OFS Capital Corporation

Good morning and welcome to the OFS Capital Corporation first quarter 2023 earnings conference call. All participants will be in a 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 two. Please note, this event is being recorded. I would now like to turn the conference over to Steve Altibrando. 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. With that, I'll turn the call over to Chairman and Chief Executive Officer Bilal Rashid.

Thank you, Steve. Good morning. Since our last call just two months ago, we are pleased to report another increase in our quarterly net investment income. We continue to see the benefits of our balance sheet positioning in this rising interest rate environment, with the vast majority of our loan portfolio being floating rate and the majority of our debt being fixed rate. Earlier this morning, we announced a quarterly distribution of 33 cents per share. Our net investment income increased to 37 cents per share in the first quarter, up from 35 cents per share in the fourth quarter of last year. This increase was largely due to a dividend payment from our investment in Fansteel. Such payments are at the discretion of the company and are not expected to be received on a recurring quarterly basis. Our net asset value remained relatively flat, decreasing by less than half a percent to $13.42 per share. This slight decline from last quarter was primarily due to unrealized depreciation on investments. We believe that the overall credit quality of our portfolio companies remains solid. As you would expect, we maintain regular contact with our portfolio companies, and we continue to believe that the cost of borrowing remains manageable in this slow growth and rising interest rate environment. As part of our longstanding investment discipline, we limit investing in highly cyclical industries. Our well-diversified portfolio is defensively positioned with our largest sector exposures in manufacturing, healthcare, business services, and technology. Although M&A activity remains subdued, we expect it to pick up in the second half of the year. In the meantime, we remain deliberate in putting capital to work. Our financing continues to provide us with operational flexibility. At the end of the first quarter, approximately 85% of our outstanding debt matures in 2026 or later, and more than half of our debt is unsecured. In 2022, our $150 million senior loan facility with BNP Paribas was extended 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, we locked in $180 million of fixed-rate unsecured debt at rates that are notably lower than current market pricing, carrying a weighted average coupon of 4.8%. This combination of financings has enabled us to benefit from rising interest rates. Shortly after our call in March, the banking industry began experiencing a period of turmoil with the collapse of certain banks. As you know, we have no direct exposure to venture debt or commercial real estate. In fact, we believe that the weakness in the banking sector will help strengthen our competitive positioning as a lender. As it relates to the impact of rising interest rates and inflation, 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 anticipate that we will continue to benefit from the experience of our advisor, which manages approximately $4.1 billion across the loan and structured credit markets, has expertise in multiple asset classes and industries, and has a more than 25-year track record through multiple credit cycles. At this point, I'll turn the call over to Jeff Cerny, our Chief Financial Officer, to give you more details and color for the quarter.