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].

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]

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]

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]

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]

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]

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]

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].

Financial Data and Key Metrics Changes - The net asset value per share increased by 3.9% to $11.51, up $0.43 from the prior quarter [4] - Net investment income decreased from $0.42 per share in Q1 to $0.26 per share in Q2, primarily due to non-recurring items in the previous quarter [4][8] - The GAAP leverage ratio decreased from 1.87 times at December 31 to 1.62 times at June 30 [8] - Total investment income decreased by approximately $3.1 million to $11.2 million this quarter [10] - Total expenses decreased by 10.5% to $7.7 million, mainly due to lower interest expenses [10] Business Line Data and Key Metrics Changes - The fair value of the minority equity investment in Pfanstiehl increased by $7.8 million to $70.8 million at quarter end [5] - Approximately 100% of the loan portfolio at fair value consists of senior secured loans [12] - The weighted average performing investment income yield on the interest-bearing portion of the portfolio improved slightly to 13.4%, up about 0.4% quarter-over-quarter [13] Market Data and Key Metrics Changes - The company remains cautious about new originations and notes that M&A activity remains subdued [6][12] - The overall quality of the portfolio remains stable, with 4.6% of total investments at fair value on non-accrual status at quarter's end [9] Company Strategy and Development Direction - The company is focused on increasing net investment income by converting non-interest earning equity positions into interest-earning assets [5][14] - The investment discipline emphasizes avoiding highly cyclical industries and maintaining a well-diversified loan portfolio [6][12] - The company aims to preserve capital with approximately 100% of the known portfolio at fair value being senior secured [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertain interest rate environment but believes the company benefits from its balance sheet positioning [4] - The company anticipates an increase in M&A activity later in the year as clarity on interest rates improves [6] - Management expresses confidence in the overall quality and fundamentals of the portfolio, citing a long-standing investment discipline [14][15] Other Important Information - The quarterly distribution will remain at $0.34 per share for the third quarter, representing a 15.3% annualized yield based on the stock price at quarter end [8] - The adviser managing the company has a strong track record and maintains approximately 23% ownership in the company, aligning their interests with shareholders [15] Q&A Session Summary Question: What are the plans for increasing net investment income? - The company is actively exploring alternatives to monetize non-interest-bearing investments, specifically the minority equity stake in Pfanstiehl [9] Question: How is the company positioned in the current market? - The company believes its portfolio remains solid with no new non-accruals and is focused on capital preservation [14]

OFS Capital (OFS) came out with quarterly earnings of $0.26 per share, missing the Zacks Consensus Estimate of $0.29 per share. This compares to earnings of $0.38 per share a year ago. These figures are adjusted for nonrecurring items. This quarterly report represents an earnings surprise of -10.34%. A quarter ago, it was expected that this management investment company would post earnings of $0.35 per share when it actually produced earnings of $0.42, delivering a surprise of 20%. Over the last four quarte ...