OFS Capital Corporation (NASDAQ:OFS) Q2 2020 Earnings Conference Call - Final Transcript

Jul 31, 2020 • 10:00 am ET


OFS Capital Corporation (NASDAQ:OFS) Q2 2020 Earnings Conference Call - Final Transcript


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Bilal Rashid

percentage of fair value, approximately 87% of our loan portfolio was senior secured at the end of the second quarter compared to 77%, two years ago. We have been concentrating on noncyclical sectors with minimal direct exposure to oil and gas, metals, mining, restaurants and airlines.

We have also been prudent in our approach in limiting the number and amount of revolving known facilities offered to our borrowers. We had just $9 million in revolving debt commitments, $4.3 million of which were undrawn at the end of the quarter. It has been our long-standing practice to keep our revolving debt exposure to a minimum, which we believe has once again helped us with our current liquidity position.

Turning to net investment income, we generated $0.19 per share for the second quarter. The decline in net investment income was related to various factors. First, we paused our origination activities during the second quarter due to uncertainty related to the COVID-19 pandemic and the slowdown in M&A activity. In addition, we decided to hold a large cash position throughout the quarter, which we believe was a prudent approach despite its impact on earnings. Jeff will provide more details on other contributing factors later in the call.

We anticipate that as we begin to deploy capital into add-on and new investments and optimize our portfolio, our investment income will grow. This morning, we declared a $0.17 per share distribution for the second quarter, same as we did last quarter. Given the significant uncertainty related to the COVID-19 situation, we continue to take a cautious approach to our distribution. We believe that this decision will enhance our liquidity and strengthen our balance sheet. Going forward, we believe that our liquidity position will allow us to support our portfolio companies and use our capital opportunistically as the broader economic picture becomes more clear.

With regard to our balance sheet, we believe that we have ample capital on hand with approximately $31.8 million in cash and additional capacity to draw on our credit facilities.

Turning to our liabilities. Our flexible financing improves our ability to withstand market dislocation. As of June 30th, over 90% of our debt had stated maturities in 2024 or later. Our long-term unsecured debt makes up 45% of our debt outstanding as of June 30th. Our senior loan facility matures in 2024 and is non-recourse to the BDC. And our corporate line of credit is flexible as well with no mark-to-market provisions. We expect that this will provide us with operational flexibility in the current environment. We believe that the BDC's adviser has the expertise and scale to invest across the loan and structured credit markets with more than $2.1 billion in assets under management.

In an unprecedented environment like this, we believe that we are able to identify relative-value credit opportunities across multiple markets. The BDC adviser has a team of investment professionals with long-standing experience in credit underwriting and restructuring across industry verticals. Our adviser's credit platform has been in