OFS Credit Company Announces Financial Results for the Second Fiscal Quarter 2024
OFS Credit Company (Nasdaq: OCCI) reported its financial results for Q2 2024 ending April 30. The company recorded a net investment income (NII) of $4.5 million ($0.28 per share), down from $4.6 million ($0.29 per share) in the previous quarter, mainly due to a decline in interest income. However, Core NII increased to $8.4 million ($0.53 per share) from $7.2 million ($0.45 per share), driven by higher recurring payments from CLO equity investments. The net asset value (NAV) per share decreased to $7.34 from $7.68, reflecting a net loss on investments. The board declared an increased monthly cash distribution of $0.105 per share for the upcoming quarter. The investment portfolio's fair value stood at $164.6 million, with an earned income yield of 14.71%. The company faced a net loss of $5.2 million due to realized and unrealized losses on investments.
- Core NII increased to $8.4 million ($0.53 per share) from $7.2 million ($0.45 per share).
- Recurring waterfall payments from CLO equity investments rose by 10.3%.
- Monthly cash distributions increased by 5% to $0.105 per share for the next quarter.
- Reduced total expenses by $0.3 million due to lower professional fees and other expenses.
- Net assets valued at $117.6 million as of April 30, 2024.
- Net investment income (NII) decreased to $4.5 million ($0.28 per share) from $4.6 million ($0.29 per share).
- NAV per share dropped to $7.34 from $7.68, primarily due to a net loss on investments.
- Net realized and unrealized losses on investments resulted in a net loss of $5.2 million.
- Interest income decreased by $0.4 million to $8.1 million.
- Portfolio fair value declined to $164.6 million from $177.6 million.
Insights
The financial results for OFS Credit Company show a mixed performance. The Net Investment Income (NII) decreased slightly from
This divergence between NII and Core NII is noteworthy because Core NII adjusts for cash distributions received on CLO investments, which may not align with income recognized under GAAP. With the NAV per common share declining from
The company's earned income yield of
For retail investors, the key takeaway is the high income yield, which could be appealing, but the declining NAV and net losses indicate potential risks. The increase in monthly cash distributions to
Overall, investors should weigh the attractive yields against the volatility in NAV and potential market risks associated with CLO investments.
OFS Credit Company's performance in the second fiscal quarter of 2024 displays some noteworthy trends. The increase in Core NII is a positive indicator, suggesting that the company is receiving higher cash distributions from its CLO equity investments. This could be a sign of improving market conditions for CLOs, which are pools of debt securities that generate cash flows for equity stakeholders through a structured payment system known as the waterfall mechanism.
The reduction in the number of issuers from 82 to 76 and the decline in weighted-average effective yield from
The increase in monthly cash distributions and the dividend reinvestment plan offering shares at a
For retail investors, understanding the intricacies of CLO investments is crucial. CLOs can offer high returns but come with significant risks, such as market volatility and changes in interest rates. The company's strategic adjustments and increased distributions signal a cautious optimism, but it's essential to monitor the broader economic landscape and its impact on CLO performance.
SECOND QUARTER HIGHLIGHTS
-
Net investment income (“NII”) of
$4.5 million $0.28 $4.6 million $0.29 -
Core net investment income (“Core NII”)1 of
$8.4 million $0.53 $7.2 million $0.45 $0.9 million $9.7 million -
Net asset value (“NAV”) per common share of
$7.34 $0.34 $7.68 $0.32 -
During the fiscal quarter ended April 30, 2024, the earned income yield of our investment portfolio based on average amortized cost was
14.71% .
OTHER RECENT EVENTS
-
As previously announced, on May 1, 2024, our board of directors (the “Board”) declared monthly cash distributions of
$0.10 55% increase from the prior monthly distribution amount of$0.10
SELECTED FINANCIAL HIGHLIGHTS |
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(in millions, except per share data) (unaudited) |
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As of April 30, 2024 |
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As of January 31, 2024 |
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Investment portfolio, at fair value |
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$ |
164.6 |
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$ |
177.6 |
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NAV per common share |
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|
7.34 |
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7.68 |
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For the Fiscal Quarter Ended |
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(Per common share) |
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April 30, 2024 |
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January 31, 2024 |
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Net investment income |
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$ |
0.28 |
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$ |
0.29 |
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Net realized loss on investments |
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|
(0.12 |
) |
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(0.12 |
) |
Net unrealized appreciation (depreciation) on investments |
|
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(0.20 |
) |
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0.27 |
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Net earnings (loss) |
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$ |
(0.04 |
) |
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$ |
0.44 |
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Reconciliation of Core NII — Non-GAAP1 |
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Net investment income |
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$ |
0.28 |
|
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$ |
0.29 |
|
CLO equity adjustments |
|
|
0.25 |
|
|
|
0.16 |
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Core NII |
|
$ |
0.53 |
|
|
$ |
0.45 |
|
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 |
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MANAGEMENT COMMENTARY
“We are pleased to announce that during the second fiscal quarter our CLO equity investments received a
PORTFOLIO AND INVESTMENT ACTIVITIES
As of April 30, 2024, the total fair value of our investment portfolio was approximately
Portfolio Overview ($ in millions) |
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As of April 30, 2024 |
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As of January 31, 2024 |
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Investment portfolio, at fair value |
|
$ |
164.6 |
|
|
$ |
177.6 |
|
Total number of issuers |
|
|
76 |
|
|
|
82 |
|
Weighted-average effective yield2 |
|
|
12.83 |
% |
|
|
13.59 |
% |
2 Based on amortized cost at period end, excludes discount accretion on CLO debt investments. |
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For the Fiscal Quarter Ended |
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Portfolio Purchase Activity ($ in millions) |
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April 30, 2024 |
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January 31, 2024 |
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CLO equity investments |
|
$ |
11.2 |
|
|
$ |
7.5 |
|
CLO debt investments |
|
|
— |
|
|
|
1.9 |
|
Other CLO equity-related investments |
|
|
0.4 |
|
|
|
— |
|
Loan accumulation facility investments |
|
|
4.3 |
|
|
|
5.7 |
|
Total investments |
|
$ |
15.9 |
|
|
$ |
15.1 |
|
Weighted-average effective yield - period end |
|
|
17.83 |
% |
|
|
14.22 |
% |
|
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As of April 30, 2024 |
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Portfolio Composition ($ in millions) |
|
Amortized Cost |
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Fair Value |
||||
CLO equity investments |
|
$ |
178.1 |
|
$ |
125.0 |
||
CLO debt investments |
|
|
36.1 |
|
|
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38.3 |
|
Other CLO equity-related investments |
|
|
1.3 |
|
|
|
1.3 |
|
Total investments |
|
$ |
215.5 |
|
|
$ |
164.6 |
|
RESULTS OF OPERATIONS
Interest Income
During the fiscal quarter ended April 30, 2024, interest income decreased by
Expenses
During the fiscal quarter ended April 30, 2024, total expenses decreased by
Net Realized and Unrealized Gain (Loss) on Investments
During the fiscal quarter ended April 30, 2024, net loss on investments of
DISTRIBUTIONS
Third Quarter 2024 Common Stock Distributions
The following schedule applies to distributions for common stockholders of record on the close of business of each specific record date:
Month |
|
Record Date |
|
Payment Date |
|
Cash Distribution Per Share |
May 2024 |
|
May 21, 2024 |
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May 31, 2024 |
|
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June 2024 |
|
June 18, 2024 |
|
June 28, 2024 |
|
|
July 2024 |
|
July 19, 2024 |
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July 31, 2024 |
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|
Dividend Reinvestment Plan – DRIP Shares Issued at
Our dividend reinvestment plan, as amended (“DRIP”), provides for common stockholders participating in the DRIP to receive their distribution in shares based on
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.
OFS Credit Company, Inc. Statement of Assets and Liabilities |
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As of April 30, 2024 |
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(Unaudited) |
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Assets: |
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Investments, at fair value (amortized cost of |
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$ |
164,612,310 |
|
Cash and cash equivalents |
|
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15,301,126 |
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Interest receivable |
|
|
152,479 |
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Other assets |
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|
295,107 |
|
Total assets |
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180,361,022 |
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Liabilities: |
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Preferred stock (net of deferred issuance costs of |
|
|
59,981,807 |
|
Payable to adviser and affiliates |
|
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2,343,407 |
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Other liabilities |
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427,500 |
|
Total liabilities |
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62,752,714 |
|
|
|
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Net assets |
|
$ |
117,608,308 |
|
|
|
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Net assets consist of: |
|
|
||
Common stock, par value of |
|
$ |
16,023 |
|
Paid-in capital in excess of par |
|
|
163,780,952 |
|
Total accumulated losses |
|
|
(46,188,667 |
) |
Total net assets |
|
$ |
117,608,308 |
|
|
|
|
||
Net asset value per common share |
|
$ |
7.34 |
|
OFS Credit Company, Inc. Statements of Operations |
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Three Months Ended |
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Six Months Ended |
||||
|
April 30, 2024 |
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April 30, 2024 |
||||
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(Unaudited) |
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(Unaudited) |
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Investment income: |
|
|
|
||||
Interest income |
$ |
8,072,956 |
|
|
$ |
16,512,671 |
|
|
|
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|
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Operating expenses: |
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|
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Interest expense |
|
963,162 |
|
|
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1,943,010 |
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Incentive fees |
|
1,125,769 |
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|
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2,273,358 |
|
Base management fees |
|
789,792 |
|
|
|
1,601,388 |
|
Administration fees |
|
277,576 |
|
|
|
616,319 |
|
Professional fees |
|
209,453 |
|
|
|
509,464 |
|
Excise tax provision |
|
35,000 |
|
|
|
35,000 |
|
Other expenses |
|
169,128 |
|
|
|
440,699 |
|
Total operating expenses |
|
3,569,880 |
|
|
|
7,419,238 |
|
|
|
|
|
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Net investment income |
|
4,503,076 |
|
|
|
9,093,433 |
|
|
|
|
|
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Net realized and unrealized gain (loss) on investments: |
|
|
|
||||
Net realized loss on investments |
|
(1,896,839 |
) |
|
|
(3,748,547 |
) |
Net change in unrealized appreciation (depreciation) on investments |
|
(3,256,515 |
) |
|
|
945,084 |
|
Net loss on investments |
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(5,153,354 |
) |
|
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(2,803,463 |
) |
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Net increase (decrease) in net assets resulting from operations |
$ |
(650,278 |
) |
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$ |
6,289,970 |
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Weighted-average common shares outstanding |
|
15,973,110 |
|
|
|
15,948,850 |
|
About OFS Credit Company, Inc.
OFS Credit is a non-diversified, externally managed closed-end management investment company. The Company’s primary investment objective is to generate current income, with a secondary objective to generate capital appreciation, which we seek to achieve primarily through investment in CLO equity and debt securities. The Company’s investment activities are managed by OFS Capital Management, LLC, an investment adviser registered under the Investment Advisers Act of 19403, as amended, and headquartered in
3 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 the Company’s balance sheet remains strong and well positioned with an asset coverage ratio below regulatory requirements; management’s belief that the Company’s fixed-rate preferred stock financing, at below current market rates, affords the Company 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
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 of the security 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
The following table provides a reconciliation of GAAP NII to Core NII for the fiscal quarters ended April 30, 2024 and January 31, 2024 (unaudited):
|
|
For the Fiscal Quarter Ended April 30, 2024 |
|
For the Fiscal Quarter Ended January 31, 2024 |
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|
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Amount |
|
Per Common Share Amount |
|
Amount |
|
Per Common Share Amount |
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Net investment income |
|
$ |
4,503,076 |
|
$ |
0.28 |
|
$ |
4,590,357 |
|
$ |
0.29 |
||||
CLO equity adjustments |
|
|
3,914,723 |
|
|
|
0.25 |
|
|
|
2,649,680 |
|
|
|
0.16 |
|
Core NII |
|
$ |
8,417,799 |
|
|
$ |
0.53 |
|
|
$ |
7,240,037 |
|
|
$ |
0.45 |
|
|
|
|
|
|
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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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240611565055/en/
INVESTOR RELATIONS:
OFS Credit Company, Inc.
Steve Altebrando
847-734-2085
investorrelations@ofscreditcompany.com
Source: OFS Credit Company, Inc.
FAQ
What were OFS Credit's net investment income (NII) for Q2 2024?
How did OFS Credit's Core NII change in Q2 2024?
What is the net asset value (NAV) per share for OFS Credit as of April 30, 2024?
What is the new monthly cash distribution declared by OFS Credit?
What was the net loss on investments for OFS Credit in Q2 2024?
How did OFS Credit's investment portfolio fair value change in Q2 2024?
What was OFS Credit’s interest income in Q2 2024?
What was the total net assets value for OFS Credit as of April 30, 2024?
