Financial Stock Investor’s Alert: OFS Capital Corp (NASDAQ:OFS)

On Wednesday, OFS Capital Corp (NASDAQ:OFS) gained 1.64% with the overall traded volume of 46,483.00 shares above its average volume of 25,010.00 shares. The company has the market value of $146.86M and its EPS ratio for the past year was $1.57. The company finished business at $15.15.

OFS Capital Corporation (OFS) today declared its financial results for the fiscal quarter and the full year ended December 31, 2016.

PORTFOLIO AND INVESTMENT ACTIVITIES:

During the fourth quarter of 2016, OFS Capital closed two new senior secured debt investments in two portfolio companies totaling $13.0M, one of which also included a new common equity investment of $0.70M, and also closed one new subordinated debt investment of $12.40M. In addition, OFS Capital made a $1.0M senior secured debt investment and a $1.0M subordinated debt investment in existing portfolio companies.

The total fair value of OFS Capital’s investment portfolio was $281.60M at December 31, 2016, which was equal to about 101% of amortized cost. As of December 31, 2016, the fair value of OFS Capital’s debt investment portfolio totaled $244.40M in 39 portfolio companies, of which 74% and 26% were senior secured loans and subordinated loans, respectively. As of December 31, 2016, the company also held about $37.30M in equity investments, at fair value, in 17 portfolio companies in which it also held debt investments and two Portfolio Company in which it solely held an equity investment. The company had unfunded commitments of $2.60M to three portfolio companies at December 31, 2016. As of December 31, 2016, floating rate loans comprised 66% of OFS Capital’s debt investment portfolio, with the remaining 34% in fixed rate loans, as a percentage of fair value.

RESULTS OF OPERATIONS:

Interest Income

Interest income reduced $1.40M mainly because of a $1.0M decrease in interest income and a $0.40M decrease in accelerated loan origination fees, original issue discount, market discount or premium, and loan amendment fees. The $1.0M decrease in interest income was mainly because of a $3.60M decrease caused by a 13% decrease in the average outstanding loan balance during 2016, offset by a boost of $2.60M caused by a 19 basis point increase in the weighted average yield in its portfolio during the year ended December 31, 2016. The 13% decrease in the weighted average principal balance of investments and increase in its average portfolio yield was mainly a result of the WM Asset Sale, in which it sold a portfolio of 20 senior secured debt investments with an aggregate outstanding principal balance of $67.80M to Madison Capital Funding LLC on May 28, 2015. The proceeds of which had only been partially reinvested in higher yielding assets subsequent to the WM Asset Sale. Acceleration of Net Loan Fees of $0.60M and $1.0M were included in interest income for the year ended December 31, 2016 and 2015, respectively. Acceleration of Net Loan Fees occur and are recognized on certain loans that are repaid before their planned due date.

Dividend Income:

Preferred equity cash and PIK dividend income raised about $0.30M mainly as a result of additional preferred equity securities purchased during 2015. Common equity dividend income raised by $0.20M mainly because of an additional common equity security purchased during the fourth quarter of 2015.

Fee Income:

Fee income reduced $0.30M mainly because of a decrease in prepayment fees, capital structuring fees. The company recorded prepayment fees of $0.90M resulting from $25.0M of unplanned principal payments during the year ended December 31, 2016, contrast to $1.10M from $47.50M of unplanned principal payments during 2015. The company recognized capital structuring fees of $0.40M and $0.70M for the years ended December 31, 2016 and 2015, respectively, upon the closing of $37.30M and $89.0M of debt and equity investments, respectively.

Expenses:

Interest expense reduced by $1.70M, mainly because of a year-over-year decrease of $0.80M in cash interest expense on its secured revolving line of credit with Wells Fargo Bank, N.A. (“WM Credit Facility”) and a $1.60M write-off of deferred debt issuance costs, both related to company’s permanent reduction of the WM Credit Facility and the termination of the WM Credit Facility on May 28, 2015, offset by a boost of $0.70M in cash interest expense incurred on its SBA debentures. Interest expense on its SBA debentures rose because of a boost in the weighted average interest rate and the weighted average debentures outstanding during the year ended December 31, 2016, as a result of additional debenture draws of $22.60M during the nine months ended September 30, 2015, which pooled on September 23, 2015.

Administration fee expense reduced by $0.70M, because of a decrease in the average total assets subject to the base administration fee.

Incentive fee expense raised by $0.70M, because of a 11% increase in pre-incentive fee net investment income contrast to the prior year, which resulted in a $0.80M increase in the incentive fee catch-up provision (the amount of pre-incentive fee income that exceeds the hurdle rate but is less than 2.5%) and a $0.10M increase in the incentive fee because of the amount of pre-incentive fee income that exceeded 2.5%, partially offset by a $0.10M decrease in the Capital Gains Fee, which represents the reversal of the accrued Capital Gains Fee at December 31, 2015.

Administrative fee expense reduced by $0.30M, mainly because of a decrease in the allocable amount of incentives of its officers and their respective staffs, which OFS Services passed along to us under our administration agreement.

LIQUIDITY AND CAPITAL RESOURCES:

At December 31, 2016, we had $17.70M in cash and cash equivalents and $149.90M in outstanding SBA-guaranteed debentures. As of December 31, 2016, the company had $15.50M available for additional borrowings on its senior secured revolving credit facility with Pacific Western Bank and had drawn all of our available SBA-guaranteed debentures.

“In view of 2016, we are pleased that our net investment income continues to drastically exceed our distribution and our NAV remains stable. In future, we believe we are well positioned for a potential increase in interest rates. And, on the whole, we are proud of the total return we have generated since our initial public offering in late 2012, over which time, we have declared more than $5.50 per share to our shareholders,” said Bilal Rashid, OFS Capital’s Chairman and Chief Executive Officer. “We attribute our results to the strength of our direct origination and underwriting platform, and our commitment to strong, long-term performance and excellence is improved by the alignment of interests of our stockholders and our external manager, which owns more than 30% of the company.”

Technical Analysis:

The company has 9.70M shares outstanding and 24.80% shares of the company were owned by institutional investors. The company has 4.48 value in price to sale ratio while price to book ratio was recorded as 1.02. The company earned $15.20M in prior twelve months on revenue of $ 31.80M. It beta stands at 0.55.

Analyst recommendation for this stock stands at 2.00.

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