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OFS Credit Company Announces Financial Results for the First Fiscal Quarter 2024

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 January 31, 2024.

FIRST QUARTER HIGHLIGHTS

  • Net investment income (“NII”) of $4.6 million, or $0.29 per common share, for the fiscal quarter ended January 31, 2024. This compares to NII of $5.3 million, or $0.36 per common share, for the fiscal quarter ended October 31, 2023. The decrease in net investment income 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 $7.2 million, or $0.45 per common share, for the fiscal quarter ended January 31, 2024. This compares to Core NII of $9.1 million, or $0.62 per common share, for the fiscal quarter ended October 31, 2023. The decrease in Core NII was primarily due to a decrease in total waterfall payments from CLO equity investments of $1.3 million, to $8.8 million.
  • Net asset value (“NAV”) per common share of $7.68 as of January 31, 2024, an increase of $0.13 from NAV of $7.55 as of October 31, 2023.
  • During the fiscal quarter ended January 31, 2024, the earned income yield of our investment portfolio at amortized cost was 14.81%.

OTHER RECENT EVENTS

  • As previously announced, on February 1, 2024, our board of directors (the “Board”) declared monthly cash distributions of $0.10 per common share for each of the three months in the quarter ending April 30, 2024. The Board also declared monthly cash distributions on our outstanding preferred stock through July 31, 2024. See additional information under “Distributions” below.

SELECTED FINANCIAL HIGHLIGHTS

 

 

 

 

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

 

 

 

 

 

 

As of January 31, 2024

 

As of October 31, 2023

Investment portfolio, at fair value

 

$

177.6

 

$

168.1

NAV per common share

 

 

7.68

 

 

7.55

 

 

For the Fiscal Quarter Ended

(Per common share)

 

January 31, 2024

 

October 31, 2023

Net investment income

 

$

0.29

 

 

$

0.36

 

Net realized loss on investments

 

 

(0.12

)

 

 

 

Net unrealized appreciation (depreciation) on investments

 

 

0.27

 

 

 

(0.23

)

Net earnings

 

$

0.44

 

 

$

0.13

 

 

 

 

 

 

Reconciliation of Core NII — Non-GAAP1

 

 

 

 

Net investment income

 

$

0.29

 

 

$

0.36

 

CLO equity adjustments

 

 

0.16

 

 

 

0.26

 

Core NII

 

$

0.45

 

 

$

0.62

 

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 an increase in our net asset value to $7.68 per common share as of January 31, 2024,” said Bilal Rashid, Chief Executive Officer. “We believe our long-dated and 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 January 31, 2024, the total fair value of our investment portfolio was approximately $177.6 million, which was equal to approximately 78.8% of amortized cost. For the quarter ended January 31, 2024, our CLO equity cash flow yield was 20.12% based on amortized cost.

Portfolio Overview ($ in millions)

 

As of January 31, 2024

 

As of October 31, 2023

Investment portfolio, at fair value

 

$

177.6

 

 

$

168.1

 

Total number of portfolio companies

 

 

82

 

 

 

83

 

Weighted-average effective yield

 

 

13.59

%

 

 

14.16

%

 

 

For the Fiscal Quarter Ended

Portfolio Activity ($ in millions)

 

January 31, 2024

 

October 31, 2023

CLO equity investments

 

$

7.5

 

 

$

9.7

 

CLO debt investments

 

 

1.9

 

 

 

21.9

 

Loan accumulation facility investments

 

 

5.7

 

 

 

4.9

 

Total investments

 

$

15.1

 

 

$

36.5

 

Weighted-average effective yield - period end

 

 

14.22

%

 

 

16.62

%

As of January 31, 2024

Portfolio Composition ($ in millions)

Amortized Cost

 

Fair Value

CLO equity investments

$

174.4

 

$

124.7

CLO debt investments

 

42.7

 

 

44.7

Loan accumulation facility investments

 

7.3

 

 

7.3

Other CLO equity-related investments

 

0.9

 

 

0.9

Total investments

$

225.3

 

$

177.6

RESULTS OF OPERATIONS

Interest Income

During the fiscal quarter ended January 31, 2024, interest income decreased by $0.6 million to $8.4 million compared to the prior quarter. The decrease in interest income was primarily due to non-recurring interest income recognized upon the repayment of a loan accumulation facility during the prior quarter.

Expenses

During the fiscal quarter ended January 31, 2024, total expenses increased by $0.1 million to $3.8 million compared to the prior quarter, primarily due to an increase in professional fees and other expenses, and partially offset by a decrease in incentive fees.

Net realized and unrealized gain (loss)

During the fiscal quarter ended January 31, 2024, net gain on investments of $2.3 million was comprised of net unrealized appreciation of $4.2 million, partially offset by net realized losses of $1.9 million. Net unrealized appreciation of $4.2 million was primarily due to meaningful tightening in debt spread levels and an increase in underlying collateral loan prices during the quarter.

DISTRIBUTIONS

Common Stock Distributions

As previously announced, on February 1, 2024, our Board declared monthly cash distributions on shares of our common stock for each of the three months in the quarter ending April 30, 2024. The following schedule applies to distributions for common stockholders of record on the close of business of each specific record date:

Month

 

Record Date

 

Payable Date

 

Cash Distribution Per Common Share

February 2024

 

February 19, 2024

 

February 29, 2024

 

$0.10

March 2024

 

March 19, 2024

 

March 29, 2024

 

$0.10

April 2024

 

April 19, 2024

 

April 30, 2024

 

$0.10

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

On June 1, 2023, our Board adopted a change to our dividend reinvestment plan (the “Amended DRIP”) so that common stockholders may 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.

Preferred Stock Distributions

As previously announced, on February 1, 2024, our Board declared the following distributions on preferred shares.

Preferred Stock Series

For the Month

Record Date

Payable Date

Cash Distribution Per Share

6.125% Series C Term Preferred Stock

February 2024

February 19, 2024

February 29, 2024

$0.1276042

 

March 2024

March 19, 2024

March 29, 2024

$0.1276042

 

April 2024

April 19, 2024

April 30, 2024

$0.1276042

 

May 2024

May 21, 2024

May 31, 2024

$0.1276042

 

June 2024

June 18, 2024

June 28, 2024

$0.1276042

 

July 2024

July 19, 2024

July 31, 2024

$0.1276042

 

 

 

 

 

6.00% Series D Term Preferred Stock

February 2024

February 19, 2024

February 29, 2024

$0.125

 

March 2024

March 19, 2024

March 29, 2024

$0.125

 

April 2024

April 19, 2024

April 30, 2024

$0.125

 

May 2024

May 21, 2024

May 31, 2024

$0.125

 

June 2024

June 18, 2024

June 28, 2024

$0.125

 

July 2024

July 19, 2024

July 31, 2024

$0.125

 

 

 

 

 

5.25% Series E Term Preferred Stock

February 2024

February 19, 2024

February 29, 2024

$0.109375

 

March 2024

March 19, 2024

March 29, 2024

$0.109375

 

April 2024

April 19, 2024

April 30, 2024

$0.109375

 

May 2024

May 21, 2024

May 31, 2024

$0.109375

 

June 2024

June 18, 2024

June 28, 2024

$0.109375

 

July 2024

July 19, 2024

July 31, 2024

$0.109375

OFS Credit Company, Inc.

Statement of Assets and Liabilities

 

 

As of January 31, 2024

 

 

(unaudited)

Assets:

 

 

Investments, at fair value (amortized cost of $225,314,651)

 

$

177,635,351

 

Cash and cash equivalents

 

 

6,872,267

 

Interest receivable

 

 

697,227

 

Other assets

 

 

245,620

 

Total assets

 

 

185,450,465

 

 

 

 

Liabilities:

 

 

Preferred stock (net of deferred issuance costs of $1,124,793)

 

 

59,875,207

 

Payable to adviser and affiliates

 

 

2,646,700

 

Other liabilities

 

 

380,000

 

Total liabilities

 

 

62,901,907

 

 

 

 

Net assets

 

$

122,548,558

 

 

 

 

Net assets consist of:

 

 

Common stock, par value of $0.001 per share; 90,000,000 shares authorized and 15,948,379 shares issued and outstanding

 

$

15,948

 

Paid-in capital in excess of par

 

 

163,279,546

 

Total accumulated losses

 

 

(40,746,936

)

Total net assets

 

$

122,548,558

 

 

 

 

Net asset value per common share

 

$

7.68

 

OFS Credit Company, Inc.

Statement of Operations

 

Three Months Ended

 

January 31, 2024

 

(unaudited)

Investment income:

 

Interest income

$

8,439,715

 

 

 

Operating expenses:

 

Interest expense

 

979,848

 

Incentive fees

 

1,147,589

 

Base management fees

 

811,596

 

Administration fees

 

338,743

 

Professional fees

 

300,011

 

Other expenses

 

271,571

 

Total operating expenses

 

3,849,358

 

 

 

Net investment income

 

4,590,357

 

 

 

Net realized and unrealized gain (loss) on investments:

 

Net realized loss on investments

 

(1,851,708

)

Net change in unrealized appreciation on investments

 

4,201,599

 

Net gain on investments

 

2,349,891

 

 

 

Net increase in net assets resulting from operations

$

6,940,248

 

 

 

Weighted-average common shares outstanding

 

15,925,117

 

About OFS Credit Company, Inc.

OFS Credit is a non-diversified, externally managed closed-end management investment company. The Company’s investment objective is to generate current income, with a secondary objective to generate capital appreciation primarily through investment in CLO debt and subordinated securities. The Company's investment activities are managed by OFS Capital Management, LLC, an investment adviser registered under the Investment Advisers Act of 19402, as amended, and headquartered in Chicago with additional offices in New York and Los Angeles.

2 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 our long-dated and fixed-rate preferred stock financing, at below current market rates, affords us 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 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 January 31, 2024 and October 31, 2023 (unaudited):

 

 

For the Fiscal Quarter Ended January 31, 2024

 

For the Fiscal Quarter Ended October 31, 2023

 

 

Amount

 

Per Common Share Amount

 

Amount

 

Per Common Share Amount

Net investment income

 

$

4,590,357

 

$

0.29

 

$

5,330,023

 

$

0.36

CLO equity adjustments

 

 

2,649,680

 

 

0.16

 

 

3,798,856

 

 

0.26

Core NII

 

$

7,240,037

 

$

0.45

 

$

9,128,879

 

$

0.62

 

 

 

 

 

 

 

 

 

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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