OFS Capital Corporation (NASDAQ:OFS) Q2 2020 Earnings Conference Call - Final Transcript
Jul 31, 2020 • 10:00 am ET
Thank you. [Operator Instructions] And our first question will come from Mickey Schleien with Ladenburg. Please go ahead.
Mickey M. Schleien
Yes, good morning everyone. I hope everyone is safe and healthy. I have a handful of high-level questions and one housekeeping question. So let me start out by asking you about your investment thesis on the loan market, because prior to the pandemic most market participants were in general agreement that we were in late stages of the cycle, but the pandemic effectively accelerated the process. What is your view on the possibility that we are now in the early stages of a new cycle effectively?
Sure. Thanks a lot Mickey. That's a very good question. I think that, certainly I think we are in the beginning of a new cycle. It's obviously different than the prior cycles just because of the uncertainties around this time around. I think we are -- have some significant uncertainties around the health care situation still.
And so I think the thesis going forward at least in the short run for us as it relates to investments is focusing our attention on what we believe at least in the near-term on what we call COVID-defensive sectors and staying away from sectors that have some exposure or significant exposure to the health care situation. And I think the other piece of our thesis is to focus at least initially on portfolio companies, in which we already have existing exposure.
So I think -- from that standpoint I think there -- the big benefit is that these are companies that we are very familiar with and these are companies that are actually doing well during this environment, and need money for expansion or are looking for capital to acquire some potential competitors. So the thesis again to summarize is to, even though it's early stage in this new credit cycle, it is to focus initially on add-on investments and then focus at least in the short run here on sectors that we believe are COVID-defensive.
Jeffrey A. Cerny
Yes. Mickey and this is Jeff. I would also note that, we've been in the process of this over the last two years, but continuing to focus on moving up the capital structure focusing on first lien senior secured borrowers and slightly larger companies. So this is a process that we began as part of the last cycle. I think it proved well as part of this recent downturn, and I think we're going to continue to focus on moving up the capital structure and more senior secured loans.
Mickey M. Schleien
Yes. I understand Jeff. I'm just -- I'm curious, I mean, the leverage -- the broad -- broadly speaking the leveraged loan market has had a very strong recovery from the lows in March and spreads are tightening but I sort of agree with you that the next few quarters seem to have a great deal of uncertainty at least in my mind. So there seems -- I mean, do you think there's a disconnect