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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Jeffrey A. Cerny

the quarter. As Bilal discussed, we declared a distribution of $0.17 earlier this morning. We believe that this rate will enhance our liquidity and strengthen our balance sheet so that we can continue to support our borrowers and capitalize on potential new opportunities.

Turning to the portfolio. We continue to actively work with our portfolio companies to help them get through the challenges associated with COVID-19. We are working through liquidity solutions and other actions that will allow our portfolio companies to maximize value. At this point, we are still not sure how the length and depth of this virus will play out and how it will fully impact our borrowers. We believe that our highly selective investment process and focus on capital preservation may positively impact how our portfolio performs.

As far as our investments at the end of the quarter, we had investments in 73 companies totaling approximately $438.4 million on a fair value basis. 90% of the fair value of our loan investments were in senior secured loans. 87% of our loan investments were floating rate loans. We had LIBOR floors on approximately 89% of our floating-rate loan portfolio with an average LIBOR floor of 1.16%. This compares to three-month LIBOR at June 30th of approximately 30 basis points.

As a percentage of cost, our investments were approximately 74% senior secured loans, 12% subordinated debt, 7% structured finance notes and 7% equity, of which approximately 54% of our equity was in preferred equity securities. Our portfolio remains diversified with an average investment in each portfolio company of approximately $6 million or 1.4% of the portfolio's total fair value. The overall weighted average yield to cost on our performing debt and structured finance note investments remained consistent quarter-over-quarter at approximately 10.1%.

With that, I'll turn the call back over to Bilal.

Bilal Rashid

Thank you, Jeff.

In closing, we believe that our solid liquidity position will help us to weather the current economic situation, take advantage of potential investment opportunities and support our existing portfolio companies. Currently, we are evaluating both new investments as well as add-ons for a couple of our borrowers that are pursuing growth and acquisition opportunities. We remain focused on strengthening our balance sheet. We continue to proactively manage our portfolio and help our borrowers to navigate this difficult and uncertain economic environment.

Since the beginning of 2011, OFS has invested $1.4 billion with a cumulative net realized loss of principal of only $14 million or just 1%, while generating attractive yields on our portfolio. We have been steadily increasing our allocation to senior secured loans and our portfolio consists primarily of such loans. We have also been increasing our exposure to larger borrowers. Our financing is primarily long term. As of June 30th, 90% of our debt matures in 2024 and beyond. We believe that this gives us operational flexibility in the current market environment.

Lastly, we benefit from the experience of our adviser, which manages a $2.1 billion corporate credit platform. Our adviser is