investment income for Q4 2024 was $11.648 million, an increase of $0.7 million from Q3 2024[12] - For the three months ended December 31, 2024, total investment income was $11,648,000, a decrease of 6.2% from $13,483,000 in the same period of 2023[22] - Net investment income for the year ended December 31, 2024, was $16,712,000, down 17.9% from $20,160,000 in 2023[22] - The net investment income per common share for the year ended December 31, 2024, was $1.25, down from $1.50 in 2023[22] - Distributions declared per common share remained stable at $0.34 for both the three months ended December 31, 2024, and 2023[22] Asset and Investment Overview - Net asset value per common share rose to $12.85 at December 31, 2024, compared to $11.29 at September 30, 2024[5] - Total investments at fair value were $409.7 million, approximately 113% of amortized cost[11] - The investment portfolio included $224.2 million in debt investments, with 85% as first lien loans[11] - Cash and cash equivalents totaled $6.1 million as of December 31, 2024[16] Debt and Liabilities - Outstanding debt was $248.4 million as of December 31, 2024, with a weighted-average effective interest rate of 6.30%[9] Gains and Losses - The net realized loss for the year ended December 31, 2024, was $17,121,000, compared to a loss of $11,405,000 in 2023, indicating a significant increase in losses[22] - Net unrealized appreciation for the year ended December 31, 2024, was $28,851,000, a recovery from a depreciation of $9,007,000 in 2023[22] - The net increase in net assets resulting from operations for the three months ended December 31, 2024, was $25,475,000, compared to a decrease of $4,109,000 in the same period of 2023[22] Company Strategy and Management - OFS Capital primarily targets investments of $3 million to $20 million in privately held middle-market companies with annual EBITDA between $5 million and $50 million[23] - The company is externally managed by OFS Capital Management, LLC, which is registered under the Investment Advisers Act of 1940[23] Forward-Looking Statements - Forward-looking statements indicate that actual results may differ materially from expectations due to various risks and uncertainties[24]
18% From OFS Capital: Only Santa Can Make That Happen
Seeking Alpha· 2024-12-16 16:52
Group 1 - The article highlights the importance of closed-end funds and the potential for directional and arbitrage opportunities due to market price deviations [1] - OFS Credit Company (NASDAQ: OCCI) offers a distribution yield of 18.5%, which is emphasized as a significant investment opportunity [2] - The investment group Trade With Beta provides various services including frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, and hedging strategies [2]
OFS Capital: Worsening Non-Accrual Rate And Poor Dividend Coverage (Rating Downgrade)
Seeking Alpha· 2024-12-01 12:26
Group 1 - Business Development Companies (BDCs) are highlighted as one of the best sectors for collecting high yields due to their straightforward business models and easily understood investment methodologies [1] - A hybrid investment strategy combining classic dividend growth stocks, BDCs, Real Estate Investment Trusts (REITs), and Closed-End Funds can enhance investment income while achieving total returns comparable to traditional index funds like the S&P [1] - The article emphasizes the potential for early retirement through effective investment strategies without compromising portfolio safety, aligning with the principles of the FIRE (Financial Independence, Retire Early) movement [1]
OFS Capital(OFS) - 2024 Q3 - Earnings Call Transcript
2024-11-01 16:44
Financial Data and Key Metrics Changes - Net investment income increased by approximately 4.8% to $0.27 per share [7] - Net asset value per share decreased modestly by 1.9% to $11.29 per share [7][19] - Total investment income was down approximately 2% to $10.9 million [21] - Total expenses decreased by 5.3% to $7.3 million, primarily due to a reduction in G&A expenses [22] Business Line Data and Key Metrics Changes - The fair value of the minority equity investment in Pfanstiehl appreciated by $2.8 million to $73.7 million [8] - Nonaccrual metrics as a percentage of total portfolio at fair value remained stable, with one new non-accrual loan representing 0.6% of the total portfolio [10][20] - 5.4% of total investments at fair value were on non-accrual status at quarter end [20] Market Data and Key Metrics Changes - The weighted average performing investment income yield on the interest-bearing portion of the portfolio improved slightly to 13.6%, up about 0.2% quarter-over-quarter [26] - 72% of outstanding debt is unsecured, with all outstanding debt maturing in 2026 or later [12][23] Company Strategy and Development Direction - The company remains focused on increasing net investment income by rotating non-interest earning equity positions into interest earning assets [7][27] - The investment discipline emphasizes avoiding highly cyclical industries and maintaining a diversified loan portfolio [11][24] - The company anticipates an increase in M&A activity, which could lead to higher originations and fee income [14] Management's Comments on Operating Environment and Future Outlook - Management believes the portfolio is well positioned for the current macroeconomic environment, with lower interest rates expected to benefit borrowers [11][24] - The recent interest rate cut by the Federal Reserve may put pressure on net interest margin but is expected to reduce the risk of recession [13][14] - Confidence in the advisor's experience and track record through multiple credit cycles is emphasized [14][29] Other Important Information - The company has invested more than $2 billion since 2011 with a cumulative net realized loss of just 3.2% [28] - The advisor maintains approximately 23% ownership in the company, aligning their interests with shareholders [29][30] Q&A Session Summary Question: What are the plans for increasing net investment income? - The company is exploring alternatives to monetize non-interest earning equity investments, particularly the minority equity stake in Pfanstiehl [18]
OFS Capital (OFS) Tops Q3 Earnings Estimates
ZACKS· 2024-10-31 22:50
Group 1: Earnings Performance - OFS Capital reported quarterly earnings of $0.27 per share, exceeding the Zacks Consensus Estimate of $0.25 per share, but down from $0.40 per share a year ago, representing an earnings surprise of 8% [1] - The company posted revenues of $10.92 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 0.47%, and down from $14.65 million year-over-year [2] - Over the last four quarters, OFS Capital has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2] Group 2: Stock Performance and Outlook - OFS Capital shares have declined approximately 30.3% since the beginning of the year, contrasting with the S&P 500's gain of 21.9% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.25 on revenues of $10.97 million, and for the current fiscal year, it is $1.18 on revenues of $47.33 million [7] Group 3: Industry Context - The Financial - SBIC & Commercial Industry, to which OFS Capital belongs, is currently ranked in the bottom 27% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors or through tools like the Zacks Rank [5][6]
OFS Capital(OFS) - 2024 Q3 - Quarterly Results
2024-10-31 20:31
Financial Performance - Net investment income increased to $0.27 per common share for Q3 2024, up from $0.26 in Q2 2024[2] - Net loss on investments was $0.15 per common share for Q3 2024, compared to a net gain of $0.51 per common share in Q2 2024[4] - Total investment income decreased to $10.9 million in Q3 2024 from $11.2 million in Q2 2024, primarily due to a decrease in interest income[8] - Total investment income for the three months ended September 30, 2023, was $10,918,000, a decrease of 25.0% from $14,651,000 in the same period last year[17] - Net investment income for the nine months ended September 30, 2023, was $12,636,000, down 10.5% from $15,463,000 in the prior year[17] - Net realized loss on investments for the three months ended September 30, 2023, was $(11,116,000), compared to a gain of $117,000 in the same period last year[17] - Net unrealized appreciation for the three months ended September 30, 2023, was $9,201,000, compared to a depreciation of $(3,512,000) in the same period last year[17] Asset and Investment Metrics - Net asset value per common share decreased to $11.29 as of September 30, 2024, down from $11.51 as of June 30, 2024[2] - Total investments at fair value were $394.7 million as of September 30, 2024, compared to $398.2 million as of June 30, 2024[4] - The weighted-average performing income yield increased to 13.6% in Q3 2024 from 13.4% in Q2 2024[5] Expenses and Distributions - Total expenses decreased by $0.4 million to $7.3 million in Q3 2024 compared to Q2 2024[9] - Total expenses for the three months ended September 30, 2023, were $7,315,000, a decrease of 21.0% from $9,261,000 in the same period last year[17] - The company declared a distribution of $0.34 per common share for Q4 2024, payable on December 31, 2024[3] - Distributions declared per common share remained stable at $0.34 for both the current and prior year periods[17] Cash and Credit Facilities - As of September 30, 2024, the company had $20.3 million in cash and no outstanding balance under its senior secured revolving credit facility[11][12] Management and Investment Strategy - The company targets investments of $3 million to $20 million in privately held middle-market companies with annual EBITDA between $5 million and $50 million[18] - The company is externally managed by OFS Capital Management, LLC, which is registered under the Investment Advisers Act of 1940[18] Forward-Looking Statements - Forward-looking statements indicate potential risks and uncertainties that may affect future results, as detailed in the company's Annual Report on Form 10-K[19]
OFS Capital: Risk Of Dividend Cut Could Keep Hurting Price Performance
Seeking Alpha· 2024-08-30 18:19
Core Viewpoint - OFS Capital's 17% dividend yield is among the highest in the business development industry, but its sustainability is in question due to declining portfolio value, deteriorating earnings growth, higher non-accruals, and a weak cash position, leading to a hold rating for the stock [1][14]. Dividend Performance - The 4-year average dividend yield for OFS Capital is 11.62%, significantly higher than the sector median of 3.29%, indicating a 252.78% difference [2]. - The current dividend yield of 17.00% is 449.62% above the sector median of 3.09% [2]. - The dividend yield has increased due to a share price selloff rather than dividend growth, with the company losing almost 30% of its share price year-to-date [3][4]. Financial Performance - In the latest quarter, OFS Capital reported a net investment income of $0.26 per share, while the quarterly dividend was $0.34 per share, indicating that dividends are not covered by net investment income [4]. - Earnings forecasts suggest a decline in net investment income, with estimates of $1.18 per share in 2024, down 21.67% year-over-year, which is insufficient to cover the annual dividend payment of $1.36 per share [5][6]. - The company has only around $5 million in cash, making it challenging to sustain current dividend levels [6]. Portfolio and Investment Strategy - OFS Capital's portfolio investments at fair value have declined by almost $100 million over the past four quarters, now standing at $398 million [7]. - The company has been highly selective in its underwriting policies and cautious about new originations, which may hinder investment income growth [8]. - As of the end of the June quarter, 92% of the loan portfolio was at floating rates, and potential rate cuts could negatively impact investment income and margins [9]. Market Sentiment and Valuation - Despite a cheap stock price based on valuations and net asset value, potential returns are limited due to a lack of financial support and the risk of a dividend cut, which could negatively affect investor sentiment [9]. - The quant rating for OFS Capital is 3.35, indicating a hold rating, with low grades on momentum, growth, and profitability [12]. Conclusion - The current financial outlook does not support OFS Capital's high dividend yield, suggesting it may not be a suitable investment at this time, with investors advised to wait for a better entry point [14].