BDC Profile

OFS Capital Corporation (OFS)
Ticker: NASDAQ: OFS
Segment: Middle-market senior secured loans (primarily first lien)
Portfolio Fair Value: $403.1 million (March 31, 2025)
External Manager: OFS Capital Management, LLC
Key Credit Personnel: Bilal Rashid (CEO), Kyle Spina (CFO)
Date of Latest Earnings Release: May 1, 2025
Website: ofscapitalcorp.com

Key Credit Metrics (IQ 2025)

Number of Portfolio Companies

• Portfolio Companies: 63 as of March 31, 2025

Portfolio Size

• At Cost: $366.5 million
• At Fair Market Value: $403.1 million
• Portfolio composition: 85% first lien loans, 15% second lien loans; 90% floating rate

Net Assets

• Total Net Assets: $160.4 million
• Net Asset Value (NAV) Per Share: $11.97 (down 6.85% from $12.85 in Q4 2024)

Net Investment Income (NII)

• NII Per Share: $0.26 (down from $0.30 in Q4 2024)
• Dividend Per Share: $0.34 (14.6% annualized yield)

Leverage

• Debt-to-Equity Ratio: 1.55x (total debt: $248.1 million)
• Liquidity: $68.1 million undrawn revolving credit facility

Companies On Non-Accrual

• Non-Accruals at Fair Value: $16.9 million (4.2% of total portfolio)
• Impact on NAV: Contributed to $0.88 per share decline in Q1 2025.
• No new non-accruals added during the quarter.

Internal Investment Rating System

OFS uses a four-tier internal risk rating:

1. Performing above expectations
2. Performing as expected
3. Underperforming
4. High risk/non-accrual

Investment Rating Table Comparison

Management reports 12% of loans in the bottom two categories as of March 31, 2025 versus 9% in the IVQ 2024..

Conference Call Highlights

1. Macro Caution:
   “The chances of a slowdown in economic activity have increased… We remain focused on capital preservation.” – Bilal Rashid, CEO
2. Portfolio Rotation:
   OFS continues to determine about its equity investment in Pfanstiehl Holdings, Inc. The BDC says it has received approximately $3.9 million in distributions from the company over time, and the fair value of this minority equity stake rose by $2.8 million in the quarter to $90.8mn.
3. Yield Compression:
   Weighted-average portfolio yield fell to 13.4% (from 13.8% in Q4 2024) due to Fed rate cuts.
4. Expense Management:
   Total expenses decreased 10% to $6.8 million, driven by lower incentive fees.

Final Word From The BDC Reporter (May 6, 2025)

Most of the BDC’s metrics are headed in the wrong direction in the IQ 2025 after a relatively good IVQ 2024 which was buoyed by one-time income and an increase in NAVPS, mostly due to a big increase in the value of Pfanstiehl. Earnings are down, NAVPS is down due to multiple write-downs (and despite a slight increase in Pfanstiehl’s valuation) and the continued payment of the $0.34 a quarter distribution must be in question. More than any other BDC we can think of, the future of the BDC depends on how Pfanstiehl pans out. The company accounts for nearly a quarter of portfolio assets and more than half net book value. Thankfully, no new non accruals were added in the quarter, but credit conditions are clearly deteriorating – as reflected in what can only be called a far above average drop in the BDC’s NAVPS. Management appears to be worrying about the macro outlook – as you’d expect – and its possible impact on an already weakened portfolio.

Data sourced from OFS Capital’s Q1 2025 10-Q, earnings call transcripts, and third-party analysis.