OFS Capital Corporation

Good morning, and welcome to the OFS Capital Corporation fourth quarter and full year 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Steve Altibrando, Vice President of Capital Markets. Please go ahead.

Good morning, everyone, and thank you for joining us. Also on the call today are Bilal Rashid, our chairman and chief executive officer, and Jeff Cerny, the company's chief financial officer and treasurer. Before we begin, please note that the statements made on this call and webcast may constitute forward-looking statements as defined under applicable securities laws. Such statements reflect various assumptions, expectations, and opinions by OFS capital management concerning anticipated results are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are in some way beyond management's control, including the risk factors described from time to time in our filings with the SEC. Although we believe these assumptions are reasonable, any of those assumptions could prove inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. You should not place undue reliance on these forward-looking statements. OFS Capital undertakes no duty to update any forward-looking statements made herein, and all forward-looking statements speak only as of the date of this call. During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the investor relations section of our website under the heading Tax and Non-GAAP Information. With that, I'll turn the call over to Chairman and Chief Executive Officer Bilal Rashid.

Thank you, Steve. Good morning. We closed out 2022 with another solid increase in net investment income in the fourth quarter. As the vast majority of our loan portfolio is floating rate, higher base rates and higher spreads have increased our earnings power. This helped us increase our distribution by 10% to 33 cents per share to be paid in March 2023. This represents an 18% increase compared to one year ago for the first quarter of 2022. This is also our ninth quarterly increase over the past 10 quarters. Our net asset value remained relatively stable, decreasing by less than 1% to $13.47 per share. This slight decline from last quarter was primarily due to unrealized depreciation. Our net investment income increased to 35 cents per share in the fourth quarter, up from 33 cents per share in the third quarter. In the second half of the year, we were able to realize the benefits of positioning our balance sheet in advance of a rising interest rate environment. Our portfolio is primarily comprised of floating rate senior secured loans and is well diversified across multiple industries. Our balance sheet is primarily financed with long-term fixed rate debt. We expect this combination will continue to provide tailwinds to our net investment income if the Fed continues to increase interest rates. as is widely assumed, as they continue to fight inflation. The overall credit quality of our portfolio companies remains solid, and we are not seeing any systemic issues among them. Based on our interactions with these companies, we believe the cost of corporate borrowing remains manageable in this rising interest rate environment. Our long-standing investment discipline has helped us to avoid investing in highly cyclical industries. We are defensively positioned with our largest sector exposures in manufacturing, healthcare, business services, and technology. As has been widely reported, deal activity in the middle market has been slow as overall M&A activity has been muted. We expect that in the second half of the year, as we get more clarity on the Fed's decisions and its impact on inflation, M&A activity will begin to pick up. In the meantime, we are being deliberate in putting capital to work. We continue to manage our portfolio conservatively as we have done through multiple credit cycles. Our financing continues to provide us with operational flexibility. At the end of the fourth quarter, 100% of our outstanding debt matures in 2025 or later, and approximately half of our debt is unsecured. As we have previously noted on our calls, Last June, we extended the maturity of our $150 million senior loan facility with BNP Paribas by three years to June, 2027. This facility is non-recourse to the BDC. Our corporate line of credit is flexible with no mark to market provisions. And in 2021, prior to the Fed increasing rates at a historically high and fast rate, we locked in 180 million of fixed-rate unsecured debt at rates that are notably lower than current market pricing. This combination of financings has enabled us to benefit from rising interest rates and we expect to continue to see the benefits in the first quarter and beyond. As it relates to the economy, it is difficult to quantify the impact of rising interest rates and inflation. However, we believe that being at the top of the capital structure with the majority of our loan portfolio being senior secured helps us in this uncertain economic environment. We also expect to continue to benefit from the experience of our advisor which manages approximately $3.9 billion across the loan and structured credit markets, has experience in multiple asset classes and industries, and has a 25-plus year track record through several credit cycles. At this point, I'll turn the call over to Jeff Cerney, our Chief Financial Officer, to give you more details and color for the quarter.