OFS Capital(US:OFS)2022-08-05 12:01Financial Performance - As of June 30, 2022, the net asset value (NAV) per common share decreased by 6.1% to $14.57 from $15.52 at March 31, 2022, primarily due to net losses of $15.1 million, or $1.12 per common share [147]. - For the quarter ended June 30, 2022, net investment income increased to $0.47 per share, up $0.25 from the previous quarter, driven by a $3.0 million reversal of previously accrued Capital Gains Fee [148]. - Total investment income was $10.4 million, a decrease of $0.5 million compared to the previous quarter, primarily due to a $1.0 million decrease in dividend and fee income, offset by a $0.5 million increase in interest income [191]. - Net investment income for the quarter ended June 30, 2022, was $6.2 million, compared to $3.0 million in the prior quarter, reflecting improved operational efficiency [190]. - The total net gain (loss) on investments for the six months ended June 30, 2022, was a loss of $9.6 million, compared to a gain of $23.1 million in the prior year [203]. - For the six months ended June 30, 2022, total investment income was $21.4 million, a decrease of $0.5 million compared to the same period in the prior year [194]. Investment Portfolio - The fair value of the debt investment portfolio totaled $356.0 million across 66 portfolio companies, with 98% being senior secured loans [167]. - The total portfolio company investments reached a fair value of $457.8 million as of June 30, 2022, compared to $431.9 million on December 31, 2021 [177]. - Approximately 98% of the loan portfolio consisted of senior secured loans, providing greater downside protection against economic changes [178]. - The three largest industries by fair value in the portfolio were Manufacturing (27.2%), Health Care and Social Assistance (15.3%), and Professional, Scientific, and Technical Services (9.4%), totaling 51.9% of the portfolio [179]. - The company placed two loans with an aggregate amortized cost of $15.8 million on non-accrual status during the quarter ended June 30, 2022 [184]. Debt and Financing - The weighted-average debt interest costs increased to 4.3% from 4.2% in the previous quarter, mainly due to rising LIBOR rates [149]. - As of June 30, 2022, approximately 93% of the debt investments, totaling $331.0 million in fair value, bore interest at variable rates, with 83% being LIBOR-based [157]. - The company amended its PWB Credit Facility to increase the maximum amount from $25.0 million to $35.0 million and extended the maturity date of the BNP Facility to June 20, 2027 [155]. - The BNP Facility allows borrowings up to $150.0 million, with $134.1 million drawn as of June 30, 2022, and an effective interest rate of 4.67% [233]. - The company had an unused commitment of $35.0 million under the PWB Credit Facility and $15.9 million under the BNP Facility as of June 30, 2022 [216]. Cash and Liquidity - As of June 30, 2022, the company held cash of $14.8 million, including $7.5 million held by SBIC I LP [215]. - The company had $14.8 million in cash and cash equivalents, with additional unfunded commitments of $35.0 million and $15.9 million under the PWB and BNP Facilities, respectively [244]. - Cash from net investment income decreased by $1.2 million for the six months ended June 30, 2022, compared to the same period in 2021 [219]. Market Conditions and Risks - Persistent inflationary pressures are expected to affect profit margins of portfolio companies due to global supply chain issues and rising energy prices [259]. - The company is subject to financial market risks due to ongoing geopolitical conflicts and the COVID-19 pandemic, which have introduced significant volatility [252]. - Fair value of investments may fluctuate due to the lack of readily available market values, impacting the company's financial position [253]. - Interest rate sensitivity analysis indicates potential changes in earnings based on fluctuations in interest rates, with varying impacts depending on the rate changes [257]. Dividends and Distributions - The company maintains a variable dividend policy aiming to distribute 90-100% of taxable quarterly income [250]. - The Board declared a distribution of $0.29 per share for Q3 2022, payable on September 30, 2022 [251]. - The company is required to distribute at least 90% of its ICTI to maintain its RIC status, avoiding a 4% excise tax on undistributed earnings [248].