OCCI OFS Credit Company Inc

OFS Credit Company, Inc. (Nasdaq: OCCI) (“OFS Credit,” the “Company,” “we,” “us” or “our”), an investment company that primarily invests in collateralized loan obligation (“CLO”) equity and debt securities, today announced its financial results for the fiscal quarter ended April 30, 2024.

SECOND QUARTER HIGHLIGHTS

• Net investment income (“NII”) of $4.5 million, or $0.28 per common share, for the fiscal quarter ended April 30, 2024. This compares to NII of $4.6 million, or $0.29 per common share, for the fiscal quarter ended January 31, 2024. The decrease in NII per common share was primarily due to a decrease in interest income. See additional information under “Results of Operations” below.
• Core net investment income (“Core NII”)1 of $8.4 million, or $0.53 per common share, for the fiscal quarter ended April 30, 2024. This compares to Core NII of $7.2 million, or $0.45 per common share, for the fiscal quarter ended January 31, 2024. The increase in Core NII was primarily due to an increase in recurring waterfall payments from CLO equity investments of $0.9 million, to $9.7 million.
• Net asset value (“NAV”) per common share of $7.34 as of April 30, 2024, a decrease of $0.34 from NAV of $7.68 as of January 31, 2024, primarily due to a net loss on investments of $0.32 per common share.
• During the fiscal quarter ended April 30, 2024, the earned income yield of our investment portfolio based on average amortized cost was 14.71%.

OTHER RECENT EVENTS

• As previously announced, on May 1, 2024, our board of directors (the “Board”) declared monthly cash distributions of $0.105 per common share, a 5% increase from the prior monthly distribution amount of $0.10 per common share, for common stockholders for each of the three months in the quarter ending July 31, 2024. See additional information under “Distributions” below.

SELECTED FINANCIAL HIGHLIGHTS

 

 

 

 

(in millions, except per share data) (unaudited)

 

 

 

 

 

 

As of April 30, 2024

 

As of January 31, 2024

Investment portfolio, at fair value

 

$

164.6

 

$

177.6

NAV per common share

 

 

7.34

 

 

 

7.68

 

 

 

For the Fiscal Quarter Ended

(Per common share)

 

April 30, 2024

 

January 31, 2024

Net investment income

 

$

0.28

 

 

$

0.29

 

Net realized loss on investments

 

 

(0.12

)

 

 

(0.12

)

Net unrealized appreciation (depreciation) on investments

 

 

(0.20

)

 

 

0.27

 

Net earnings (loss)

 

$

(0.04

)

 

$

0.44

 

 

 

 

 

 

Reconciliation of Core NII — Non-GAAP1

 

 

 

 

Net investment income

 

$

0.28

 

 

$

0.29

 

CLO equity adjustments

 

 

0.25

 

 

 

0.16

 

Core NII

 

$

0.53

 

 

$

0.45

 

 

1 On a supplemental basis, we disclose Core NII, which is a financial measure calculated and presented on a basis of methodology other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Core NII represents NII adjusted for differences in applicable cash distributions received on our CLO equity investments relative to income recognized in accordance with GAAP. See additional information under “Supplemental Information Regarding Core Net Investment Income” below.

MANAGEMENT COMMENTARY

“We are pleased to announce that during the second fiscal quarter our CLO equity investments received a 10.3% increase in total recurring waterfall payments compared to the prior quarter,” said Bilal Rashid, Chief Executive Officer. “We believe our balance sheet remains strong and well positioned with an asset coverage ratio comfortably below regulatory requirements. We believe our fixed-rate preferred stock financing, at below current market rates with a weighted average stated rate of 5.62%, affords us operational flexibility to create stockholder value in this interest rate environment.”

PORTFOLIO AND INVESTMENT ACTIVITIES

As of April 30, 2024, the total fair value of our investment portfolio was approximately $164.6 million, which was equal to approximately 76.4% of amortized cost. For the quarter ended April 30, 2024, our CLO equity cash flow yield was 22.27% based on amortized cost.

Portfolio Overview ($ in millions)

 

As of April 30, 2024

 

As of January 31, 2024

Investment portfolio, at fair value

 

$

164.6

 

 

$

177.6

 

Total number of issuers

 

 

76

 

 

 

82

 

Weighted-average effective yield2

 

 

12.83

%

 

 

13.59

%

 

2 Based on amortized cost at period end, excludes discount accretion on CLO debt investments.

 

 

For the Fiscal Quarter Ended

Portfolio Purchase Activity ($ in millions)

 

April 30, 2024

 

January 31, 2024

CLO equity investments

 

$

11.2

 

 

$

7.5

 

CLO debt investments

 

 

—

 

 

 

1.9

 

Other CLO equity-related investments

 

 

0.4

 

 

 

—

 

Loan accumulation facility investments

 

 

4.3

 

 

 

5.7

 

Total investments

 

$

15.9

 

 

$

15.1

 

Weighted-average effective yield - period end

 

 

17.83

%

 

 

14.22

%

 

 

As of April 30, 2024

Portfolio Composition ($ in millions)

 

Amortized Cost

 

Fair Value

CLO equity investments

 

$

178.1

 

$

125.0

CLO debt investments

 

 

36.1

 

 

 

38.3

 

Other CLO equity-related investments

 

 

1.3

 

 

 

1.3

 

Total investments

 

$

215.5

 

 

$

164.6

 

RESULTS OF OPERATIONS

Interest Income

During the fiscal quarter ended April 30, 2024, interest income decreased by $0.4 million to $8.1 million compared to the prior quarter. The decrease in interest income was primarily due to two fewer accrual days during the period and a decrease in the effective yields on CLO equity investments, partially offset by certain incremental income related to loan accumulation facility investments and CLO debt investment repayments.

Expenses

During the fiscal quarter ended April 30, 2024, total expenses decreased by $0.3 million to $3.6 million compared to the prior quarter, primarily due to a decrease in professional fees and other expenses.

Net Realized and Unrealized Gain (Loss) on Investments

During the fiscal quarter ended April 30, 2024, net loss on investments of $5.2 million was primarily due to net realized and unrealized losses of $5.3 million on our CLO equity investments.

DISTRIBUTIONS

Third Quarter 2024 Common Stock Distributions

The following schedule applies to distributions for common stockholders of record on the close of business of each specific record date:

Month

 

Record Date

 

Payment Date

 

Cash Distribution Per Share

May 2024

 

May 21, 2024

 

May 31, 2024

 

$0.105

June 2024

 

June 18, 2024

 

June 28, 2024

 

$0.105

July 2024

 

July 19, 2024

 

July 31, 2024

 

$0.105

Dividend Reinvestment Plan – DRIP Shares Issued at 95% of Market Price

Our dividend reinvestment plan, as amended (“DRIP”), provides for common stockholders participating in the DRIP to receive their distribution in shares based on 95% of the market price per share of common stock at the close of regular trading on The Nasdaq Capital Market on the valuation date fixed by the Board for such distribution (i.e., the payment date), providing a 5% discount to the market price.

Common stockholders that are interested in participating in our DRIP should contact their broker or financial intermediary.

Additional information about our DRIP and how to participate can be found at https://ir.ofscreditcompany.com/shareholder-services/dividend-reinvestment-plan. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this press release.

OFS Credit Company, Inc.

Statement of Assets and Liabilities

 

 

As of April 30, 2024

 

 

(Unaudited)

Assets:

 

 

Investments, at fair value (amortized cost of $215,548,125)

 

$

164,612,310

 

Cash and cash equivalents

 

 

15,301,126

 

Interest receivable

 

 

152,479

 

Other assets

 

 

295,107

 

Total assets

 

 

180,361,022

 

 

 

 

Liabilities:

 

 

Preferred stock (net of deferred issuance costs of $1,018,193)

 

 

59,981,807

 

Payable to adviser and affiliates

 

 

2,343,407

 

Other liabilities

 

 

427,500

 

Total liabilities

 

 

62,752,714

 

 

 

 

Net assets

 

$

117,608,308

 

 

 

 

Net assets consist of:

 

 

Common stock, par value of $0.001 per share; 90,000,000 shares authorized and 16,023,177 shares issued and outstanding

 

$

16,023

 

Paid-in capital in excess of par

 

 

163,780,952

 

Total accumulated losses

 

 

(46,188,667

)

Total net assets

 

$

117,608,308

 

 

 

 

Net asset value per common share

 

$

7.34

 

OFS Credit Company, Inc.

Statements of Operations

 

Three Months Ended

 

Six Months Ended

 

April 30, 2024

 

April 30, 2024

 

(Unaudited)

 

(Unaudited)

Investment income:

 

 

 

Interest income

$

8,072,956

 

 

$

16,512,671

 

 

 

 

 

Operating expenses:

 

 

 

Interest expense

 

963,162

 

 

 

1,943,010

 

Incentive fees

 

1,125,769

 

 

 

2,273,358

 

Base management fees

 

789,792

 

 

 

1,601,388

 

Administration fees

 

277,576

 

 

 

616,319

 

Professional fees

 

209,453

 

 

 

509,464

 

Excise tax provision

 

35,000

 

 

 

35,000

 

Other expenses

 

169,128

 

 

 

440,699

 

Total operating expenses

 

3,569,880

 

 

 

7,419,238

 

 

 

 

 

Net investment income

 

4,503,076

 

 

 

9,093,433

 

 

 

 

 

Net realized and unrealized gain (loss) on investments:

 

 

 

Net realized loss on investments

 

(1,896,839

)

 

 

(3,748,547

)

Net change in unrealized appreciation (depreciation) on investments

 

(3,256,515

)

 

 

945,084

 

Net loss on investments

 

(5,153,354

)

 

 

(2,803,463

)

 

 

 

 

Net increase (decrease) in net assets resulting from operations

$

(650,278

)

 

$

6,289,970

 

 

 

 

 

Weighted-average common shares outstanding

 

15,973,110

 

 

 

15,948,850

 

About OFS Credit Company, Inc.

OFS Credit is a non-diversified, externally managed closed-end management investment company. The Company’s primary investment objective is to generate current income, with a secondary objective to generate capital appreciation, which we seek to achieve primarily through investment in CLO equity and debt securities. The Company’s investment activities are managed by OFS Capital Management, LLC, an investment adviser registered under the Investment Advisers Act of 19403, as amended, and headquartered in Chicago with additional offices in New York and Los Angeles.

3 Registration does not imply a certain level of skill or training

Forward-Looking Statements

Statements in this press release regarding management’s future expectations, beliefs, intentions, goals, strategies, plans or prospects, including statements relating to: the Company’s results of operations, including NII, Core NII, earnings per share and net asset value and the factors that may affect such results; management’s belief that the Company’s balance sheet remains strong and well positioned with an asset coverage ratio below regulatory requirements; management’s belief that the Company’s fixed-rate preferred stock financing, at below current market rates, affords the Company operational flexibility to create stockholder value in this interest rate environment; and other factors may constitute forward-looking statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including those risks, uncertainties and factors referred to in documents that may be filed by OFS Credit from time to time with the Securities and Exchange Commission (“SEC”), such as elevated interest and inflation rates, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility, on our business, our portfolio companies, our industry and the global economy. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this press release. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including Annual and Semi-Annual Reports on Form N-CSR and monthly portfolio investments reports filed on Form N-PORT for the third month of each of our fiscal quarters.

Supplemental Information Regarding Core Net Investment Income

We provide information relating to Core NII (a non-GAAP measure) on a supplemental basis. This measure is not provided as a substitute for GAAP NII, but in addition to it. Our non-GAAP measures may differ from similar measures by other companies, even in the event of similar terms being utilized to identify such measures. Core NII represents GAAP NII adjusted for differences in applicable cash distributions received on our CLO equity investments relative to income recognized in accordance with GAAP. OFS Capital Management, LLC, our investment adviser, uses this information in its internal analysis of results and believes that this information may be informative in gauging the quality of the Company’s financial performance, identifying trends in its results, and providing meaningful period-to-period comparisons.

Income from investments in the “equity” class securities of CLO vehicles, for GAAP purposes, is recorded using the effective interest method; this is based on an effective yield to the expected redemption of the security utilizing estimated cash flows, at current amortized cost, including those CLO equity investments that have not made their inaugural distribution for the relevant period end. The result is an effective yield for the investment in which the respective investment’s cost basis is adjusted quarterly based on the difference between the actual cash received, or distributions entitled to be received, and the effective yield calculation. Accordingly, investment income recognized on CLO equity securities in the GAAP statement of operations differs from the cash distributions actually received by the Company during the period (referred to below as “CLO equity adjustments”).

Furthermore, in order for the Company to continue to qualify for tax treatment as a regulated investment company, we are required, among other things, to distribute at least 90% of our investment company taxable income annually. Therefore, Core NII may provide a better indication of our estimated taxable income for a reporting period than GAAP NII; we can offer no assurance that will be the case, however, as the ultimate tax character of our earnings cannot be determined until our tax returns are prepared after the close of a fiscal year. We note that this non-GAAP measure may not serve as a useful indicator of taxable earnings, particularly during periods of market disruption and volatility, and, as such, our taxable income may differ materially from our Core NII.

The following table provides a reconciliation of GAAP NII to Core NII for the fiscal quarters ended April 30, 2024 and January 31, 2024 (unaudited):

 

 

For the Fiscal Quarter Ended

April 30, 2024

 

For the Fiscal Quarter Ended

January 31, 2024

 

 

Amount

 

Per Common

Share Amount

 

Amount

 

Per Common

Share Amount

Net investment income

 

$

4,503,076

 

$

0.28

 

$

4,590,357

 

$

0.29

CLO equity adjustments

 

 

3,914,723

 

 

 

0.25

 

 

 

2,649,680

 

 

 

0.16

 

Core NII

 

$

8,417,799

 

 

$

0.53

 

 

$

7,240,037

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

OFS® and OFS Credit® are registered trademarks of Orchard First Source Asset Management, LLC OFS Capital Management™ is a trademark of Orchard First Source Asset Management, LLC.

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INVESTOR RELATIONS: OFS Credit Company, Inc. Steve Altebrando 847-734-2085 investorrelations@ofscreditcompany.com