OFS Capital(US:OFS)2022-05-06 18:37Financial Data and Key Metrics Changes - The net asset value per share increased to $15.52, marking a historical high for the company [9][18] - The quarterly distribution was increased to $0.39 per share for the second quarter, up from $0.28 per share in the first quarter, representing the seventh consecutive increase [9][19] - Net investment income was reported at $0.22 per share, with adjusted net investment income at $0.30 per share, excluding the accrual for the capital gains incentive fee [10][26] - Total investment income decreased to $10.9 million from $15.3 million in the prior quarter, primarily due to lower dividend and fee income [23] Business Line Data and Key Metrics Changes - The company deployed $55 million in new investments and made $15.1 million in add-on investments with existing portfolio companies [10][31] - Approximately 97% of the loan portfolio was senior secured at the end of the first quarter, with over 90% of the loan portfolio being floating rate [16][32] Market Data and Key Metrics Changes - The company is well-positioned to benefit from higher interest rates, as most loans are floating rate while financing is primarily fixed rate [12][33] - The weighted average LIBOR floor was reported at 85 basis points, with expectations of a positive impact on net investment income as interest rates rise [33] Company Strategy and Development Direction - The company maintains a disciplined investment approach and focuses on operational flexibility, with 67% of debt maturing in 2025 or later [12][39] - The portfolio remains defensively positioned, avoiding highly cyclical industries and focusing on sectors like healthcare, technology, business services, and manufacturing [16][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the uncertain economic environment characterized by inflation and geopolitical conflicts, emphasizing the importance of senior secured loans [15][46] - The company anticipates that default rates may increase due to inflation and potential recession risks, but believes its senior secured strategy will mitigate some of these risks [45][46] Other Important Information - Since its IPO, the company has paid out $11.77 per share in distributions, with net asset value per share exceeding the IPO price of $15 [11][19] - The company has not placed any loans on non-accrual for seven consecutive quarters, indicating strong portfolio performance [10][22] Q&A Session Summary Question: Is there more deal flow migrating to direct lenders like OFS due to market volatility? - Management noted that while there is currently not much deal flow migrating from public to private markets, the quality of deal flow remains stable [43] Question: What is the outlook for default rates in the current economic environment? - Management indicated that while default rates may creep up due to inflation and recession risks, their strategy of focusing on senior secured loans helps mitigate these risks [45][46] Question: How is the senior secured portion of the portfolio structured? - Approximately 15% to 16% of the portfolio is in second-lien loans, with the remainder being first-lien loans, indicating a focus on quality [47] Question: How will rising nominal rates affect private lenders like OFS? - Management believes that while borrowers may face increased costs, the company has modeled these scenarios and does not expect significant negative impacts on the portfolio [49]