OFS Capital Corporation Announces Third Quarter 2013 Financial Results

OFS Capital Corporation (NASDAQ:OFS) (“OFS Capital” or the “Company”) today announced its financial results for the fiscal quarter ended September 30, 2013, OFS Capital’s third full quarter of operations following its initial public offering (“IPO”) in November 2012.

Other Key Data Points

• On October 31, 2013, OFS Capital made a third quarter 2013 distribution of $0.34 per share to shareholders of record as of October 17, 2013. The Company estimates the tax characteristics of its distributions on a quarterly basis and will report the final tax characteristics of the distributions to shareholders on Form 1099 after the end of each fiscal year. However, if the characteristics of that distribution were determined for the quarter ended September 30, 2013, the Company estimates that $0.19 of the distribution would have been characterized as a return of capital to the shareholders.
• The aggregate fair value of OFS Capital’s investment assets was 98.9% of cost at September 30, 2013.

“We have been successful to date in keeping our OFS Capital WM senior loan subsidiary substantially invested in senior secured floating rate assets, which have provided reliable interest income for OFS Capital,” said Glenn Pittson, Chairman and Chief Executive Officer of OFS Capital. “At the same time, we continue to make progress towards obtaining from the Small Business Administration the approvals necessary to convert our investment in Tamarix Capital Partners, L.P., which we refer to as the SBIC Fund, into a drop-down small business investment company within OFS Capital. Moreover, we are pleased by the SBIC Fund’s accelerating pace of capital deployment.”

PORTFOLIO AND INVESTMENT ACTIVITY

During the third quarter of 2013, OFS Capital closed two senior secured debt investments totaling $7.5 million, comprised of a $3.0 million investment in one new portfolio company and a $4.5 million investment in the refinance of an existing portfolio company’s credit facility. In the same period, the Company was fully repaid on two debt investments totaling $9.3 million in aggregate.

The total fair value of OFS Capital’s investment portfolio was $219.3 million as of September 30, 2013, including $208.0 million in senior secured debt investments in 55 portfolio companies held in the OFS Capital WM, LLC senior loan vehicle (“OFS Capital WM”) (with a 7.21% weighted average yield to fair value) and an equity investment in the SBIC Fund with a fair value of $11.3 million, representing the Company’s 67.5% limited partnership interest in the SBIC Fund.

As of September 30, 2013, the SBIC Fund had investments in five portfolio companies, comprised of outstanding loans with an aggregate principal balance of $25.9 million and equity investments with a fair value of $4.9 million.

From October 1, 2013 through November 7, 2013, the SBIC Fund made senior secured debt investments totaling $10.8 million in outstanding principal balance in two new portfolio companies, and it obtained equity stakes in each new portfolio company at an aggregate cost of $0.5 million.

RESULTS OF OPERATIONS

Investment income
Total investment income was $4.0 million in the quarter ended September 30, 2013, as well as in the same period in the prior year.

Expenses
Total expenses were $2.6 million in each of the quarters ended September 30, 2013 and September 30, 2012. Interest expense decreased by $0.7 million for the three months ended September 30, 2013, compared to the same period in the prior year, owing primarily to a decrease in borrowings on the Company’s revolving credit facility. Professional fees, administrative fee, and general and administrative expenses increased by $0.7 million relative to the prior comparable period, and related chiefly to OFS Capital’s increased costs as a public company, legal fees incurred in connection with the SBIC Fund drop-down process, and $0.2 million incurred by the Company under the Administration Agreement it entered into at the closing of its IPO.

Net investment income
Based on the foregoing, net investment income was $1.4 million in each of the quarters ended September 30, 2013 and September 30, 2012.

Net realized and unrealized gain (loss) on investments
For the quarter ended September 30, 2013, the Company did not recognize any realized gains or losses. Net unrealized loss on investments totaled $1.1 million for the quarter ended September 30, 2013, comprised of $1.5 million of net unrealized loss on non-affiliate investments (i.e., investment assets in OFS Capital WM) and $0.4 million of net unrealized gain on affiliate investments (the Company’s limited partnership interest in the SBIC Fund).

For the quarter ended September 30, 2012, net realized loss on investments totaled $0.1 million, owing to a $0.1 million net realized loss on non-affiliate investments (relating to a debt investment sale by OFS Capital WM). Net unrealized gain on investments totaled $1.2 million for the quarter ended September 30, 2012, consisting of $1.2 million of net unrealized gain on non-affiliate investments (i.e., investment assets in OFS Capital WM).

Other income prior to becoming a business development company
For the three months ended September 30, 2012, the Company recorded $0.4 million in total income prior to becoming a business development company, relating primarily to the Company’s equity interest income in the SBIC Fund in the amount of $0.4 million for the period July 27, 2012 through September 30, 2012, following deconsolidation of the SBIC Fund.

Net increase in net assets resulting from operations
Net increase in net assets resulting from operations was $0.4 million for the quarter ended September 30, 2013, compared with a $3.0 million net increase in net assets resulting from operations for the quarter ended September 30, 2012.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2013, OFS Capital had $6.8 million in cash and cash equivalents, $84.1 million in debt outstanding, and $49.9 million in borrowing availability on its revolving credit facility.

The Company intends to continue to use its liquidity to finance its investment objectives, including funding its capital commitment to the SBIC Fund, which will increase to $75 million if the Small Business Administration grants the approvals necessary for the Company to convert its investment in the SBIC Fund into a drop-down small business investment company.

CONFERENCE CALL

The Company will host a conference call to discuss these results on Friday, November 8, 2013 at 10:00 AM Eastern Time. Interested parties may participate in the call via the following:

INTERNET: Log on to www.ofscapital.com at least 15 minutes prior to the start time of the call to register, download, and install any necessary audio software. A replay will be available for 90 days on the Company’s website at www.ofscapital.com.

TELEPHONE: (888) 317-6016 (Domestic) or (412) 317-6016 (International) approximately 15 minutes prior to the call. A telephone replay of the conference call will be available from 2:00 PM Eastern Time on November 8, 2013 until 9:00 AM Eastern Time on November 18, 2013 and may be accessed by calling (877) 344-7529 (Domestic) or (412) 317-0088 (International) and utilizing conference ID # 1003598.

For more detailed discussion of the financial and other information included in this press release, please refer to the Company’s Form 10-Q for the quarter ended September 30, 2013, which is to be filed with the Securities and Exchange Commission.

EXCERPTS FROM OFS CAPITAL’S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOLLOW

ABOUT OFS CAPITAL

OFS Capital Corporation (NASDAQ: OFS) is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company. OFS Capital’s investment objective is to provide shareholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments. OFS Capital invests primarily in middle-market companies in the United States, generally focusing its investment activities on private companies that are owned by private equity sponsors or owner/operators and have annual EBITDA between $5 million and $50 million. OFS Capital offers flexible solutions through a variety of asset classes including senior secured, unitranche, second-lien and mezzanine loans, and to a lesser extent, equity securities. OFS Capital’s investment activities are managed by OFS Capital Management, LLC, an investment adviser registered under the Investment Advisers Act of 1940 and headquartered in Rolling Meadows, Illinois, with additional offices in New York and Los Angeles.

FORWARD-LOOKING STATEMENTS

Statements made in this press release may contain forward-looking statements that involve substantial risks and uncertainties, some of which are beyond the control of OFS Capital’s management, and are difficult to predict. Such forward-looking statements are not historical facts but, rather, reflect assumptions, estimates, and projections by OFS Capital concerning anticipated results and provide no guarantee of future performance. All forward-looking statements speak only as of the date of this press release, and OFS Capital undertakes no duty to update any forward-looking statements herein made.