OFS Capital Corporation

Good day and welcome to the OFS Capital Corporation second quarter 2024 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 1 on your touchtone phone. 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 for opening remarks. 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. Earlier this morning, we announced our second quarter earnings. Our net asset value per share increased by 3.9% to $11.51, up 43 cents from the prior quarter. While the current interest rate environment remains uncertain, we believe that we continue to benefit from our balance sheet positioning. With 72% of our debt being fixed rate, and 92% of our loan portfolio at fair value being floating rate. Our net investment income for the quarter decreased from 42 cents per share in the first quarter to 26 cents per share this quarter. As you recall, the net investment income from last quarter reflected certain non-recurring items. including significant non-recurring dividends from two of our equity investments. This quarter's net investment income primarily reflects the impact of our delevered balance sheet, which Jeff will discuss in more detail. That being said, we are focused on increasing our net investment income primarily by converting certain non-interest earning equity positions into interest earning assets, as we mentioned on our last call. In that regard, we are continuing to explore alternatives for our minority equity investment in Fansteel, our largest equity position. The fair value of the position rebounded this quarter, appreciating by $7.8 million to $70.8 million at quarter end. The improvement in value is in part attributed to an upswing in fundamental performance following a recent trough. As a reminder, this is a position we invested in more than 10 years ago at a modest cost of only $200,000. To date, we have received approximately $3.4 million in distributions for approximately 16 times our cost. Turning to our portfolio, we believe it is well positioned for the current macroeconomic environment. As part of our longstanding investment discipline, we remain committed to avoiding highly cyclical industries. We believe that our known portfolio remains well diversified and defensively positioned At quarter end, our largest sector exposures at fair value are in manufacturing, healthcare, wholesale trade, and business services. Another key part of our investment discipline is investing higher in the capital structure, with approximately 100% of our loan portfolio at fair value in first lien and second lien senior secured loans. In terms of new originations, M&A activity remains subdued, though we anticipate an increase in activity later in the year as we get more clarity on interest rates. In the meantime, we remain active in supporting our existing portfolio companies. In our view, our financing continues to benefit our company. At the end of the second quarter, 100% of our outstanding debt matures in 2026 or later, and 72% of our outstanding debt is unsecured. Our non-recourse $150 million senior loan facility with BNP Paribas matures in June 2027. Our corporate line of credit is flexible with no mark-to-market provisions. As we have discussed before, we locked in $180 million of fixed-rate unsecured debt in 2021, bearing a weighted average coupon of 4.8%, which is notably lower than current market pricing. As we navigate this market environment, we have confidence in the experience of our advisor. which manages approximately $4 billion across the known 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.