OFS Capital(US:OFS)2023-08-03 21:35Financial Performance - As of June 30, 2023, the net asset value (NAV) per common share decreased to $12.94 from $13.42 at March 31, 2023, primarily due to a net loss on investments of $0.53 per common share[136]. - Total investment income for the quarter ended June 30, 2023, increased to $14.5 million from $14.3 million in the prior quarter, driven by a $0.7 million increase in interest income[137]. - A net loss on investments of $7.1 million, or $0.53 per common share, was recognized for the quarter ended June 30, 2023, primarily due to unrealized depreciation[139]. - Net investment income for the quarter ended June 30, 2023, was $5.1 million, compared to $5.0 million in the prior quarter[188]. - For the six months ended June 30, 2023, the portfolio experienced net losses of $8.2 million, mainly related to unrealized depreciation of $6.7 million on Structured Finance Securities[183]. - Adjusted net investment income for the quarter ended June 30, 2023, was $5.1 million, consistent with the prior quarter[188]. - Total expenses for the three months ended June 30, 2023, were $9.4 million, slightly up from $9.3 million in the prior quarter[174]. Investment Portfolio - The portfolio's weighted-average performing income yield rose to 13.8% from 13.0% in the prior quarter, attributed to rising interest rates with 95% of the loan portfolio consisting of floating rate loans[137]. - The fair value of the debt investment portfolio totaled $313.0 million across 44 portfolio companies, with approximately 99% being senior secured loans[152]. - The total portfolio company investments increased to $412,634,000 as of June 30, 2023, from $412,058,000 as of December 31, 2022[159]. - The three largest industries by fair value in the portfolio were Manufacturing (26.9%), Health Care and Social Assistance (17.6%), and Wholesale Trade (13.2%), totaling approximately 57.7% of the portfolio[160]. - Approximately 99% of the loan portfolio at fair value consisted of senior secured loans, providing greater downside protection against economic changes[159]. - Approximately 4.0% of the total portfolio at fair value was comprised of Structured Finance Securities managed by a single adviser as of June 30, 2023[154]. Debt and Financing - The weighted-average debt interest costs increased to 6.0% compared to 5.8% for the previous quarter, mainly due to SOFR rate increases[138]. - Approximately $296.6 million of debt investments bore interest at variable rates, with 84% having transitioned from LIBOR to SOFR[144]. - As of June 30, 2023, the company had an unused commitment of $24.5 million under the PWB Credit Facility and $48.9 million under the BNP Facility, with a total accessible unused credit of approximately $65.5 million[191][204]. - The effective interest rate on the PWB Credit Facility was 8.80% as of June 30, 2023, while the BNP Facility had an effective interest rate of 8.37%[204][211]. - The company has $101.1 million outstanding under the BNP Facility, maturing in 2027, which can be repaid by selling portfolio investments valued at $165.4 million[221]. - The company has $45.9 million of outstanding SBA debentures maturing in 2025, which may be repaid using proceeds from investment repayments[222]. Cash and Distributions - A distribution of $0.34 per share was declared for the third quarter of 2023, payable on September 29, 2023[142]. - Cash from net investment income increased by $4.4 million to $9.1 million for the six months ended June 30, 2023, compared to $4.8 million for the same period in 2022, primarily due to a $5.9 million increase in cash interest income[193][194]. - The company reported net cash provided by operating activities of $8.8 million for the six months ended June 30, 2023, compared to a net cash used of $34.7 million in the same period of 2022[193]. - The company has $9.6 million remaining for share repurchases under the Stock Repurchase Program, which is authorized until May 22, 2024[217]. Market Conditions and Risks - The company is subject to financial market risks due to ongoing geopolitical tensions, rising interest rates, and inflation, which may impact its market risks[228]. - As of June 30, 2023, the 1-month and 3-month SOFR were 5.14% and 5.27%, respectively, affecting the company's interest rate sensitivity[232]. - The company has not sold any shares below net asset value despite stockholder approval for such sales[219]. Strategic Outlook - The company expects to fund the growth of its investment portfolio through current borrowings, follow-on equity offerings, and issuances of senior securities[212]. - A definitive merger agreement was signed between Banc of California and Pacific Western Bank, which may impact the company's future access to liquidity[206].