OFS Capital Corp Q1 FY2024 earnings call

• Net investment income of $0.42 per share covered the $0.34 per share distribution.
• Portfolio health remains solid with 1 borrower on nonaccrual (approximately 2% of portfolio at fair value).
• Balance sheet: majority debt is fixed rate, vast majority loan portfolio is floating rate.
• Net asset value decline due to unrealized depreciation in Pfanstiehl Holdings, a life sciences manufacturer.
• New originations subdued, but active in supporting existing portfolio companies.
• Debt details: 100% of outstanding debt matures in 2026 or later, 70% is unsecured; paid down remaining SBIC debt in March.
• Adviser manages ~$4 billion across known and structured credit markets, has over 25-year track record through multiple credit cycles.

Net investment income in the first quarter was $0.42 per share, a 20% increase over the prior quarter, covering the $0.34 per share distribution. Net asset value declined to $11.08 per share from $12.09 at year-end, primarily due to unrealized depreciation. The investment portfolio at fair value was comprised of approximately 69% senior secured loans, 1% subordinated debt, 24% structured finance securities, and 6% equity securities. 4.8% of investments at fair value were on nonaccrual status at quarter end.

• Second quarter distribution remains at $0.34 per share.
• Anticipate increase in M&A activity later in the year as interest rate clarity improves.

• Uncertain macroeconomic environment poses risks.
• Cyclical downturn in life sciences industry affected Pfanstiehl Holdings' value.
• Forward-looking statements subject to risks, uncertainties, and factors causing actual results to differ materially.

Q: Do you guys feel -- with the interest income down this quarter, do you feel like that can come back? Or do you see a path to covering the dividend? Or are they going to -- or do you think there's going to be some gains to make up any shortfalls.

A: Mitchel, this is Jeff. Thanks for the question. Yes. There is a path, absolutely. As you know, we are continuing to realize on certain equity investments in one of our largest positions is a noninterest-earning asset. So certainly, as we think about converting that to an interest-earning asset, we should be able to cover our dividend going forward.