UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
––––––––––––––––––
FORM N-CSR
––––––––––––––––––
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-23299
––––––––––––––––––
OFS Credit Company, Inc.
(Exact name of registrant as specified in charter)
––––––––––––––––––
10 South Wacker Drive, Suite 2500
Chicago, IL 60606
Chicago, IL 60606
(Address of principal executive offices)
Bilal Rashid
Chief Executive Officer
OFS Credit Company, Inc.
10 South Wacker Drive, Suite 2500
Chicago, IL 60606
Chief Executive Officer
OFS Credit Company, Inc.
10 South Wacker Drive, Suite 2500
Chicago, IL 60606
(Name and address of agent for service)
––––––––––––––––––
Registrant’s telephone number, including area code: (847) 734-2000
Date of fiscal year end: October 31
Date of reporting period: April 30, 2023
Item 1. Report to Stockholders
The Company’s Semi-Annual Report to stockholders for the six months ended April 30, 2023 is filed herewith.
OFS CREDIT COMPANY, INC.
TABLE OF CONTENTS - SEMI-ANNUAL REPORT
June 6, 2023
To Our Stockholders:
OFS Credit Company, Inc. (“OFS Credit”, the “Company”, “we” or “our”) has a primary goal of generating current income on behalf of our stockholders. We are working diligently to manage the portfolio during this time of market volatility and rising interest rates, both of which are elevating the risk of recession.
We believe collateralized loan obligations (“CLOs”) can be an attractive investment during periods of market dislocation, and in the current market, we intend to deploy capital into discounted investments that we believe will generate attractive, risk-adjusted returns. Also, CLOs are floating rate vehicles, which we believe mitigates interest rate risk.
On June 2, 2023, we announced a $0.55 per share quarterly distribution for common stockholders for the quarter ending July 31, 2023. The quarterly distribution equates to an approximate 24.7% annualized distribution rate based on our April 30, 2023 market price of $8.89.
The distribution will be paid in cash or shares of our common stock at the election of stockholders. The total amount of cash distributed to all stockholders will be limited to 20% of the total distribution to be paid, excluding any cash paid for fractional shares. The remainder of the distribution (approximately 80%) will be paid in the form of shares of our common stock. The exact distribution of cash and stock to any given stockholder will be dependent upon that stockholder’s election as well as elections of other stockholders, subject to the pro-rata limitation.
On June 1, 2023, the Company’s board of directors (the “Board”) approved an amended and restated dividend reinvestment plan (the “Amended DRIP”). For stockholders participating in the Amended DRIP, the number of shares to be issued to a stockholder in connection with any distribution will be determined by dividing the total dollar amount of the distribution payable to such stockholder by an amount equal to ninety five percent (95%) of the market price per share of common stock at the close of regular trading on the Nasdaq Capital Market on the valuation date fixed by the Board for such distribution.
Our investment adviser, OFS Capital Management, LLC, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and, as of March 31, 2023, had approximately $4.1 billion of committed assets under management. We believe our adviser is uniquely positioned to manage the Company given its expertise in both investing in structured credit (CLO equity and subordinated debt tranches) and managing CLOs, which entails underwriting corporate loans in the broadly syndicated loan market. We believe that our commitment to the strong, long-term performance of OFS Credit is aligned with the interests of our investment adviser who, together with other insiders, owns approximately 7.0% of the Company’s common stock.
We look forward to continuing this dialogue with you over the coming weeks and months and appreciate your continued support.
Chairman and Chief Executive Officer
1
This letter is intended to assist stockholders in understanding our performance during the six months ended April 30, 2023. The views and opinions in this letter were current as of April 30, 2023. Statements other than those of historical facts included herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties, including management’s beliefs regarding the attractive nature of CLO investments in a dislocated market; management’s intention to deploy capital into discounted investments that will achieve attractive risk-adjusted returns; management’s belief that because CLOs are floating rate vehicles, interest rate risk is mitigated; the expertise of the Company’s adviser; and the Company’s commitment to strong, long-term performance and the alignment of that performance to the ownership of the Company’s common stock by affiliated parties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. We undertake no duty to update any forward-looking statement made herein.
[Not Part of the Semi-Annual Report]
2
Important Information
This report is transmitted to the stockholders of OFS Credit Company, Inc. (“we,” “us,” “our” or the “Company”) and is furnished pursuant to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or a recommendation or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational purposes only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company may have a registration statement relating to one or more of its securities on file with the U.S. Securities and Exchange Commission (“SEC”).
An investment in the Company is not appropriate for all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques not employed by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of closed-end investment companies, such as the Company, frequently trade at a discount from their net asset value (“NAV”), which may increase investors’ risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance and certain other portfolio information quoted herein represents information as of April 30, 2023. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. Investment return and principal value of an investment will fluctuate, and shares, when sold, may be worth more or less than their original cost. The Company’s performance is subject to change since the end of the period noted in this report and may be lower or higher than the performance data shown herein.
About OFS Credit Company, Inc.
The Company is a non-diversified, externally managed closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment adviser is OFS Capital Management, LLC, which we refer to as “OFS Advisor” or the “Advisor.” Our primary investment objective is to generate current income, with a secondary objective to generate capital appreciation. Under normal market conditions, we will invest at least 80% of our assets, or net assets plus borrowings, in floating rate credit instruments and other structured credit investments, including: (i) collateralized loan obligation (“CLO”) debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments. The CLOs in which we invest are collateralized by portfolios consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. As part of the 80%, we may also invest in other securities and instruments that are related to these investments or that OFS Advisor believes are consistent with our investment objectives, including senior debt tranches of CLOs and Loan Accumulation Facilities. “Loan Accumulation Facilities” are short-to-medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. Investments in Loan Accumulation Facilities have risks similar to those applicable to investments in CLOs. The CLO securities in which we primarily invest are unrated or rated below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and below investment grade securities are also sometimes referred to as “junk” securities. In addition, the CLO equity and subordinated debt securities in which we will invest are highly leveraged (with CLO equity securities typically being leveraged 9 to 13 times), which magnifies our risk of loss on such investments.
Forward-Looking Statements
This report contains forward-looking statements that involve substantial risks and uncertainties. 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 without limitation:
•our future operating results;
•the impact of interest and inflation rates on our business prospects and the prospects of a CLO vehicle’s portfolio companies;
•our operating policy, investment strategy and their impact on the CLO vehicles in which we invest;
•the dependence of our future success on financial institutions and the general economy and their impact on the industries in which we invest;
•the expertise of our Advisor;
•the ability of a CLO vehicle’s portfolio companies to achieve their objectives;
3
•our expected financings and investments;
•the impact of current political, economic and industry conditions, including changes in the interest rate environment, inflation, significant market volatility, instability in the U.S. and international banking systems, ongoing supply chain and labor market disruptions, resource shortages, the risk of recession and of a failure to increase the U.S. debt ceiling and other conditions affecting the financial and capital markets on our business, financial condition, results of operations and the fair value of our portfolio investments;
•the impact of the ongoing war between Russia and Ukraine and general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;
•the belief that the Company’s cash balances are not exposed to any significant credit risk because the Company makes cash deposits only with high credit quality institutions;
•the ultimate realization of estimated effective yield and investment cost;
•the redemption of the outstanding shares of 6.60% Series B Term Preferred Stock, 6.125% Series C Term Preferred Stock, 6.00% Series D Term Preferred Stock or 5.25% Series E Term Preferred Stock or the repurchase by the Company of any shares of its Series C Term Preferred Stock or Series E Preferred Stock under its repurchase program;
•the potential significant difference in fair value of the investments from the values that would have been used had a ready market or observable inputs existed for such investments, or from the values that may ultimately be received or settled;
•the expectation that interest income on investments in CLO debt and Loan Accumulation Facilities will be collected in cash;
•the realization of significantly less than the value at which a portfolio investment had previously been recorded if the Company were required to liquidate such investment in a forced or liquidation sale;
•the belief that the carrying amounts of our financial instruments, such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk;
•the belief that certain rating agencies provide broader rating coverage across underlying loan portfolios;
•the success of our current or future borrowings, or equity offerings to fund the growth of our investment portfolio;
•interest rate volatility, including the transition from LIBOR to SOFR and/or other alternative reference rate(s);
•the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks;
•the effect of new or modified laws or regulations governing our operations; and
•the timing of cash flows, if any, from our investments.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to make new investments, certain margins and levels of profitability and the availability of additional capital on favorable terms. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Summary Risk Factors” in this report. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including Annual and Semi-Annual Reports on Form N-CSR and monthly portfolio investments reports filed on Form N-PORT for the third month of each of our fiscal quarters.
4
Summary of Certain Portfolio Characteristics (unaudited)
As of April 30, 2023
The information below is presented on a look–through basis to the portfolios of the CLO investments held by the Company as of April 30, 2023, and reflects the aggregate underlying principal exposure of the combined portfolio of those investments. The data is estimated and unaudited and is derived from third party sources based on reported information available as of April 30, 2023.
| The top ten industries of the underlying obligors on a look-through basis to the Company’s CLO investments reported as of April 30, 2023, are provided below: | The top ten underlying obligors on a look-through basis to the Company’s CLO investments reported as of April 30, 2023, are provided below: | |||||||||||||||||||
| Top 10 Industries of Underlying Obligors | Top 10 Underlying Obligors | |||||||||||||||||||
| Industry Name (as classified by Moody’s) | % of Total | Obligor | % of Total | |||||||||||||||||
| 1. | High Tech Industries | 10.5% | 1. | Asurion | 0.73% | |||||||||||||||
| 2. | Healthcare & Pharmaceuticals | 10.1% | 2. | Centurylink | 0.54% | |||||||||||||||
| 3. | Services: Business | 9.1% | 3. | Cablevision Systems | 0.51% | |||||||||||||||
| 4. | Banking, Finance, Insurance & Real Estate | 8.7% | 4. | Altice France | 0.47% | |||||||||||||||
| 5. | Media: Broadcasting & Subscription | 5.1% | 5. | Peraton | 0.46% | |||||||||||||||
| 6. | Chemicals, Plastics & Rubber | 5.0% | 6. | Athenahealth | 0.45% | |||||||||||||||
| 7. | Hotel, Gaming & Leisure | 4.8% | 7. | Univision Communications | 0.44% | |||||||||||||||
| 8. | Construction & Building | 4.6% | 8. | Transdigm | 0.44% | |||||||||||||||
| 9. | Telecommunications | 4.2% | 9. | Global Medical Response | 0.43% | |||||||||||||||
| 10. | Services: Consumer | 3.9% | 10. | Mozart Debt Merger Sub | 0.42% | |||||||||||||||
| Total | 66.0% | Total | 4.89% | |||||||||||||||||
5
Summary of Certain Portfolio Characteristics (unaudited)
As of April 30, 2023
| The credit ratings distribution of the underlying obligors on a look-through basis to the portfolios of the Company’s CLO investments and other unrated investments reported as of April 30, 2023 is provided below: | ||
(1) CLO indentures commonly require rating of the underlying collateral by nationally recognized rating agencies. Credit ratings shown are based on those assigned by Standard & Poor’s Rating Group (“S&P”), for comparison and informational purposes. This data represents underlying portfolio characteristics of the Company’s CLO equity portfolio. We have presented the S&P ratings of the underlying collateral of the CLO vehicles in which we are invested at April 30, 2023, because we believe S&P generally provides broader rating coverage across the underlying loan portfolios. Further information regarding S&P’s rating methodology and definitions may be found on its website (www.standardandpoors.com), which is not part of, or incorporated by reference in, this Semi-Annual Report.
(2) Underlying obligors with S&P ratings of BBB through AAA comprise less than 1.0% of all obligors and are excluded from the chart.
| The maturity distribution of the underlying obligors on a look-through basis to the portfolios of the Company’s CLO investments and other unrated investments reported as of April 30, 2023 is provided below: | ||
6
OFS Credit Company, Inc.
Statement of Assets and Liabilities
| As of April 30, 2023 | ||||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Investments, at fair value (amortized cost of $187,809,208) | $ | 142,583,099 | ||||||
| Cash | 16,668,884 | |||||||
| Interest receivable | 608,344 | |||||||
| Other assets | 170,062 | |||||||
| Total assets | 160,030,389 | |||||||
| Liabilities: | ||||||||
| Preferred stock (net of deferred issuance costs of $1,463,537) | 62,536,463 | |||||||
| Payable to adviser and affiliates | 2,326,371 | |||||||
| Payable for investment purchased | 2,958,647 | |||||||
| Accrued professional fees | 328,500 | |||||||
| Other liabilities | 104,783 | |||||||
| Total liabilities | 68,254,764 | |||||||
| Commitments and contingencies (Note 5) | ||||||||
| Net assets | $ | 91,775,625 | ||||||
| Net assets consist of: | ||||||||
| Common stock, par value of $0.001 per share; 90,000,000 shares authorized and 10,816,509 shares issued and outstanding | $ | 10,817 | ||||||
| Paid-in capital in excess of par | 122,307,427 | |||||||
| Total accumulated losses | (30,542,619) | |||||||
| Total net assets | $ | 91,775,625 | ||||||
| Net asset value per share | $ | 8.48 | ||||||
See Notes to Financial Statements (Unaudited).
7
OFS Credit Company, Inc.
Statement of Operations
| Six Months Ended | ||||||||
| April 30, 2023 | ||||||||
| (unaudited) | ||||||||
| Investment income: | ||||||||
| Interest income | $ | 14,388,105 | ||||||
| Operating expenses: | ||||||||
| Interest expense | 2,042,482 | |||||||
| Management fees | 1,419,181 | |||||||
| Incentive fees | 1,863,890 | |||||||
| Administration fees | 569,247 | |||||||
| Professional fees | 392,581 | |||||||
| Excise tax | 300,000 | |||||||
| Other expenses | 345,163 | |||||||
| Total operating expenses | 6,932,544 | |||||||
| Net investment income | 7,455,561 | |||||||
| Net realized and unrealized loss: | ||||||||
| Net change in unrealized depreciation on investments | (11,867,718) | |||||||
| Net realized and unrealized loss | (11,867,718) | |||||||
| Net decrease in net assets resulting from operations | $ | (4,412,157) | ||||||
See Notes to Financial Statements (Unaudited).
8
OFS Credit Company, Inc.
Statements of Changes in Net Assets
| Six Months Ended April 30, 2023 (unaudited) | Year Ended October 31, 2022 | ||||||||||
| Changes in net assets resulting from operations: | |||||||||||
| Net investment income | $ | 7,455,561 | $ | 13,048,493 | |||||||
| Loss on redemption of preferred stock | — | (384,729) | |||||||||
| Net change in unrealized depreciation on investments | (11,867,718) | (26,249,879) | |||||||||
| Net decrease in net assets resulting from operations | (4,412,157) | (13,586,115) | |||||||||
| Distributions paid to common stockholders: | |||||||||||
| Common stock distributions from earnings (Note 2) | (10,793,453) | (18,142,164) | |||||||||
| Distributions paid to common stockholders | (10,793,453) | (18,142,164) | |||||||||
| Capital share transactions: | |||||||||||
| Proceeds from sale of common stock, net of offering costs | 4,136,498 | 3,323,631 | |||||||||
| Common stock distributions | 8,634,736 | 14,513,654 | |||||||||
| Net increase in net assets resulting from capital transactions | 12,771,234 | 17,837,285 | |||||||||
| Net decrease in net assets | (2,434,376) | (13,890,994) | |||||||||
| Net assets at the beginning of the period | 94,210,001 | 108,100,995 | |||||||||
| Net assets at the end of the period | $ | 91,775,625 | $ | 94,210,001 | |||||||
| Capital share transactions: | |||||||||||
| Common stock shares outstanding at the beginning of the period | 9,442,550 | 7,719,307 | |||||||||
| Sale of common stock shares | 436,781 | 306,560 | |||||||||
| Common stock distributions | 937,178 | 1,416,683 | |||||||||
| Common stock shares outstanding at the end of the period | 10,816,509 | 9,442,550 | |||||||||
See Notes to Financial Statements (Unaudited).
9
OFS Credit Company, Inc.
Statement of Cash Flows
| Six Months Ended | ||||||||
| April 30, 2023 | ||||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net decrease in net assets resulting from operations | $ | (4,412,157) | ||||||
| Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities: | ||||||||
| Net change in unrealized depreciation on investments | 11,867,718 | |||||||
| Amortization of preferred stock issuance costs | 230,358 | |||||||
| Amortization of original issuance discount on investments | (36,757) | |||||||
| Accretion of interest income on investments | (13,512,363) | |||||||
| Purchase of portfolio investments | (15,460,101) | |||||||
| Distributions from portfolio investments | 15,729,478 | |||||||
| Proceeds from the repayment of portfolio investments | 4,596,804 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Interest receivable | (1,051) | |||||||
| Other assets | (20,160) | |||||||
| Payable to adviser and affiliates | 726 | |||||||
| Accrued professional fees | 198,500 | |||||||
| Payable for investment purchased | 2,958,647 | |||||||
| Other liabilities | 45,452 | |||||||
| Net cash provided by operating activities | 2,185,094 | |||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock, net of commissions and fees | 4,101,598 | |||||||
| Distributions paid to common stockholders | (2,158,717) | |||||||
| Net cash provided by financing activities | 1,942,881 | |||||||
| Net increase in cash | 4,127,975 | |||||||
| Cash at the beginning of the period | 12,540,909 | |||||||
| Cash at the end of the period | $ | 16,668,884 | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid for interest on preferred stock | $ | 1,812,124 | ||||||
| Cash paid for excise taxes | 300,000 | |||||||
| Supplemental Disclosure of Non-Cash Activities: | ||||||||
| Common stock issued from reinvestment of stockholder distributions | $ | 8,634,736 | ||||||
See Notes to Financial Statements (Unaudited).
10
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| CLO Debt Securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Atlas Senior Loan Fund XX, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 14.46% | (SOFR + 9.43%) | 10/13/2022 | 10/19/2035 | $ | 2,000,000 | $ | 1,854,565 | $ | 1,848,486 | 2.0 | % | ||||||||||||||||||||||||||||||||||||||
| Birch Grove CLO 5, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 13.50% | (SOFR + 8.65%) | 4/28/2023 | 4/20/2035 | 3,000,000 | 2,911,500 | 2,911,561 | 3.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Carlyle US CLO 2022-6, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 13.10% | (SOFR + 8.63%) | 12/9/2022 | 10/25/2034 | 1,000,000 | 954,015 | 954,015 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||||
| LCM 31 CLO | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 12.33% | (L + 7.08%) | 12/18/2020 | 1/20/2032 | 250,000 | 248,525 | 232,813 | 0.3 | % | |||||||||||||||||||||||||||||||||||||||||
| PPM CLO 6 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 12.72% | (SOFR + 8.21%) | 12/20/2022 | 1/20/2031 | 1,000,000 | 920,541 | 920,541 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||||
| Sycamore Tree CLO 2023-2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 13.75% | (SOFR +8.94%) | 2/22/2023 | 4/20/2035 | 4,000,000 | 3,826,497 | 3,826,497 | 4.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Sycamore Tree CLO 2023-3 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 13.65% | (SOFR + 8.66%) | 4/14/2023 | 4/20/2035 | 3,000,000 | 2,866,252 | 2,866,252 | 3.1 | % | |||||||||||||||||||||||||||||||||||||||||
| VCP CLO II | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mezzanine Debt - Class E | 13.66% | (L + 8.40%) | 2/19/2021 | 4/15/2031 | 500,000 | 489,548 | 473,948 | 0.5 | % | |||||||||||||||||||||||||||||||||||||||||
| Total CLO Debt Securities | $ | 14,750,000 | $ | 14,071,443 | $ | 14,034,113 | 15.3 | % | ||||||||||||||||||||||||||||||||||||||||||
11
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
CLO Equity Securities(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Allegro CLO VII, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 3.37% | 2/14/2019 | 6/13/2031 | $ | 3,100,000 | $ | 1,735,610 | $ | 946,313 | 1.1 | % | |||||||||||||||||||||||||||||||||||||||
| Allegro CLO 2021-2, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.40% | 8/23/2021 | 10/15/2034 | 5,000,000 | 4,009,649 | 3,554,267 | 4.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Allegro CLO XV, LTD. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 20.89% | 6/10/2022 | 7/20/2035 | 4,640,000 | 3,429,847 | 3,583,796 | 3.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Anchorage Capital CLO 1-R Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 9.71% | 10/5/2018 | 4/13/2031 | 2,100,000 | 1,304,581 | 985,277 | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Apex Credit CLO 2020 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 21.16% | 11/16/2020 | 10/20/2031 | 6,170,000 | 5,454,816 | 3,902,714 | 4.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Apex Credit CLO 2021 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 18.71% | 5/28/2021 | 7/18/2034 | 7,140,000 | 5,746,878 | 4,671,334 | 5.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Apex Credit CLO 2022-1A | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.27% | 4/28/2022 | 4/22/2033 | 8,833,176 | 7,039,263 | 5,916,822 | 6.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Atlas Senior Loan Fund IX Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8) | 0.00% | 10/5/2018 | 4/20/2028 | 1,200,000 | 442,070 | 122,433 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Atlas Senior Loan Fund X Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8) | 0.00% | 10/5/2018 | 1/15/2031 | 5,000,000 | 2,033,362 | 803,861 | 0.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Atlas Senior Loan Fund XVII, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 21.70% | 9/20/2021 | 10/20/2034 | 6,000,000 | 4,692,347 | 4,080,524 | 4.4 | % | ||||||||||||||||||||||||||||||||||||||||||
12
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Battalion CLO IX Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 13.32% | 10/10/2018 | 7/15/2031 | $ | 1,079,022 | $ | 649,603 | $ | 363,869 | 0.4 | % | |||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 13.32% | 10/10/2018 | 7/15/2031 | 1,770,978 | 1,066,134 | 597,210 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| 2,850,000 | 1,715,737 | 961,079 | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Battalion CLO XI Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.14% | 3/20/2019 | 10/24/2029 | 5,000,000 | 3,986,460 | 3,220,289 | 3.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Battalion CLO XIX Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 22.55% | 3/16/2021 | 4/15/2034 | 5,000,000 | 2,982,965 | 2,871,071 | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| BlueMountain Fuji U.S. CLO III, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 9.88% | 9/18/2019 | 1/15/2030 | 3,701,700 | 2,320,295 | 1,339,084 | 1.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Bridge Street CLO III Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.83% | 12/28/2022 | 10/20/2034 | 6,900,000 | 3,792,359 | 3,792,360 | 4.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Crown Point CLO 4 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 8.42% | 3/22/2019 | 4/20/2031 | 5,000,000 | 3,118,145 | 1,599,172 | 1.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 30 Senior Loan Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 9.73% | 10/5/2018 | 11/15/2028 | 1,000,000 | 347,427 | 162,301 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 38 Senior Loan Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 13.37% | 10/5/2018 | 7/15/2030 | 2,600,000 | 1,402,136 | 870,991 | 0.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 41 Senior Loan Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 11.45% | 10/5/2018 | 4/15/2031 | 2,600,000 | 1,052,497 | 613,827 | 0.7 | % | ||||||||||||||||||||||||||||||||||||||||||
13
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 53 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 14.74% | 10/5/2018 | 1/15/2031 | $ | 3,200,000 | $ | 1,789,426 | $ | 951,670 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.39% | 10/1/2019 | 1/15/2031 | 500,000 | 269,258 | 148,698 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| 3,700,000 | 2,058,684 | 1,100,368 | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Dryden 60 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.60% | 4/23/2021 | 7/15/2031 | 5,950,000 | 4,543,102 | 3,288,028 | 3.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 76 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 18.54% | 9/27/2019 | 10/20/2032 | 2,250,000 | 1,857,368 | 1,578,216 | 1.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 87 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.71% | 6/2/2021 | 5/20/2034 | 5,000,000 | 4,373,997 | 3,872,678 | 4.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 95 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.61% | 7/29/2021 | 8/20/2034 | 6,000,000 | 4,932,818 | 4,439,884 | 4.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Dryden 98 CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 19.74% | 3/17/2022 | 4/20/2035 | 5,500,000 | 4,433,368 | 4,341,280 | 4.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2017-7, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8)(11) | 0.00% | 10/5/2018 | 7/15/2030 | 2,605,080 | 686,498 | 46,078 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2017-8, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8) | 0.00% | 10/5/2018 | 10/25/2030 | 2,000,000 | 905,157 | 409,865 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2021-12, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 18.53% | 5/26/2021 | 4/20/2032 | 3,500,000 | 2,531,899 | 1,715,958 | 1.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2021-13, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.09% | 6/9/2021 | 7/15/2034 | 6,026,765 | 4,589,876 | 3,665,319 | 4.0 | % | ||||||||||||||||||||||||||||||||||||||||||
14
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2021-14, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 15.70% | 10/29/2021 | 10/20/2034 | $ | 7,237,500 | $ | 5,793,728 | $ | 4,538,147 | 4.9 | % | |||||||||||||||||||||||||||||||||||||||
| Elevation CLO 2021-15, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.51% | 12/23/2021 | 1/5/2035 | 9,000,000 | 6,424,473 | 4,837,211 | 5.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Flatiron CLO 2017-1, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 19.85% | 3/22/2019 | 5/15/2030 | 3,000,000 | 1,921,872 | 1,443,596 | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Flatiron CLO 18 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 12.33% | 10/5/2018 | 4/17/2031 | 4,500,000 | 3,241,132 | 2,412,915 | 2.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Greenwood Park CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 5.37% | 10/5/2018 | 4/15/2031 | 4,000,000 | 2,501,315 | 1,443,870 | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Halcyon Loan Advisors Funding 2018-1 Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.59% | 3/20/2019 | 7/20/2031 | 3,000,000 | 1,909,622 | 1,018,597 | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| HarbourView CLO VII-R, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8) | 0.00% | 10/5/2018 | 11/18/2026 | 3,100,000 | 1,886,533 | 145,665 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Jamestown CLO XVI, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 20.06% | 7/29/2021 | 7/25/2034 | 3,500,000 | 2,556,195 | 2,336,499 | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| LCM 31 CLO | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 24.55% | 12/18/2020 | 1/20/2032 | 1,350,000 | 1,003,430 | 781,989 | 0.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Madison Park Funding XXIII, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 18.74% | 10/5/2018 | 7/27/2047 | 4,000,000 | 2,465,375 | 2,023,912 | 2.2 | % | ||||||||||||||||||||||||||||||||||||||||||
15
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Madison Park Funding XXIX, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 21.13% | 12/22/2020 | 10/18/2047 | $ | 1,000,000 | $ | 645,162 | $ | 588,037 | 0.6 | % | |||||||||||||||||||||||||||||||||||||||
| Marble Point CLO X Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 1.85% | 10/5/2018 | 10/15/2030 | 7,000,000 | 3,369,275 | 1,567,546 | 1.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Marble Point CLO XI Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 2.65% | 10/5/2018 | 12/18/2047 | 1,500,000 | 730,914 | 269,077 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Marble Point CLO XX, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.05% | 4/9/2021 | 4/23/2051 | 5,125,000 | 3,990,643 | 3,122,560 | 3.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Marble Point CLO XXI, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 16.48% | 8/24/2021 | 10/17/2051 | 5,250,000 | 4,149,527 | 3,166,858 | 3.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Marble Point CLO XXIII Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 15.57% | 12/3/2021 | 1/22/2052 | 1,750,000 | 1,449,180 | 1,124,331 | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| MidOcean Credit CLO VII Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes - Income(7)(8) | 0.00% | 3/20/2019 | 7/15/2029 | 3,275,000 | 1,047,083 | 139,543 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| MidOcean Credit CLO VIII Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 19.66% | 1/14/2019 | 2/20/2031 | 3,225,000 | 2,053,792 | 1,208,070 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| MidOcean Credit CLO IX Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 13.65% | 11/21/2018 | 7/20/2031 | 3,000,000 | 1,806,567 | 1,109,493 | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Niagara Park CLO, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 17.41% | 11/8/2019 | 7/17/2032 | 4,500,000 | 3,569,177 | 2,754,306 | 3.0 | % | ||||||||||||||||||||||||||||||||||||||||||
16
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Octagon Investment Partners 39, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 13.33% | 2/27/2020 | 10/20/2030 | $ | 3,600,000 | $ | 2,147,576 | $ | 1,444,081 | 1.6 | % | |||||||||||||||||||||||||||||||||||||||
| Sound Point CLO IV-R, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subordinated Notes(7)(8) | 0.00% | 11/2/2018 | 4/18/2031 | 4,000,000 | 819,555 | 301,517 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Steele Creek CLO 2022-1, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 20.80% | 3/28/2022 | 4/15/2035 | 5,000,000 | 3,673,782 | 3,385,040 | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| THL Credit Wind River 2014-3 CLO Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 6.93% | 10/10/2018 | 10/22/2031 | 2,778,000 | 1,397,067 | 739,236 | 0.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Trinitas CLO VIII | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 18.74% | 4/28/2021 | 7/20/2117 | 2,800,000 | 1,597,746 | 1,040,235 | 1.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Venture 33 CLO Limited | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 26.54% | 3/21/2019 | 7/15/2031 | 3,150,000 | 1,823,875 | 803,839 | 0.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Vibrant CLO X Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 10.60% | 5/23/2019 | 10/20/2031 | 8,000,000 | 4,388,962 | 2,155,469 | 2.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Vibrant CLO XIII, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 15.02% | 6/3/2021 | 7/15/2034 | 5,000,000 | 4,093,051 | 3,176,581 | 3.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Voya CLO 2017-4, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 11.25% | 10/5/2018 | 10/15/2030 | 1,000,000 | 609,443 | 303,184 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Wind River 2015-1 CLO | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 19.72% | 4/28/2021 | 10/20/2030 | 2,600,000 | 1,260,572 | 864,921 | 0.9 | % | ||||||||||||||||||||||||||||||||||||||||||
17
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Company and Investment(1)(2) | Interest Rate /Effective Yield(3) | Spread Above Index(4) | Initial Acquisition Date | Maturity | Principal Amount | Amortized Cost | Fair Value(5) | Percent of Net Assets | ||||||||||||||||||||||||||||||||||||||||||
| Webster Park CLO | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 9.44% | 4/23/2021 | 1/20/2027 | $ | 3,363,000 | $ | 2,072,779 | $ | 1,099,560 | 1.2 | % | |||||||||||||||||||||||||||||||||||||||
| Zais CLO 3, Limited | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes - Income | 1.77% | 10/10/2018 | 7/15/2031 | 1,038,255 | 545,895 | 166,611 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Subordinated Notes | 1.77% | 10/10/2018 | 7/15/2031 | 1,761,745 | 918,929 | 282,711 | 0.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| 2,800,000 | 1,464,824 | 449,322 | 0.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total CLO Equity Securities | $ | 248,770,221 | $ | 165,383,438 | $ | 120,250,396 | 131.1 | % | ||||||||||||||||||||||||||||||||||||||||||
Loan Accumulation Facilities(9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Brightwood Capital MM CLO 2022-1, Ltd. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Accumulation Facility(8) | 0.00% | 1/5/2022 | 12/31/2032 | $ | 7,500,000 | $ | 7,500,000 | $ | 7,363,500 | 8.0 | % | |||||||||||||||||||||||||||||||||||||||
| Total Loan Accumulation Facilities | $ | 7,500,000 | $ | 7,500,000 | $ | 7,363,500 | 8.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other CLO equity-related investments | ||||||||||||||||||||||||||||||||||||||||||||||||||
CLO other(10) | 17.41% | $ | 854,327 | $ | 935,090 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||||||
| Total Investments | $ | 271,020,221 | $ | 187,809,208 | $ | 142,583,099 | 155.4 | % | ||||||||||||||||||||||||||||||||||||||||||
(1) These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act of 1933, as amended.
(2) We do not “control” and are not an “affiliate” of any of our portfolio investments, each as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). In general, under the 1940 Act, we would be presumed to “control” a portfolio investment if we owned 25% or more of its voting securities and would be an “affiliate” of a portfolio investment if we owned 5% or more of its voting securities.
(3) The rate disclosed on CLO equity securities is the estimated effective yield, generally established at purchase, and reevaluated upon the receipt of the initial distribution and each subsequent quarter thereafter. The estimated effective yield is based upon projected amounts and timing of future distributions and the projected amounts and timing of terminal principal payments at the time of estimation. The estimated effective yield and investment cost may ultimately not be realized. Projected cash flows, including the amounts and timing of terminal principal payments, which generally are projected to occur prior to the contractual maturity date, were utilized in deriving the effective yield of the investments. The rates disclosed on CLO debt securities reflects the contractual interest rate. The rate disclosed on
18
OFS Credit Company, Inc.
Schedule of Investments
As of April 30, 2023
(unaudited)
Loan Accumulation Facilities represents the estimated yield to be earned on the investment through redemption. As of April 30, 2023, the Company’s weighted-average effective yield on its total investments, based on current amortized cost, was 14.58%.
(4) CLO debt securities bear interest at a rate determined by reference to three-month LIBOR (L) or SOFR which reset quarterly. The rate provided for each CLO debt security is as of April 30, 2023.
(5) The fair value of all investments was determined in good faith by OFS Advisor using significant, unobservable inputs.
(6) Subordinated notes and income notes are considered CLO equity securities. CLO equity securities are entitled to recurring distributions, which are generally equal to the residual cash flow payments made by underlying securities less contractual payments to debt holders and fund expenses.
(7) As of April 30, 2023, the effective accretable yield has been estimated to be 0%, as the aggregate amount of projected distributions, including projected distributions related to liquidation of the underlying portfolio upon the security’s anticipated redemption, is equal to or less than current amortized cost. Projected distributions are monitored and re-evaluated quarterly. All actual distributions received will be recognized as reductions to amortized cost until such time, if and when occurring, a future aggregate amount of then-projected distributions exceeds the security’s then-current amortized cost.
(8) Non-income producing.
(9) Loan Accumulation Facilities are financing structures intended to aggregate loans that are expected to form part of the portfolio of a future CLO. Investments in Loan Accumulation Facilities generally earn returns equal to the actual income earned on facility assets less costs and fees incurred on senior financing and manager costs. Income and return of capital distributions from investments in Loan Accumulation Facilities are generally received upon the earlier of the closing of the CLO securitization or liquidation of the underlying portfolio.
(10) Fair value represents discounted cash flows associated with fees earned from CLO equity-related investments.
(11) As of April 30, 2023, the investment has been optionally redeemed and is in the process of liquidating. Remaining residual distributions are anticipated to be recognized as return of capital.
19
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Note 1. Organization
OFS Credit Company, Inc., (the “Company”) is a Delaware corporation formed on September 1, 2017, that commenced operations on October 10, 2018. The Company is a non-diversified, externally managed, closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment adviser is OFS Capital Management, LLC (“OFS Advisor”), a wholly owned subsidiary of Orchard First Source Asset Management, LLC (“OFSAM”).
The Company’s primary investment objective is to generate current income, with a secondary objective to generate capital appreciation. Under normal market conditions, the Company invests at least 80% of its assets in floating rate credit instruments and other structured credit investments, including: (i) collateralized loan obligation (“CLO”) debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments. The CLOs in which the Company invests are collateralized by portfolios consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. The Company may also invest in financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle, often provided by the bank that will serve as the placement agent or arranger on a CLO transaction (each, a “Loan Accumulation Facility”).
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation: The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including the provision Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies, and the reporting requirements of the 1940 Act and Article 6 of Regulation S-X. In the opinion of management, the financial statements include all adjustments, consisting only of normal and recurring accruals and adjustments, necessary for fair presentation in accordance with GAAP.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accounting estimates significant to the financial statements include the recurring fair value and accretable yield estimates. Actual results could differ significantly from those estimates.
Cash: The Company’s cash is maintained with a member bank of the Federal Deposit Insurance Corporation (“FDIC”) and, at times, such balances exceed the FDIC insurance limit. The Company does not believe its cash balances are exposed to any significant credit risk. As of April 30, 2023, all of the Company’s cash was held at U.S. Bank N.A.
Investments: The Company applies fair value accounting in accordance with ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework to measure fair value, and requires disclosures regarding fair value measurements. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined through the use of models and other valuation techniques, valuation inputs, and assumptions market participants would use to value the investment. Highest priority is given to prices for identical assets quoted in active markets (Level 1) and the lowest priority is given to fair value estimates based on unobservable inputs (Level 3). The availability of observable inputs can vary significantly and is affected by many factors, including the type of product, whether the product is new to the market, whether the product is traded on an active exchange or in the secondary market, and current market conditions. To the extent that the valuation is based on less observable or unobservable inputs, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by OFS Advisor in determining fair value is greatest for financial instruments classified as Level 3 (i.e., those instruments valued using non-observable inputs), which comprise the entirety of the Company’s investments.
In addition, OFS Advisor regularly assesses whether arm’s-length transactions have occurred in portfolio securities, including the Company’s own transactions in such securities, the executed trade prices (“Transaction Prices”), of which may—depending on the size of the transactions, identifiable market participants, and other factors—be considered reasonable indications of fair value for up to six months after the transaction date.
Changes to OFS Advisor’s valuation policy are reviewed and approved by management and the Company’s board of directors (the “Board”). As the Company’s investments change, markets change, new products develop, and valuation inputs become more or less observable, OFS Advisor, as the valuation designee, will continue to refine its valuation methodologies.
20
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
The Company primarily invests in equity and junior debt tranches of CLO investment vehicles, Loan Accumulation Facilities and other credit-related investments. The Company considers underlying investment portfolio performance metrics, including prepayment rates, default rates, loss-on-default and recovery rates, and estimated market yields as a primary source for discounted cash flow fair value estimates, supplemented by actual trades executed in the market at or around period-end, as well as indicative prices provided by broker-dealers in its estimate of the fair value of such investments. The Company also considers operating metrics, typically included in the governing documents of CLO vehicles, including collateralization tests, concentration limits, defaults, restructuring activity and prepayment rates on the underlying loans, if applicable. The Company engages a third-party valuation firm to provide assistance to OFS Advisor in determining the fair value of its investments.
See Note 4 for additional disclosures of the Company’s fair value measurements of its financial instruments.
Investment Income
Interest income: Interest income from investments in CLO equity securities is recognized on the basis of the estimated effective yield to expected redemption utilizing assumed cash flows in accordance with ASC Subtopic 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from its CLO equity investments, and the accretable yields are determined and updated periodically. Expected cash flows inherent in the Company’s estimates of accretable yields are based on expectations of defaults and loss-on-default severity, as well as other loan-performance assumptions, impacting the loans in the underlying CLO portfolios. These estimated cash flows are subject to a reasonable possibility of near-term change due to economic and credit market conditions, and the effect of these changes could be material.
Further, the Company may receive other CLO equity-related securities in connection with the Company’s acquisition of, subsequent amendment to, or restructuring of, CLO equity investments. The Company determines the cost basis of the security based on its estimated fair value relative to the fair value of the CLO equity investment and other securities or consideration received.
Interest income from investments in Loan Accumulation Facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with Loan Accumulation Facilities generally pay returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. Interest income is generally received upon the earlier of the closing of the CLO securitization or liquidation of the underlying portfolio. The Company periodically evaluates the realizability of such amounts and, if necessary, subsequently adjusts the estimated yield.
Interest income from investments in CLO debt is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Amortization of premiums or accretion of discounts on CLO debt investments are recognized over the expected life. Management reviews, for placement on non-accrual status, all CLO debt positions that become past due with respect to interest, and/or when there is reasonable doubt that principal or cash interest will be collected. When a CLO debt position is placed on non-accrual status, accrued and unpaid interest is reversed. Additionally, discounts are no longer accreted to interest income as of the date the position is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to cost depending upon management’s judgment. Interest accruals and discount accretion is resumed on non-accrual investments only when they are brought current with respect to interest payments and, in the judgment of management, the investments are estimated to be fully collectible as to all principal and interest. As of April 30, 2023, the Company had no CLO debt investments on non-accrual status.
Net realized and unrealized gain or loss on investments: Investment transactions are reported on a trade-date basis. Unsettled trades as of the balance sheet date are reported as payable for investments purchased or receivable for investments sold. Primary market trades are recorded on the closing and issuance of the security. Realized gains and losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment on a specific-identification basis. An optional redemption feature of a CLO allows a majority of the holders of the CLO equity securities issued by the CLO issuer, after the end of a specified non-call period, to cause the redemption of the CLO equity securities issued by the CLO with proceeds paid either through the liquidation of the CLO’s assets or through a refinancing with new debt. The optional redemption is effectively a voluntary prepayment of the CLO equity securities issued by the CLO prior to the stated maturity of such debt securities. Effective as of the call date, the Company ceases accruing income on the CLO equity securities that will be redeemed. Distributions received on CLO equity securities where the optional redemption feature has been exercised are first applied to the remaining cost basis until it is reduced to zero, after which distributions are recorded as realized gains.
Investments are reported at fair value as determined in good faith by OFS Advisor, under the active supervision of the Board. See Note 4 for additional information. The Company reports changes in the fair value of investments as change in net unrealized appreciation (depreciation) on investments in the statement of operations.
Deferred issuance costs: Deferred issuance costs represent fees and other direct incremental costs incurred in connection with the Company’s mandatorily redeemable preferred stock. Deferred issuance costs are presented as a direct reduction of the
21
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
related liability on the statement of assets and liabilities. Deferred issuance costs are amortized to interest expense over the term of the related mandatorily redeemable preferred stock.
Deferred offering costs: Offering costs include legal, accounting and other expenses pertaining to registration of securities. Offering costs are deferred and, as the registration statement is utilized and securities sold, a portion of the costs are charged as a reduction to capital when a common stock offering occurs or as common stock is issued under an equity distribution agreement, or allocated to deferred issuance costs when a preferred stock or debt offering occurs. Deferred costs are periodically reviewed and charged to expenses if the related registration statement is withdrawn or if an offering is unsuccessful.
Interest expense: Due to its mandatory redemption requirements, the Company accounts for its preferred stock as liabilities under ASC Topic 480, Distinguishing Liabilities from Equity. Dividends on mandatorily redeemable preferred stock are recorded as interest expense on the statement of operations. Interest expense is recognized on an accrual basis as incurred.
Income taxes: The Company has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify for tax treatment as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements, and timely distribute at least 90% of its annual investment company taxable income (“ICTI”), to its stockholders. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which generally relieves the Company from U.S. federal income taxes.
The Company may be liable for 4% excise tax on a portion of income unless it timely distributes at least 98% of its ICTI, or 98.2% of net capital gains, to its stockholders. However, the Company may choose to retain a portion of ICTI in an amount less than that which would trigger U.S. federal income tax liability under Subchapter M of the Code. Excise taxes are recognized when the Company determines it is probable distributions of estimated taxable income will not meet the distribution thresholds for avoidance of such tax. See Note 7 for additional details.
The Company evaluates tax positions taken in the course of preparing its tax returns to determine whether they are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold could result in greater and undistributed ICTI, income and excise tax expense, and, if involving multiple years, a re-assessment of the Company’s RIC status. GAAP requires recognition of accrued interest and penalties related to uncertain tax benefits as income tax expense. There were no uncertain income tax positions at April 30, 2023.
Distributions: Distributions to stockholders are recorded on the applicable record date. The amount, timing and form of distributions is determined by the Board each quarter. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. Distributions paid in excess of ICTI and net realized gains are generally considered returns of capital to stockholders.
Net investment income determined in accordance with tax regulations may differ from net investment income for financial reporting purposes. Differences may be permanent or temporary. Permanent differences result in a reclassification between capital accounts. Additionally, certain short-term capital gains may be reported as ordinary income for tax purposes. Distributions paid by the Company in accordance with RIC requirements are subject to re-characterization for tax purposes.
The tax character of distributions paid to stockholders, as set forth in the statements of changes in net assets and in the financial highlights, reflect estimates made by the Company, as our fiscal year end differs from the calendar year period on which the character of distributions is determined for 1099-DIV reporting purposes. Actual results may vary as the tax character of distributions is unknown until it is determined annually as of the end of each calendar year and, if required, reported to stockholders on Form 1099-DIV. Accordingly, the final tax character of distributions may differ materially from the estimates presented herein.
Concentration of credit risk: Aside from the Company’s investments, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company’s cash deposits exceed the FDIC insured limit. The Company places cash deposits only with high credit quality institutions, which OFS Advisor believes will mitigate the risk of loss due to credit risk. Management believes the risk of loss related to the Company’s cash deposits is minimal. The amount of loss due to credit risk from the Company’s investments, if underlying funds and managers fail to perform according to the terms of the indentures and collateral management agreements and the collateral or other security for those instruments proved to be of no value to the Company, is equal to the Company’s recorded investment and the unfunded commitments disclosed in Note 5.
Note 3. Related Party Transactions
Investment Advisory and Management Agreement: OFS Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company pursuant to an investment advisory and management agreement (the “Investment Advisory Agreement”). On June 1, 2023, the Board unanimously voted to approve the continuation of the Investment Advisory
22
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Agreement for one year. Under the terms of the Investment Advisory Agreement, OFS Advisor is responsible for: (i) determining the composition of the portfolio, the nature and timing of the changes to the portfolio and the manner of implementing such changes; (ii) identifying, evaluating and negotiating the structure of the investments made (including performing due diligence on prospective investments); (iii) closing and monitoring the investments made; and (iv) providing other investment advisory, research and related services as required. OFS Advisor is a subsidiary of OFSAM and a registered investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). OFS Advisor’s services under the Investment Advisory Agreement are not exclusive, and it and its members, officers and employees are free to furnish similar services to other persons and entities so long as its services to the Company are not impaired. OFS Advisor also serves as the investment adviser to other funds, separately-managed accounts and other assets, including OFS Capital Corporation and Hancock Park Corporate Income, Inc. Additionally, OFS Advisor serves as a sub-advisor to investment companies managed by an affiliate.
OFS Advisor receives fees for providing services, consisting of two components: a base management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”). The Base Management Fee is calculated and payable quarterly in arrears and equals an annual rate of 1.75% of the Company’s “Total Equity Base”, defined as the sum of the net asset value of the Company’s common stock and the paid-in capital of the Company’s preferred stock. Base Management Fees are paid by the holders of our shares of common stock and are not paid by holders of preferred stock, or the holders of any other types of securities that the Company may issue. Base Management Fees for any partial calendar quarter are prorated based on the number of days in such quarter. The Base Management Fee does not increase when the Company borrows funds, but will increase if the Company issues preferred stock. The Base Management Fee is calculated before the determination of any Incentive Fee for the quarter, as further described below.
The Incentive Fee is calculated and payable quarterly in arrears and equals 20% of the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter, subject to a preferred return, or “hurdle,” and a “catch up” feature. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from an investment) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Base Management Fee, expenses payable under the administrative services agreement to OFS Capital Services, LLC (“OFS Services”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee Net Investment Income includes accrued income that the Company has not yet received in cash, as well as any such amounts received (or accrued) in kind. Pre-Incentive Fee Net Investment Income does not include any capital gains or losses, and no incentive fees are payable in respect of any capital gains and no incentive fees are reduced in respect of any capital losses.
In calculating the Incentive Fee for any given calendar quarter, Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s NAV at the end of the immediately preceding calendar quarter, is compared to a hurdle of 2.0% of the Company’s NAV per quarter (8.0% annualized) (the “Hurdle Rate”). For such purposes, the Company’s quarterly rate of return is determined by dividing its Pre-Incentive Fee Net Investment Income by its reported NAV as of the prior period end. The Company’s net investment income used to calculate this part of the incentive fee is also included in the calculation of the Total Equity Base which is used to calculate the Base Management Fee. The Incentive Fee with respect to the Company’s Pre-Incentive Fee Net Investment Income in each calendar quarter as follows:
(A) no Incentive Fee in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.0% of NAV;
(B) 100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.5% of NAV in any calendar quarter (10.0% annualized). The Company refers to this portion of the Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.5% of our NAV) as the “catch-up.” The “catch-up” is meant to provide OFS Advisor with 20% of Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.5% of NAV in any calendar quarter; and
(C) 20.0% of that portion of the Company’s pre-Incentive Fee net investment income, if any, with respect to which the rate of return exceeds 2.5% in such quarter (10.0% annualized) is payable to OFS Advisor (that is, once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is due to OFS Advisor).
There will be no accumulation of amounts on the Hurdle Rate from quarter to quarter, no claw back of amounts previously paid if the rate of return in any subsequent quarter is below the Hurdle Rate and no delay of payment if the rate of return in any prior quarters was below the Hurdle Rate. Incentive Fees will be adjusted for any share issuances or repurchases during the calendar quarter, and any partial quarter Incentive Fee will be prorated based on the number of days in such quarter.
23
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Administration Agreement: OFS Services, an affiliate of OFS Advisor, provides the administrative services necessary for the Company to operate. OFS Services furnishes the Company with office facilities and equipment, necessary software licenses and subscriptions, and clerical, bookkeeping and record keeping services at such facilities pursuant to an administrative services agreement (the “Administration Agreement”). On June 1, 2023, the Board unanimously voted to approve the continuation of the Administration Agreement for one year. Under the Administration Agreement, OFS Services performs, or oversees the performance of, the Company’s required administrative services, which include being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and all other reports and materials required to be filed with the Securities and Exchange Commission or any other regulatory authority. In addition, OFS Services assists the Company in determining and publishing its NAV, oversees the preparation and filing of its tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Payment under the Administration Agreement is equal to an amount based upon the Company’s allocable portion (subject to the review and approval of the Board) of OFS Services’s overhead in performing its obligations under the Administration Agreement, including, but not limited to, rent, information technology services and the Company’s allocable portion of the cost of its officers, including its chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, corporate secretary and their respective staffs. To the extent that OFS Services outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to OFS Services. The Administration Agreement may be renewed annually with the approval of the Board, including a majority of our directors who are not “interested persons.” The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.
Equity Ownership: As of April 30, 2023, OFS Advisor and its affiliates held 756,000 shares of common stock, which is approximately 7.0% of the Company’s outstanding shares of common stock.
Expenses recognized under agreements with OFS Advisor and OFS Services and distributions paid to affiliates for the six months ended April 30, 2023 are presented below:
| Management fees | $ | 1,419,181 | |||
| Incentive fees | 1,863,890 | ||||
| Administration fees | 569,247 | ||||
| Common stock distributions to affiliates | 781,825 | ||||
24
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Note 4. Fair Value of Financial Instruments
The Company’s investments are carried at fair value and determined in accordance with a documented valuation policy that is applied in a consistent manner. On September 7, 2022, pursuant to Rule 2a-5 of the 1940 Act (“Rule 2a-5”), the Board designated OFS Advisor as the valuation designee to perform fair value determinations relating to the Company’s investments, and the Board maintains oversight of OFS Advisor in its capacity as valuation designee, as prescribed in Rule 2a-5.
As of April 30, 2023, all of the Company’s investments are classified as Level 3 under ASC Topic 820. The table below provides quantitative information on certain significant Level 3 inputs as they relate to the Company’s fair value measurements. In addition to the techniques and unobservable inputs noted in the table below and in accordance with OFS Advisor’s valuation policy, OFS Advisor, as valuation designee, may also use other valuation techniques and methodologies when determining the fair value measurements of the Company’s investment assets. The table below is not intended to be all-inclusive.
| Investment Type | Fair Value | Valuation Techniques | Unobservable Input | Range (Weighted average)(1) | ||||||||||
CLO Equity(2) | $ | 116,411,958 | Discounted Cash Flows | Constant Default Rate | 2.00% - 2.00% (2.00%) | |||||||||
| Constant Prepayment Rate | 15.00% - 20.00%(3) | |||||||||||||
| Reinvestment Spread - SOFR | 3.36% - 4.24% (3.81%) | |||||||||||||
| Reinvestment Price | 97.00% - 99.50%(3) | |||||||||||||
| Reinvestment Floor | 0.50% - 0.50% (0.50%) | |||||||||||||
| Recovery Rate | 65.00% - 65.00% (65.00%) | |||||||||||||
| Discount Rate | 14.00% - 55.00% (26.27%) | |||||||||||||
| CLO Equity | 3,792,360 | Market Approach | Transaction Price | |||||||||||
| CLO Equity | 46,078 | Market Approach | NAV liquidation(4) | |||||||||||
| Loan Accumulation Facility | 7,363,500 | Market Approach | NAV liquidation(4) | |||||||||||
| CLO Debt | 2,555,248 | Discounted Cash Flows | Constant Default Rate | 2.00% - 2.00% (2.00%) | ||||||||||
| Constant Prepayment Rate | 15.00% - 20.00%(3) | |||||||||||||
| Reinvestment Spread - SOFR | 3.73% - 4.52% (3.89%) | |||||||||||||
| Reinvestment Price | 97.00% - 99.50%(3) | |||||||||||||
| Reinvestment Floor | 0.50% - 0.50% (0.50%) | |||||||||||||
| Recovery Rate | 65.00% - 65.00% (65.00%) | |||||||||||||
| Discount Margin | 8.80% - 11.05% (10.62%) | |||||||||||||
| CLO Debt | 11,478,865 | Market Approach | Transaction Price | |||||||||||
Other CLO equity-related investments(5) | 561,013 | Discounted Cash Flows(5) | ||||||||||||
Other CLO equity-related investments(5) | 374,077 | Market Approach | Transaction Price | |||||||||||
| Total | $ | 142,583,099 | ||||||||||||
(1) Weighted average is calculated based on the fair value of investments.
(2) The cash flows utilized in the discounted cash flow calculations assume: (i) liquidation of (a) certain distressed investments and (b) all investments currently in default held by the issuing CLO at their current market prices; and (ii) redeployment of proceeds at the issuing CLO’s assumed reinvestment rate.
(3) A weighted average is not presented as the input in the discounted cash flow model varies over the life of an investment.
(4) NAV liquidation represents the fair value, or estimated expected residual value, of the investment.
(5) Utilizes the same discounted cash flow model inputs as CLO equity investments. Differences in the weighted averages are immaterial.
Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the values that would have been used had a ready market or observable inputs existed for such investments
25
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, and otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantly less than the value at which such investment had previously been recorded, and the Company may realize significant realized losses of invested capital. The Company’s investments are subject to market risk as a result of economic and political developments, including impacts from rising interest rates and elevated inflation rates, the ongoing war between Russia and Ukraine, instability in the U.S. and international banking systems, the risk of recession and of a failure to increase the U.S. debt ceiling and related market volatility. Market risk is directly impacted by the volatility and liquidity in the markets in which certain investments are traded and can affect the fair value of the Company’s investments.
The following table presents changes in the investment measured at fair value using Level 3 inputs for the six months ended April 30, 2023:
| CLO Equity | CLO Debt | Loan Accumulation Facilities | Other CLO Related Investments | Total | |||||||||||||||||||||||||
| Level 3 assets, October 31, 2022 | $ | 130,771,527 | $ | 2,524,715 | $ | 11,879,750 | $ | 591,886 | $ | 145,767,878 | |||||||||||||||||||
Net unrealized appreciation (depreciation) on portfolio investments(1) | (11,914,186) | 16,141 | 15,000 | 15,327 | (11,867,718) | ||||||||||||||||||||||||
| Accretion of interest income | 13,446,067 | — | — | 66,296 | 13,512,363 | ||||||||||||||||||||||||
| Amortization of original issuance discount | — | 36,757 | — | — | 36,757 | ||||||||||||||||||||||||
| Purchase of portfolio investments | 3,587,255 | 11,456,500 | 62,500 | 353,846 | 15,460,101 | ||||||||||||||||||||||||
| Proceeds from the repayment of portfolio investments | (3,054) | — | (4,593,750) | — | (4,596,804) | ||||||||||||||||||||||||
| Distributions from portfolio investments | (15,637,213) | — | — | (92,265) | (15,729,478) | ||||||||||||||||||||||||
| Level 3 assets, April 30, 2023 | $ | 120,250,396 | $ | 14,034,113 | $ | 7,363,500 | $ | 935,090 | $ | 142,583,099 | |||||||||||||||||||
(1) The net change in unrealized depreciation in the Company's statement of operations for the six months ended April 30, 2023 attributable to the Company’s Level 3 assets still held at the end of the period was $11,867,718.
Other Financial Assets and Liabilities
GAAP requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk.
The following table presents the carrying values and fair values of the Company’s preferred stock as of April 30, 2023:
| Description | Carrying Value(1) | Fair Value | ||||||||||||
| 6.60% Series B Term Preferred Stock | $ | 2,981,056 | $ | 2,913,922 | ||||||||||
| 6.125% Series C Term Preferred Stock | 22,505,766 | 21,620,000 | ||||||||||||
| 6.00% Series D Term Preferred Stock | 2,948,600 | 2,701,673 | ||||||||||||
| 5.25% Series E Term Preferred Stock | 34,101,041 | 31,962,000 | ||||||||||||
| Total preferred stock | $ | 62,536,463 | $ | 59,197,595 | ||||||||||
(1) Carrying value is calculated as the outstanding principal amount less unamortized deferred issuance costs. See Note 2 for details.
26
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
The following table presents the fair value measurements of the Company’s preferred stock and indicates the fair value hierarchy of the significant inputs utilized by the Company to determine such fair values as of April 30, 2023:
| Description | Level 1(1) | Level 2 | Level 3(2) | Total | ||||||||||||||||||||||
| 6.60% Series B Term Preferred Stock | $ | — | $ | — | $ | 2,913,922 | $ | 2,913,922 | ||||||||||||||||||
| 6.125% Series C Term Preferred Stock | 21,620,000 | — | — | 21,620,000 | ||||||||||||||||||||||
| 6.00% Series D Term Preferred Stock | — | — | 2,701,673 | 2,701,673 | ||||||||||||||||||||||
| 5.25% Series E Term Preferred Stock | 31,962,000 | — | — | 31,962,000 | ||||||||||||||||||||||
| Total preferred stock, at fair value | $ | 53,582,000 | $ | — | $ | 5,615,595 | $ | 59,197,595 | ||||||||||||||||||
(1) For Level 1 measurements, fair value is estimated by using the closing price of the security on the Nasdaq Capital Market as of the date presented.
(2) For Level 3 measurements, fair value is estimated through discounting remaining payments at current market rates for similar instruments at the measurement date through the legal maturity date.
Note 5. Commitments and Contingencies
As of April 30, 2023, the Company had no unfunded commitments to fund investments.
Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company believes the risk of any material obligation under these indemnifications to be low.
Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company.
Legal and regulatory proceedings: From time to time, the Company is involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot be predicted with any certainty, management is of the opinion, based on the advice of legal counsel, that final disposition of any litigation should not have a material adverse effect on the financial position of the Company as of April 30, 2023.
Note 6. Mandatorily Redeemable Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock, at a par value of $0.001 per share, and at April 30, 2023 had 2,560,000 shares of preferred stock outstanding. During the six months ended April 30, 2023, the average dollar borrowings and average effective interest rate for the Company’s preferred stock was $64,000,000 and 6.38%, respectively. The Company may recognize a loss related to the acceleration of unamortized deferred issuance costs upon early redemption of any outstanding shares of preferred stock.
6.60% Series B Term Preferred Stock
On November 19, 2020, through a private placement, the Company issued 120,000 shares of its 6.60% Series B Term Preferred Stock due 2023 (the “Series B Term Preferred Stock”) at a price per share of $24.40625, resulting in gross proceeds of $2,928,750. The shares of Series B Term Preferred Stock have a liquidation preference of $25 per share and are subject to mandatory redemption on November 19, 2023. At any time on or after March 31, 2021, the Company may, at its sole option, redeem the outstanding shares of Series B Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
The offering was consummated pursuant to the terms of a purchase agreement (the “Series B Purchase Agreement”) dated November 19, 2020 by and between the Company and the purchaser named therein (the “Series B Purchaser”). The Series B Purchase Agreement provided for the Series B Term Preferred Stock to be issued to the Series B Purchaser in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) thereof and Regulation D thereunder. The Company relied upon this exemption from registration based in part on representations made by the Series B Purchaser. The Series B Term Preferred Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
27
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
During the six months ended April 30, 2023, the Company paid distributions of approximately $0.83 per share of Series B Term Preferred Stock. On June 1, 2023, the Board declared additional fiscal year 2023 monthly distributions of $0.1375 per share of Series B Term Preferred Stock for August 2023 through October 2023.
6.125% Series C Term Preferred Stock
In April 2021, the Company issued 920,000 shares of its 6.125% Series C Term Preferred Stock due 2026 (the “Series C Term Preferred Stock”). The shares of Series C Term Preferred Stock have a liquidation preference of $25 per share and are mandatorily redeemable on April 30, 2026. At any time on or after April 30, 2023, the Company may, at its sole option, redeem the outstanding shares of Series C Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
During the six months ended April 30, 2023, the Company paid distributions of approximately $0.77 per share of Series C Term Preferred Stock. On June 1, 2023, the Board declared additional monthly distributions of $0.1276042 per share of Series C Term Preferred Stock for August 2023 through January 2024 .
6.00% Series D Term Preferred Stock
On June 10, 2021, through a private placement, the Company issued 120,000 shares of its 6.00% Series D Term Preferred Stock due 2026 (the “Series D Term Preferred Stock”) at a price per share of $24.50, resulting in gross proceeds of $2,940,000. The shares of Series D Term Preferred Stock have a liquidation preference of $25 per share and are subject to mandatory redemption on June 10, 2026. At any time on or after June 30, 2022, the Company may, at its sole option, redeem the outstanding shares of Series D Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
The offering was consummated pursuant to the terms of a purchase agreement (the “Series D Purchase Agreement”) dated June 10, 2021 by and between the Company and the purchaser named therein (the “Series D Purchaser”). The Series D Purchase Agreement provided for the Series D Term Preferred Stock to be issued to the Series D Purchaser in a private placement in reliance on an exemption from registration under the Securities Act, provided by Section 4(a)(2) thereof and Regulation D thereunder. The Company relied upon this exemption from registration based in part on representations made by the Series D Purchaser. The Series D Term Preferred Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
During the six months ended April 30, 2023, the Company paid distributions of approximately $0.75 per share of Series D Term Preferred Stock. On June 1, 2023, the Board declared additional monthly distributions of $0.125 per share of Series D Term Preferred Stock for August 2023 through January 2024.
5.25% Series E Term Preferred Stock
In December 2021, the Company issued 1,400,000 shares of its 5.25% Series E Term Preferred Stock (the “Series E Term Preferred Stock”). The shares of Series E Term Preferred Stock have a liquidation preference of $25 per share and are mandatorily redeemable on December 31, 2026. At any time on or after December 31, 2023, the Company may, at its sole option, redeem the outstanding shares of Series E Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
During the six months ended April 30, 2023. the Company paid distributions of approximately $0.66 per share of Series E Term Preferred Stock. On June 1, 2023, the Board declared additional monthly distributions of $0.109375 per share of Series E Term Preferred Stock for August 2023 through January 2024.
28
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
For the six months ended April 30, 2023, the components of interest expense, cash paid for interest, effective interest rate and average outstanding balance for the Company’s preferred stock was as follows:
| Series B Term Preferred Stock | Series C Term Preferred Stock | Series D Term Preferred Stock | Series E Term Preferred Stock | Total | |||||||||||||||||||||||||
| Stated interest expense | $ | 99,000 | $ | 704,374 | $ | 90,000 | $ | 918,750 | $ | 1,812,124 | |||||||||||||||||||
| Amortization of deferred issuance costs | 17,158 | 82,405 | 8,262 | 122,532 | 230,358 | ||||||||||||||||||||||||
| Total interest and deferred issuance costs | $ | 116,158 | $ | 786,780 | $ | 98,262 | $ | 1,041,282 | $ | 2,042,482 | |||||||||||||||||||
| Cash paid for interest expense | $ | 99,000 | $ | 704,374 | $ | 90,000 | $ | 918,750 | $ | 1,812,124 | |||||||||||||||||||
| Effective interest rate | 7.74 | % | 6.84 | % | 6.55 | % | 5.95 | % | 6.38 | % | |||||||||||||||||||
| Average outstanding balance | $ | 3,000,000 | $ | 23,000,000 | $ | 3,000,000 | $ | 35,000,000 | $ | 64,000,000 | |||||||||||||||||||
| Optional redemption date | March 31, 2021 | April 30, 2023 | June 30, 2022 | December 31, 2023 | |||||||||||||||||||||||||
| Mandatory redemption date | November 19, 2023 | April 30, 2026 | June 10, 2026 | December 31, 2026 | |||||||||||||||||||||||||
The following table shows the scheduled maturities of the principal balances of the Company's outstanding borrowings as of April 30, 2023:
| Payments due by period | ||||||||||||||||||||||||||||||||
| Description | Total | Less than 1 year | 1 to 3 years | 3 to 5 years | After 5 years | |||||||||||||||||||||||||||
| Series B Term Preferred Stock | $ | 3,000,000 | $ | 3,000,000 | $ | — | $ | — | $ | — | ||||||||||||||||||||||
| Series C Term Preferred Stock | 23,000,000 | — | 23,000,000 | — | — | |||||||||||||||||||||||||||
| Series D Term Preferred Stock | 3,000,000 | — | — | 3,000,000 | — | |||||||||||||||||||||||||||
| Series E Term Preferred Stock | 35,000,000 | — | — | 35,000,000 | — | |||||||||||||||||||||||||||
| Total | $ | 64,000,000 | $ | 3,000,000 | $ | 23,000,000 | $ | 38,000,000 | $ | — | ||||||||||||||||||||||
Preferred Stock Repurchase Program
On December 7, 2021, the Board authorized a program under which the Company may repurchase up to $10.0 million of its outstanding shares of the Company's Series C Term Preferred Stock and Series E Term Preferred Stock. Under this program, the Company may, but is not obligated to, repurchase its outstanding Series C Term Preferred Stock and Series E Term Preferred Stock in the open market from time to time through December 7, 2023. The timing and the amount of Series C Term Preferred Stock and Series E Term Preferred Stock to be repurchased will depend on a number of factors, including then-existing market conditions, liquidity, prospects for future access to capital, contractual restrictions, alternative investment opportunities and other factors. In addition, any repurchases will also be conducted in accordance with the 1940 Act. There are no assurances that the Company will engage in any repurchases. During the six months ended April 30, 2023, no shares of preferred stock were repurchased.
Note 7. Federal Income Taxes
The Company has elected, and intends to qualify annually to be taxed as a RIC under Subchapter M of the Code. To maintain its tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its ICTI. Additionally, to avoid a 4% U.S. federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of: (i) 98% of its ordinary income for such calendar year; (ii) 98.2% of its net capital gains for the period ending October 31 of that calendar year; and (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. Maintenance of the Company's RIC status also requires adherence to certain source of income and asset diversification requirements provided under the Code. The Company has met the source of income and asset diversification requirements as of April 30, 2023, and intends to continue to meet these requirements.
During the six months ended April 30, 2023, the Company paid excise taxes of $300,000 related to estimated undistributed income during calendar year 2022.
The Company’s ICTI differs from the net increase (decrease) in net assets resulting from operations primarily due to differences in income recognition for CLO equity investments, the treatment of distributions on preferred stock, the recognition of non-deductible excise tax expense and recognition of unrealized appreciation/depreciation on investments. These differences can be permanent or temporary in nature. GAAP requires recognition of an estimated constant yield for CLO equity investments. U.S. federal income tax rules, however, require recognition of income reported to the Company by the underlying CLO fund in the
29
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
tax period reported. Distributions on mandatorily redeemable preferred stock are reported as interest expense under GAAP but are treated as either dividends or return-of-capital distributions for federal income tax purposes.
The estimated tax-basis cost of investments and associated tax-basis gross unrealized appreciation (depreciation) inherent in the fair value of investments based on known and estimated GAAP-tax basis differences as of April 30, 2023, were as follows:
| Tax-basis amortized cost of investments | $ | 186,625,279 | ||||||
| Tax-basis gross unrealized appreciation on investments | 441,916 | |||||||
| Tax-basis gross unrealized depreciation on investments | (44,484,096) | |||||||
| Tax-basis net unrealized depreciation on investments | (44,042,180) | |||||||
| Fair value of investments | $ | 142,583,099 | ||||||
The Company has distributed $12,605,577 for the six months ended April 30, 2023, consisting of common stock distributions and the cash portion of mandatorily redeemable preferred stock interest, which is considered a distribution for federal income tax purposes. The final tax character of distributions will not be determined until the end of the calendar year and the tax character of all distributions will be reported to stockholders on Form 1099-DIV, if required, after the end of each calendar year. Distributions declared prior to December 31st and paid on or prior to January 31st of the following year, are generally included in such tax reporting to the recipient in the year declared.
30
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Note 8. Financial Highlights
The following is a schedule of financial highlights for the periods indicated:
| Six Months Ended April 30, 2023 | Year Ended October 31, 2022 | Year Ended October 31, 2021 | Year Ended October 31, 2020 | Year Ended October 31, 2019 | Period from October 10 (commencement) through October 31, 2018 | ||||||||||||||||||||||||||||||
| (per share data) | |||||||||||||||||||||||||||||||||||
| Net asset value per share at beginning of period | $ | 9.98 | $ | 14.00 | $ | 11.58 | $ | 14.98 | $ | 20.11 | $ | 20.00 | |||||||||||||||||||||||
| Income (loss) from investment operations: | |||||||||||||||||||||||||||||||||||
Net investment income(1) | 0.76 | 1.58 | 1.22 | 1.58 | 1.66 | 0.08 | |||||||||||||||||||||||||||||
Loss on redemption of preferred stock(1) | — | (0.05) | — | — | — | — | |||||||||||||||||||||||||||||
Net realized and unrealized gains (losses) on investments(1) | (1.21) | (3.18) | 2.59 | (2.71) | (4.69) | 0.03 | |||||||||||||||||||||||||||||
| Total income (loss) from investment operations | (0.45) | (1.65) | 3.81 | (1.13) | (3.03) | 0.11 | |||||||||||||||||||||||||||||
| Distributions: | |||||||||||||||||||||||||||||||||||
Common stock distributions from net investment income(2) | (1.10) | (2.20) | (0.16) | (1.19) | — | — | |||||||||||||||||||||||||||||
Common stock distributions from tax return of capital(2) | — | — | (1.98) | (0.88) | (2.12) | — | |||||||||||||||||||||||||||||
| Total distributions | (1.10) | (2.20) | (2.14) | (2.07) | (2.12) | — | |||||||||||||||||||||||||||||
Issuance of common stock(3) | 0.05 | (0.17) | 0.75 | (0.20) | 0.02 | — | |||||||||||||||||||||||||||||
| Net asset value per share at end of period | $ | 8.48 | $ | 9.98 | $ | 14.00 | $ | 11.58 | $ | 14.98 | $ | 20.11 | |||||||||||||||||||||||
Per share market value, end of period | $ | 8.89 | $ | 9.55 | $ | 13.60 | $ | 9.83 | $ | 16.91 | $ | 18.78 | |||||||||||||||||||||||
Total return based on market value(4) | 4.53 | % | (13.64) | % | 60.70 | % | (29.07) | % | 1.84 | % | (6.10) | % | |||||||||||||||||||||||
Total return based on net asset value(5) | (4.58) | % | (12.33) | % | 40.43 | % | (5.68) | % | (15.75) | % | 0.55 | % | |||||||||||||||||||||||
Shares outstanding at end of period | 10,816,509 | 9,442,550 | 7,719,307 | 3,580,663 | 3,061,858 | 2,505,000 | |||||||||||||||||||||||||||||
Weighted average shares outstanding | 9,809,816 | 8,238,545 | 5,329,914 | 3,237,905 | 2,601,037 | 2,505,000 | |||||||||||||||||||||||||||||
| Ratio/Supplemental Data | |||||||||||||||||||||||||||||||||||
Average net asset value | $ | 92,992,813 | $ | 101,155,498 | $ | 74,788,302 | $ | 43,665,458 | $ | 48,120,908 | $ | 50,243,254 | |||||||||||||||||||||||
Net asset value at end of period | $ | 91,775,625 | $ | 94,210,001 | $ | 108,100,995 | $ | 41,475,608 | $ | 45,855,308 | $ | 50,386,507 | |||||||||||||||||||||||
Ratio of total operating expenses to average net assets(6)(7)(8) | 14.91 | % | 13.02 | % | 12.10 | % | 13.65 | % | 9.41 | % | 4.42 | % | |||||||||||||||||||||||
Ratio of net investment income to average net assets(9)(7)(10) | 16.03 | % | 12.90 | % | 8.70 | % | 11.70 | % | 9.00 | % | 7.17 | % | |||||||||||||||||||||||
Portfolio turnover rate(11) | 10.70 | % | 33.80 | % | 51.00 | % | 8.60 | % | 28.80 | % | 5.10 | % | |||||||||||||||||||||||
Asset coverage of preferred stock(12) | 243.40 | % | 247.20 | % | 314.84 | % | 294.57 | % | 315.12 | % | — | % | |||||||||||||||||||||||
(1)Calculated on the average share method.
31
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
(2)The final tax character of the Company’s earnings cannot be determined until the end of the calendar year and may vary from the estimates as set forth in the statements of changes in net assets and disclosed above and in Note 9. Each common stockholder, if required, will receive a Form 1099-DIV following the end of each calendar year, which will reflect the actual amounts of taxable ordinary income, capital gain and return of capital paid by the Company. The figures above have not been adjusted to reflect the final tax character of any particular period, as applicable.
(3)The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the issuance of shares of common stock under the Equity Distribution Agreement (as defined below), the issuance of shares of common stock in the Company’s August 2019 rights offering, the issuance of shares of common stock in the Company’s March 2021 public offering, the issuance of shares of common stock as common stock distributions, and the anti-dilutive (dilutive) impact from changes in weighted-average shares outstanding during the period.
(4)Total return based on market value is calculated assuming shares of common stock were purchased at the market price at the beginning of the period, distributions were reinvested at a price obtained in the Company’s dividend reinvestment plan, and shares were sold at the closing market price on the last day of the period. Total return is not annualized for a period of less than one year.
(5)Total return based on net asset value is calculated assuming shares of common stock were purchased at the net asset value at the beginning of the period, distributions were reinvested at a price obtained in the Company’s dividend reinvestment plan, and shares were sold at the ending net asset value on the last day of the period. Total return is not annualized for a period of less than one year.
(6)Ratio of total expenses before management fee waiver to average net assets was 9.87% and 6.17% for the year ended October 31, 2019 and period ended October 31, 2018, respectively.
(7)Annualized for periods less than one year.
(8)Ratio of total expenses (before the one-time adjustment to reflect shares issued by the Company during the fiscal year ended October 31, 2021) to average net assets was 12.83% and 12.36% for the year ended October 31, 2022 and 2021, respectively.
(9)Ratio of net investment income before management fee waiver to average net assets was 8.54% and 5.42% for the year ended October 31, 2019 and period ended October 31, 2018, respectively.
(10)Ratio of net investment income (before the one-time adjustment to reflect shares issued by the Company during the fiscal year ended October 31, 2021) to average net assets was 13.09% and 8.95% for the year ended October 31, 2022 and 2021, respectively.
(11)Portfolio turnover rate is calculated using the lesser of period-to-date sales, repayments and distributions from portfolio investments or period-to-date purchases over the average of the invested assets at fair value.
(12)Under the provisions of the 1940 Act, the Company is permitted to issue senior securities, including preferred stock, provided that the Company maintains an asset coverage of at least 200%. Asset coverage is calculated as the ratio of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount of the Company’s outstanding senior securities representing indebtedness.
32
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Note 9. Capital Transactions
At-the-Market Program
On January 24, 2020, the Company entered into an equity distribution agreement by and among the Company, OFS Advisor, and OFS Capital Services, LLC, a Delaware limited liability company, on the one hand, and Ladenburg Thalmann & Co. Inc., as Placement Agent, on the other hand, as amended (the “Equity Distribution Agreement”), relating to the sale of shares in an offering of its common stock (the “At-the-Market Offering”). The original equity distribution agreement provided that the Company may offer and sell shares of its common stock in the At-the-Market Offering having an aggregate offering price of up to $25.0 million. On December 7, 2021, the Equity Distribution Agreement was amended to, among other things, increase the amount of common stock that the Company may offer to sell pursuant to such agreement up to an aggregate offering price of $70.0 million.
For the six months ended April 30, 2023, the Company sold 436,781 shares of its common stock in the At-the-Market offering for net proceeds of $4,143,582, after deducting commissions and fees of $39,200.
As of April 30, 2023, the Company may issue additional shares in the At-the-Market Offering of approximately $26.9 million.
Common Stock Distributions
The following table summarizes distributions paid on common shares for the six months ended April 30, 2023:
| Record Date | Payable Date | Distribution Per Common Share(1) | Cash Distribution | Value of Common Shares Issued | Common Shares Issued | Total Distribution | ||||||||||||||||||||||||||||||||
| December 13, 2022 | January 31, 2023 | $ | 0.55 | $ | 1,038,691 | $ | 4,154,712 | 449,158 | $ | 5,193,403 | ||||||||||||||||||||||||||||
| March 14, 2023 | April 28, 2023 | 0.55 | 1,120,026 | 4,480,024 | 488,020 | 5,600,050 | ||||||||||||||||||||||||||||||||
| $ | 1.10 | $ | 2,158,717 | $ | 8,634,736 | 937,178 | $ | 10,793,453 | ||||||||||||||||||||||||||||||
(1) The total amount of cash distributed to stockholders was limited to 20% of the total distribution paid, excluding any cash paid for fractional shares. The remainder of the distribution (approximately 80%) was paid in shares of the Company's common stock.
The Company distributed $10,793,453, or $1.10 per common share, during the six months ended April 30, 2023. The tax character of distributions for the six months ended April 30, 2023 is an estimate and is unknown until after the end of the calendar year. The tax attributes of distributions are determined annually as of the end of each calendar year based, in part, on the taxable income for the fiscal year, estimated taxable income subsequent to the fiscal year end, and distributions paid. The estimated tax character of each distribution paid is reported to stockholders, if required, on Form 1099-DIV following the close of the calendar year.
The Company adopted a dividend reinvestment plan that provides for reinvestment of its common stock distributions on behalf of the common stockholders (the “DRIP”), unless a common stockholder elects to receive cash. During the six months ended April 30, 2023, the DRIP was suspended in connection with the Board’s declaration of the Company’s quarterly distributions payable in cash and common stock, and, therefore no shares were issued under the DRIP. On June 1, 2023, the Board approved an amended and restated dividend reinvestment plan (the “Amended DRIP”). For stockholders participating in the Amended DRIP, the number of shares to be issued to a stockholder in connection with any distribution will be determined by dividing the total dollar amount of the distribution payable to such stockholder by an amount equal to ninety five percent (95%) of the market price per share of common stock at the close of regular trading on the Nasdaq Capital Market on the valuation date fixed by the Board for such distribution.
33
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
Note 10. Subsequent Events
On June 1, 2023, the Board declared the following distribution on common shares.
| Record Date | Payable Date | Distribution Per Common Share(1) | ||||||||||||
| June 14, 2023 | July 31, 2023 | $0.55 | ||||||||||||
(1) The total amount of cash distributed to stockholders will be limited to 20% of the total distribution paid, excluding any cash paid for fractional shares. The remainder of the distribution (approximately 80%) will be paid in the form of shares of the Company’s common stock.
On June 1, 2023, the Board declared the following distributions on preferred shares.
| Description | Record Date | Payable Date | Distribution Per Preferred Share | |||||||||||||||||
| Series B Term Preferred Stock | August 24, 2023 | August 31, 2023 | $0.1375 | |||||||||||||||||
| September 22, 2023 | September 29, 2023 | 0.1375 | ||||||||||||||||||
| October 24, 2023 | October 31, 2023 | 0.1375 | ||||||||||||||||||
| Series C Term Preferred Stock | August 24, 2023 | August 31, 2023 | $0.1276042 | |||||||||||||||||
| September 22, 2023 | September 29, 2023 | 0.1276042 | ||||||||||||||||||
| October 24, 2023 | October 31, 2023 | 0.1276042 | ||||||||||||||||||
| November 23, 2023 | November 30, 2023 | 0.1276042 | ||||||||||||||||||
| December 22, 2023 | December 29, 2023 | 0.1276042 | ||||||||||||||||||
| January 24, 2024 | January 31, 2024 | 0.1276042 | ||||||||||||||||||
| Series D Term Preferred Stock | August 24, 2023 | August 31, 2023 | $0.125 | |||||||||||||||||
| September 22, 2023 | September 29, 2023 | 0.125 | ||||||||||||||||||
| October 24, 2023 | October 31, 2023 | 0.125 | ||||||||||||||||||
| November 23, 2023 | November 30, 2023 | 0.125 | ||||||||||||||||||
| December 22, 2023 | December 29, 2023 | 0.125 | ||||||||||||||||||
| January 24, 2024 | January 31, 2024 | 0.125 | ||||||||||||||||||
| Series E Term Preferred Stock | August 24, 2023 | August 31, 2023 | $0.109375 | |||||||||||||||||
| September 22, 2023 | September 29, 2023 | 0.109375 | ||||||||||||||||||
| October 24, 2023 | October 31, 2023 | 0.109375 | ||||||||||||||||||
| November 23, 2023 | November 30, 2023 | 0.109375 | ||||||||||||||||||
| December 22, 2023 | December 29, 2023 | 0.109375 | ||||||||||||||||||
| January 24, 2024 | January 31, 2024 | 0.109375 | ||||||||||||||||||
34
OFS Credit Company, Inc.
Notes to Financial Statements (Unaudited)
April 30, 2023
SUPPLEMENTAL INFORMATION
Senior Securities Tables
Information about the Company’s senior securities is shown in the following table as of and for the dates noted.
| Class and Year | Total Amount Outstanding(1) | Asset Coverage Per $1,000(2) | Asset Coverage Per Unit(3) | Involuntary Liquidation Preference Per Unit(4) | Average Market Value Per Unit(5) | |||||||||||||||||||||||||||
6.875% Series A Term Preferred Stock(6) | ||||||||||||||||||||||||||||||||
| October 31, 2022 | $ | — | — | — | $ | — | N/A | |||||||||||||||||||||||||
| October 31, 2021 | 21,316,500 | 3,148 | 78.71 | 25.00 | $ | 25.15 | ||||||||||||||||||||||||||
| October 31, 2020 | 21,316,500 | 2,946 | 73.64 | 25.00 | 23.72 | |||||||||||||||||||||||||||
October 31, 2019 | 21,316,500 | 3,151 | 78.78 | 25.00 | 25.46 | |||||||||||||||||||||||||||
| 6.60% Series B Term Preferred Stock | ||||||||||||||||||||||||||||||||
| April 30, 2023 (unaudited) | 3,000,000 | 2,434 | 60.85 | 25.00 | N/A | |||||||||||||||||||||||||||
| October 31, 2022 | 3,000,000 | 2,472 | 61.80 | 25.00 | N/A | |||||||||||||||||||||||||||
| October 31, 2021 | 3,000,000 | 3,148 | 78.71 | 25.00 | N/A | |||||||||||||||||||||||||||
| 6.125% Series C Term Preferred Stock | ||||||||||||||||||||||||||||||||
| April 30, 2023 (unaudited) | 23,000,000 | 2,434 | 60.85 | 25.00 | 23.25 | |||||||||||||||||||||||||||
| October 31, 2022 | 23,000,000 | 2,472 | 61.80 | 25.00 | 24.79 | |||||||||||||||||||||||||||
| October 31, 2021 | 23,000,000 | 3,148 | 78.71 | 25.00 | 25.22 | |||||||||||||||||||||||||||
| 6.00% Series D Term Preferred Stock | ||||||||||||||||||||||||||||||||
| April 30, 2023 (unaudited) | 3,000,000 | 2,434 | 60.85 | 25.00 | N/A | |||||||||||||||||||||||||||
| October 31, 2022 | 3,000,000 | 2,472 | 61.80 | 25.00 | N/A | |||||||||||||||||||||||||||
| October 31, 2021 | 3,000,000 | 3,148 | 78.71 | 25.00 | N/A | |||||||||||||||||||||||||||
| 5.25% Series E Term Preferred Stock | ||||||||||||||||||||||||||||||||
| April 30, 2023 (unaudited) | 35,000,000 | 2,434 | 60.85 | 25.00 | 22.45 | |||||||||||||||||||||||||||
| October 31, 2022 | 35,000,000 | 2,472 | 61.80 | 25.00 | 23.99 | |||||||||||||||||||||||||||
(1) Total amount of each class of senior securities outstanding at the end of the period presented.
(2) The asset coverage ratio for a class of senior securities representing indebtedness is calculated as the total assets, less all liabilities and indebtedness not represented by senior securities, divided by the aggregate amount of outstanding senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the “Asset Coverage Per $1,000.”
(3) The Asset Coverage Per Unit is expressed in terms of a ratio per share of the aggregate amount of outstanding senior securities. When expressing in terms of dollar amounts per share, the asset coverage ratio is multiplied by the involuntary liquidation preference per unit of $25.
(4) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.
(5) Average market value per unit for the Series C Term Preferred Stock and Series E Term Preferred Stock represent the average of the daily closing prices as reported on the Nasdaq Capital Market during the period presented. Not applicable to the Series A Term Preferred Stock, Series B Term Preferred Stock and Series D Term Preferred Stock because these senior securities are not registered for public trading or are fully redeemed.
(6) On December 10, 2021, all outstanding shares of the Series A Term Preferred Stock were redeemed at 100% of their principal amount ($25 per Note), plus the accrued and unpaid dividends through December 9, 2021. The total amount of the redemption, plus accrued dividends, was $21,353,138.
35
SUMMARY RISK FACTORS
The risk factors described below are a summary of the principal risk factors associated with an investment in the Company. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in our prospectus, as supplemented from time to time, and the other reports and documents filed by us with the SEC. Specifically, see “Risk Factors” in our prospectus filed with the SEC on June 4, 2021.
We are subject to risks related to our business and structure.
•Our investment portfolio is recorded at fair value and OFS Advisor, our “valuation designee,” determines the fair value of our investments in good faith pursuant to Rule 2a-5 under the 1940 Act. As a result, there will be uncertainty as to the value of our portfolio investments and the participation of OFS Advisor’s professionals in our valuation process could result in a conflict of interest.
•Our financial condition and results of operations depend on OFS Advisor’s ability to effectively manage and deploy capital.
•We are dependent upon the OFS senior professionals for our future success and upon their access to the investment professionals and partners of OFSAM and its affiliates.
•OFS Advisor and OFS Services each has the right to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
•Our success will depend on the ability of OFS Advisor to attract and retain qualified personnel in a competitive environment.
•Our incentive fee structure may incentivize OFS Advisor to pursue speculative investments, use leverage when it may be unwise to do so, refrain from de-levering when it would otherwise be appropriate to do so, or include optimistic assumptions in the determination of net investment income.
•We may be obligated to pay OFS Advisor incentive compensation even if we incur a loss.
•We may pay an incentive fee on income we do not receive in cash.
•OFS Advisor’s liability is limited under the Investment Advisory Agreement, and we have agreed to indemnify OFS Advisor against certain liabilities, which may lead OFS Advisor to act in a riskier manner on our behalf than it would when acting for its own account.
•The Investment Advisory Agreement and the Administration Agreement were not negotiated on an arm's length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
•We may experience fluctuations in our quarterly operating results.
•Our Board may change our operating policies and strategies without stockholder approval, the effects of which may be adverse.
•We will be subject to U.S. federal income tax at corporate rates if we are unable to maintain our tax treatment as a RIC.
•There is a risk that holders of our equity securities may not receive distributions or that our distributions may not grow or may be reduced over time.
•We may choose to pay distributions in our own common stock, in which case, our stockholders may be required to pay U.S. federal income taxes in excess of the cash distributions they receive.
•We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
•Because we expect to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we may need additional capital to finance the acquisition of new investments and such capital may not be available on favorable terms, or at all.
•Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us.
•We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us.
•Provisions of the General Corporation Law of the State of Delaware and our Amended and Restated Certificate of Incorporation and Bylaws could deter takeover attempts and have an adverse effect on the price of our securities.
•Events outside of our control, including public health crises, elevated interest and inflation rates and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations.
•Global economic, political and market conditions may adversely affect our business, ability to secure debt financing, results of operations and financial condition, including our revenue growth and profitability.
•Adverse developments in the credit markets may impair our ability to secure debt financing.
•Terrorist attacks, acts of war or natural disasters may impact the businesses in which we invest and harm our business, operating results and financial condition.
•Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.
36
•The impact of legal, tax and regulatory changes in the United States is uncertain and may directly affect financial institutions and the global economy.
•Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
We are subject to risks related to our investments.
•Investing in senior secured loans indirectly through CLO securities involves particular risks.
•Our investments in CLO securities, the primary CLO market and other structured finance securities involve certain risks.
•Our investments in subordinated or equity CLO securities are more likely to suffer a loss of all or a portion of their value in the event of a default.
•Our portfolio of investments may lack diversification among CLO securities or underlying obligors, which may subject us to a risk of significant loss if one or more of these CLO securities experience a high level of defaults on collateral.
•The CLO securities in which we invest may hold loans that are concentrated in a limited number of industries.
•Failure by a CLO in which we are invested to satisfy certain tests will harm our operating results.
•Our investments in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral.
•CLO investments involve complex documentation and accounting considerations, and as a result the risk of dispute over interpretation or enforceability of the documentation may be higher relative to other types of investments.
•The application of the risk retention rules under Section 941 of the Dodd-Frank Act and other similar European Union law to CLOs may have broader effects on the CLO and loan markets in general, potentially resulting in fewer or less desirable investment opportunities for us.
•Our investments in CLO securities may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income.
•If a CLO in which we invest fails to comply with certain U.S. tax disclosure requirements, such CLO may be subject to withholding requirements that could materially and adversely affect our operating results and cash flows.
•Increased competition in the market or a decrease in new CLO issuances may result in increased price volatility or a shortage of investment opportunities.
•The interest rates of our investments might be subject to change, including as a result of the transition away from LIBOR and the adoption of alternative reference rates, which could affect our results of operations.
•The lack of liquidity in our investments may adversely affect our business.
•We are subject to risks associated with defaults on an underlying asset held by a CLO.
•We are subject to risks associated with Loan Accumulation Facilities.
•We are subject to risks associated with the bankruptcy or insolvency of an issuer or borrower of a loan that we hold or of an underlying asset held by a CLO in which we invest.
•We may be exposed to risks if we invest in the securities of new issuers.
•We and our investments may be subject to currency risk.
•We and our investments are subject to risks associated with non-U.S. investing.
•Any unrealized depreciation we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution or to make payments on our other obligations.
•A portion of our income and fees may not be qualifying income for purposes of the income source requirement.
•Downgrades by rating agencies of broadly syndicated loans could adversely impact the financial performance of the CLO vehicles in which we have invested and their ability to pay equity distributions to the Company in the future.
We are subject to risks relating to our securities.
•Our shares of common stock have traded at a discount from NAV and our 6.125% Series C Term Preferred Stock due 2026 and our 5.25% Series E Term Preferred Stock due 2026 may not trade at a favorable price.
•Our common stock price may be volatile and may decrease substantially.
•SEC regulations may limit the number of shares we may sell pursuant to our shelf registration statement.
•If we issue additional preferred stock, the net asset value and market value of our common stock will likely become more volatile.
•Any amounts that we use to service our indebtedness or preferred dividends, or that we use to redeem our preferred stock, will not be available for distributions to our common stockholders.
•Our common stock is subject to a risk of subordination relative to holders of our debt instruments and holders of our preferred stock.
•Holders of any preferred stock have the right to elect members of our Board and class voting rights on certain matters.
•You may not receive distributions or our distributions may decline or may not grow over time.
•We cannot assure you that we will be able to successfully deploy the proceeds of any offering within the timeframe we have contemplated.
37
The risk factor entitled “Events outside of our control, including public health crises, rising interest and inflation rates and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations.” in the Base Prospectus is replaced in its entirety as follows:
Events outside of our control, including public health crises, elevated interest and inflation rates and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations.
Periods of market volatility may continue to occur in response to rising interest and elevated inflation rates, public health crises, or other events outside of our control. These types of events will continue to lead to disruptions in local, regional, national and global markets and economies and have adversely affected, and will continue to adversely affect, our operating results.
Inflation rates in the United States have increased and remain elevated. Food and energy costs have increased, reflecting labor market, supply chain and transportation disruptions. As of May 2023, the U.S. Federal Reserve had approved an aggregate of ten interest rate increases in 2022 and 2023 and additional increases may be necessary to combat inflation.
Any of the foregoing factors, or other cascading effects of rising interest and elevated inflation rates, will materially increase our costs, negatively impact our investment income and damage our results of operations and liquidity position, possibly to a significant degree. These impacts, the duration of which remains uncertain, have affected and will continue to adversely affect the Company’s operating results.
The risk factor entitled “A cyberattack or cybersecurity-systems failures, as well as the occurrence of other events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.” in the Base Prospectus is replaced in its entirety as follows:
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems or those of our third-party vendors for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Despite careful security and controls design, our information technology systems and the information technology systems of our third-party vendors may be subject to security breaches and cyber-attacks, the result of which may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation damage to business relationships and damage to our competitiveness, stock price, and long-term stockholder value. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. As our and our third party vendors’ reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by OFS Services and third-party service providers. OFS Advisor has implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.
In addition, cybersecurity has become a top priority for regulators around the world, including the SEC, and some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in fact, may not be detected. Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us and our service providers to entirely mitigate this risk.
Cybersecurity risks require continuous and increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technologies, systems and processes to adequately address such risks. Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective. If we fail to comply with relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage. Further, the increased use of mobile and cloud technologies due to the proliferation of remote work resulting from the COVID-19 pandemic and flexible work arrangements have heightened our vulnerability to a cybersecurity risk or incident. Reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately safeguard systems could disrupt our operations or the operations of our service providers and result in misappropriation, corruption or loss of personal, confidential or proprietary information or the inability to conduct business operations. Extended periods of remote working, whether by us or our service providers, could strain technology resources, introduce operational risks and otherwise heighten the risks described above.
The risk factor entitled “The impact of legal, tax and regulatory changes in the United States, including the recently announced Inflation Reduction Act of 2022, is uncertain and may directly affect financial institutions and the global economy.” in the Base Prospectus is replaced in its entirety as follows:
38
The impact of legal, tax and regulatory changes in the United States is uncertain and may directly affect financial institutions and the global economy.
Changes in federal policy, including tax policies, and at regulatory agencies that occur over time due to policy and personnel changes, may lead to changes involving the level of oversight and focus on the financial services industry or the tax rates paid by corporate entities. The effect of any future rules or regulations are and could be complex and far-reaching, and could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.
In addition, the nature, timing and economic and political effects of potential changes to the current legal and regulatory framework affecting financial institutions remain highly uncertain. Uncertainty surrounding future changes may adversely affect our operating environment and therefore our business, financial condition, results of operations and growth prospects.
The following risk factors have been added to the Base Prospectus filed with the SEC on June 4, 2021:
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit. If a depository institution fails to return these deposits or is otherwise subject to adverse conditions in the financial or credit markets, our access to invested cash or cash equivalents could be limited which adversely impacts our results of operations or financial condition.
We are subject to risks related to corporate social responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities, which are increasingly considered to contribute to the long-term sustainability of a company’s performance. A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity, equity and inclusion, environmental stewardship, corporate governance, support for local communities and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business. The SEC has proposed rules to require disclosure of certain ESG-related matters, which may be adopted in 2023. At this time, there is uncertainty regarding the scope of such proposals or when they would become effective (if at all). Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we or our portfolio companies conduct our businesses and adversely affect our profitability.
39
DIVIDEND REINVESTMENT PLAN
On June 1, 2023, the Board adopted an amended and restated dividend reinvestment plan that provides for reinvestment of our distributions and other distributions on behalf of our common stockholders (the “Amended DRIP”), unless a common stockholder elects to receive cash as provided below. As a result, if our Board authorizes, and we declare, a cash distribution, then our common stockholders who have not “opted out” of our Amended DRIP will have their cash distribution automatically reinvested in additional shares of common stock, rather than receiving the cash distribution.
No action is required on the part of a registered holder of common stock to have their cash distribution reinvested in shares of our common stock. A registered holder of common stock may elect to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, LLC, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to holders of common stock. The plan administrator will set up an account for shares acquired through the Amended DRIP for each holder of common stock who has not elected to receive distributions in cash and hold such shares in non-certificated form. Upon request by a holder of common stock participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares and a check for any fractional share.
Those common stockholders whose common shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We primarily use newly issued shares of our common stock to implement the Amended DRIP, whether shares of our common stock are trading at a premium or at a discount to net asset value. However, we reserve the right to direct the plan administrator to purchase shares in the open market in connection with our implementation of the plan. The number of shares to be issued to a holder of common stock is determined by dividing the total dollar amount of the distribution payable to such holder of common stock by ninety-five percent (95%) of the market price per share of common stock at the close of regular trading on the Nasdaq Capital Market on the valuation date fixed by the Board for such distribution. Market price per share of common stock on that date will be the closing price for such shares on the Nasdaq Capital Market or, if no sale is reported for such day, at the average of their reported bid and asked prices. The number of shares to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of our holders of common stock have been tabulated.
There will be no brokerage charges or other charges to common stockholders who participate in the Amended DRIP. The plan administrator’s fees will be paid by us. If a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the common shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per common share brokerage commission from the proceeds.
Holders of common stock who receive distributions in the form of stock are subject to the same U.S. federal tax consequences as are holders of common stock who elect to receive their distributions in cash; however, since their cash distributions will be reinvested, such holders of common stock will not receive cash with which to pay any applicable taxes on reinvested distributions. A holder of common stock’s basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the holder of common stock. Any stock received in a distribution will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. holder of common stock’s account.
Participants may terminate their accounts under the Amended DRIP by notifying the plan administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator. Such termination will be effective immediately if the participant’s notice is received by the plan administrator not less than 10 days prior to any distribution record date; otherwise, such termination will be effective only with respect to any subsequent distribution. The Amended DRIP may be terminated by us upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any distribution by us. All correspondence concerning the Amended DRIP should be directed to the plan administrator by mail to American Stock Transfer & Trust Company, LLC, P.O. Box 922, Wall Street Station, New York, New York 10269, or by the plan administrator’s Interactive Voice Response System at (800) 937-5449.
If a common stockholder withdraws or the plan is terminated, such common stockholder will receive the number of whole shares in their account under the plan and a cash payment for any fraction of a share in their account.
If a common stockholder holds shares with a brokerage firm that does not participate in the plan, such common stockholder will not be able to participate in the plan and any distribution reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
40
The Amended DRIP was suspended in connection with the Board’s declaration of distributions payable in cash and common stock, and was suspended in connection with the Board’s declaration on June 1, 2023 of the third quarter 2023 distribution payable in cash and common stock. See Note 9 in the Notes to the Financial Statements for more information.
41
BOARD APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
On June 1, 2023, our Board, including a majority of Directors who are not “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act (the “Independent Directors”), unanimously voted to approve the continuation of the Investment Advisory Agreement at a virtual meeting. In reliance upon certain exemptive relief granted by the SEC in connection with the global COVID-19 pandemic, our Board undertook to ratify the Investment Advisory Agreement at its next in-person meeting. In reaching a decision to approve the continuation of the Investment Advisory Agreement, the Board reviewed a significant amount of information, including reports prepared by third parties and the management of the Company, as well as information prepared by OFS Advisor in response to an information request sent by the Company on behalf of the Board. The Board engaged in a detailed discussion of the materials with OFS Advisor’s management and relevant third parties. The Board then considered and concluded, among other things:
•The nature, quality and extent of the advisory and other services to be provided to us by OFS Advisor, including the responses in a questionnaire regarding OFS Advisor’s investment process and OFS Advisor’s policies and guidelines currently in place to monitor and manage the risk and volatility associated with the Company’s portfolio, and the qualifications and abilities of the professional personnel of OFS Advisor and the compensation structure for such personnel, and concluded that such services are satisfactory;
•The investment performance of OFS Advisor, and concluded that the investment performance of OFS Advisor was reasonable;
•Comparative data with respect to advisory fees or similar expenses paid by other management investment companies with similar investment objectives, and concluded that the total advisory fees paid by the Company to OFS Advisor were reasonable;
•Our projected operating expenses and expense ratio compared to management investment companies with similar investment objectives, and concluded that our projected operating expenses were reasonable;
•Any existing and potential sources of indirect income to OFS Advisor from their relationship with the Company and the profitability of that relationship, and concluded that OFS Advisor’s profitability was not excessive with respect to us;
•The services to be performed and the personnel performing such services under the Investment Advisory Agreement, and concluded that the services to be performed and the personnel performing such services were satisfactory;
•The organizational capability and financial condition of OFS Advisor and its affiliates, and concluded that the organizational capability and financial condition of OFS Advisor were reasonable; and
•The possibility of obtaining similar services from other third-party service providers or through an internally managed structure, and concluded that our current externally managed structure with OFS Advisor as our investment advisor was satisfactory.
Based on the information reviewed and the discussions detailed above, the Board, including all of the Independent Directors, concluded that the fees payable to OFS Advisor pursuant to the Investment Advisory Agreement were reasonable, and comparable to the fees paid by other management investment companies with similar investment objectives, in relation to the services to be provided. The Board did not assign relative weights to the above factors or the other factors considered by it. Individual members of the Board may have given different weights to different factors.
42
Additional Information
Management
Our Board is responsible for the overall management and supervision of our business and affairs, including the appointment of advisers and sub-advisers. Pursuant to the Investment Advisory Agreement, our Board has appointed OFS Advisor as our investment adviser. Our prospectus includes additional information about our directors and is available without charge, upon request by calling (847) 734-2000, or on the Securities and Exchange Commission website at http://www.sec.gov.
The investment committees of OFS Advisor (the “Advisor Investment Committees”), which include the Structured Credit Investment Committee of OFS Advisor (the “Structured Credit Investment Committee”), are responsible for the overall asset allocation decisions and the evaluation and approval of investments of OFS Advisor’s advisory clients that invest in CLO securities.
The purpose of the Structured Credit Investment Committee is to evaluate and approve our prospective investments, subject at all times to the oversight of our Board. The Structured Credit Investment Committee, which is comprised of Richard Ressler (Chairman), Jeffrey A. Cerny, Bilal Rashid, Glen Ostrander and Kenneth A. Brown, is responsible for the evaluation and approval of all the investments made by us. The members of the senior investment team of OFS Advisor (the “Senior Investment Team”) are our portfolio managers who are primarily responsible for the day-to-day management of the portfolio. The Senior Investment Team is supported by a team of analysts and investment professionals.
Information regarding the Structured Credit Investment Committee is as follows:
Name(1) | Age | Position | |||||||||||||||
| Richard Ressler | 64 | Chairman of the Structured Credit Investment Committee | |||||||||||||||
Bilal Rashid(2) | 52 | President and Senior Managing Director of OFS Advisor | |||||||||||||||
Jeffrey A. Cerny(2) | 60 | Senior Managing Director of OFS Advisor | |||||||||||||||
Glen Ostrander(2) | 48 | Managing Director of OFS Advisor | |||||||||||||||
Kenneth A. Brown(2) | 49 | Managing Director of OFS Advisor | |||||||||||||||
(1) The address for each member of the Structured Credit Investment Committee is c/o OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
(2) Member of the Senior Investment Team.
The Board of Directors
We have three classes of directors, currently consisting of one Class I director, two Class II directors and two Class III directors. At each annual meeting of stockholders, directors are elected for a full term of three years to succeed those whose terms are expiring. The terms of the three classes are staggered in a manner so that only one class is elected by stockholders annually.
The Board currently consists of five members, Messrs. Rashid and Cerny, Catherine M. Fitta, Kathleen M. Griggs and Romita Shetty. The term of one class expires each year. The terms of Ms. Shetty and Ms. Fitta expire at the 2023 annual meeting, the terms of Ms. Griggs and Mr. Cerny expire at the 2024 annual meeting and the term of Mr. Rashid expires at the 2025 annual meeting. Mses. Shetty and Griggs also serve as preferred stock directors. Subsequently, each class of directors will stand for election at the conclusion of its respective term. Such classification may prevent replacement of a majority of the directors for up to a two-year period.
The directors and our officers are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. The “Independent Directors” consist of those directors who are not “interested persons,” as that term is defined under the 1940 Act, of the Company. Conversely, “Interested Director(s)” consist of those directors who are “interested persons” of the Company. Certain of our officers and directors also are officers or managers of OFS Advisor.
43
Information regarding our Board is as follows:
Name, Address(1) and Age | Position(s) held with Company | Term of Office and Length of Time Served | Principal Occupation, Other Business Experience During the Past Five Years | Number of Portfolios in Fund Complex Overseen by Director(2) | Other Directorships Held by Director | |||||||||||||||||||||||||||
Independent Directors | ||||||||||||||||||||||||||||||||
Kathleen M. Griggs (3) Age: 68 | Director | 2018 - Current | Ms. Griggs has been a managing director of Griggs Consulting, LLC, a consulting and advisory firm, since 2014. Prior to that, Ms. Griggs served as the Chief Financial Officer of j2 Global, Inc. from 2007 to 2014. Ms. Griggs also previously served as a Director, Audit Committee Chair and Governance Committee member for Chad Therapeutics, Inc. from 2001 to 2009. Ms. Griggs received a Bachelor of Science degree in Business Administration from the University of Redlands and a Master of Business Administration degree from the University of Southern California in Los Angeles. Ms. Griggs's term as a Class III director expires in 2024. Ms. Griggs, the chair of our audit committee, brings to our Board years of accounting expertise. Her knowledge of accounting principles, financial reporting rules and regulations, the evaluation of financial results and the oversight of the financial reporting process makes her an asset to our Board. | 1 | None | |||||||||||||||||||||||||||
44
Name, Address(1) and Age | Position(s) held with Company | Term of Office and Length of Time Served | Principal Occupation, Other Business Experience During the Past Five Years | Number of Portfolios in Fund Complex Overseen by Director(2) | Other Directorships Held by Director | |||||||||||||||||||||||||||
Independent Directors | ||||||||||||||||||||||||||||||||
| Catherine M. Fitta Age: 52 | Director | 2021 - Current | Ms. Fitta currently serves as Principal of Burren Green, the management and technology consulting practice she established in 2015. From 2008 to 2012, Ms. Fitta served as EMEA Head, Business Planning & Technology for Barclays Global Banking Division, and from 2012 to 2015, was Global Head, Business Planning & Technology. Ms. Fitta also worked at Lehman Brothers from 2007 to 2008 as Deputy Global Head, Business Planning & Technology where she managed business and technical staff across various geographies and architected the division’s first IT Governance Council. During her tenure as Chief Integration Officer, Criminal Justice for the New York City’s Mayor’s Office from 2003 to 2007, she led strategic planning and execution for technology integration across 17 criminal justice agencies in New York City and New York State. From 2002 to 2003, Ms. Fitta also worked as a functional manager on engagements within the Public Sector & Health Care Practices at Deloitte Consulting. Since 2002, through extensive consulting, CIO and COO experience spanning sectors and geographies, Ms. Fitta has spear-headed an array of strategic initiatives that fueled large-scale business transformation and addressed myriad compliance, audit, risk and regulatory matters. Ms. Fitta earned her Master of Business Administration from Columbia Business School and her Bachelor of Arts in the Classics cum laude from Harvard University. Ms. Fitta’s term as a Class II director expires in 2023. Ms. Fitta’s vast management experience and expertise across various sectors and industries, including financial services, qualifies her for service on our Board. Ms. Fitta is a strategist and results-oriented problem-solver whose understanding of operations, technology and risk management enhances the diverse skillset and composition of our Board. | 1 | None | |||||||||||||||||||||||||||
45
Name, Address(1) and Age | Position(s) held with Company | Term of Office and Length of Time Served | Principal Occupation, Other Business Experience During the Past Five Years | Number of Portfolios in Fund Complex Overseen by Director(2) | Other Directorships Held by Director | |||||||||||||||||||||||||||
Independent Directors | ||||||||||||||||||||||||||||||||
| Romita Shetty (3) Age: 57 | Director | 2018 - Current | Ms. Shetty has served as a partner of DA Management, an investment firm, that invests across public and private markets (including venture capital) in both equity and debt and owns DA Capital, an investment advisor. She currently serves on the board of directors of OFS Capital. Ms. Shetty has over 30 years of experience in fixed income and credit. At DA Capital, she has focused on special situations, structured credit and private investments. She has also served in a management capacity as President of DA Capital Asia Pte Ltd. In 2007-2008, she ran the Global Special Opportunities group at Lehman Brothers, which invested proprietary capital. Prior to that, she co-ran the North American structured equity and credit markets and the Global Alternative Investment product businesses at RBS from 2004 to 2006. Previously, Ms. Shetty worked at JP Morgan from 1997 to 2004 where she ran their Global Structured Credit Derivatives as well as Financial Institutions Solutions and CDO businesses. She started her career at Standard & Poor’s in 1990 where she worked on a wide variety of credit ratings, including municipal bonds, financial institutions and asset-backed securities and managed a part of their ABS ratings business. Ms. Shetty holds a Bachelor of Arts (Honors) in History from St. Stephens College, India and a Master of International Affairs from Columbia University. Ms. Shetty's term as a Class II director expires in 2023. Ms. Shetty, the chair of our compensation committee, has vast experience in fixed income and credit management and expertise in the Company’s intended investments qualifies her for service on our Board. Ms. Shetty’s background has enabled her to cultivate an enhanced understanding of operations and strategy with an added layer of risk management experience that is an important aspect of the composition of our Board. | 2 | OFS Capital Corporation, a business development company (“BDC”) managed by OFS Advisor | |||||||||||||||||||||||||||
46
Name, Address and Age | Position(s) held with Company | Term of Office and Length of Time Served | Principal Occupation, Other Business Experience During the Past Five Years | Number of Portfolios in Fund Complex Overseen by Director (2) | Other Directorships Held by Director | |||||||||||||||||||||||||||
Interested Directors | ||||||||||||||||||||||||||||||||
Bilal Rashid Age: 52 | Director, Chairman, President and Chief Executive Officer | Director (Since 2017); Chairman (Since 2018); and President and Chief Executive Officer (Since 2017) | Mr. Rashid has served as our Chairman of the Board since 2018 and President and Chief Executive Officer since 2017. He is also Chairman of the Board, President and Chief Executive Officer of Hancock Park Corporate Income, Inc. (“Hancock Park”) and Chairman of the Board and Chief Executive Officer of OFS Capital Corporation, a member of the board of trustees of CIM Real Assets & Credit Fund, an affiliate of the Company and which is sub-advised by OFS Advisor, President and a Senior Managing Director of Orchard First Source Capital, Inc. (“OFSC”) and OFS Advisor, Chief Executive Officer of Orchard First Source Asset Management Holdings, LLC (“OFSAM Holdings”) and a member of OFSAM Holdings’s executive committee. He also serves on various investment committees of OFS Advisor and its affiliates. Mr. Rashid has more than 25 years of experience in investing as it relates to corporate credit and structured credit, investment banking and debt capital markets. Over the years, he has advised and arranged financing for investment management companies and commercial finance companies including business development companies. Prior to joining OFSC in 2008, Mr. Rashid was a managing director in the global markets and investment banking division at Merrill Lynch. Before joining Merrill Lynch in 2005, he was a vice president at Natixis Capital Markets, which he joined as part of a large team move from Canadian Imperial Bank of Commerce (“CIBC”). Prior to CIBC, he worked as an investment analyst in the project finance area at the International Finance Corporation, which is part of the World Bank. Prior to that, Mr. Rashid was a financial analyst at Lehman Brothers. Mr. Rashid has a Bachelor of Science in Electrical Engineering from Carnegie Mellon University and a Master of Business Administration from Columbia University. Mr. Rashid’s term as a Class I Director expires in 2025. Through his years of work in investment banking, capital markets and in sourcing, leading and managing investments, Mr. Rashid has developed expertise and skills that are relevant to understanding the risks and opportunities that we face and which are critical to implementing our strategic goals and evaluating our operational performance. | 4 | OFS Capital Corporation, a BDC managed by OFS Advisor, Hancock Park, another BDC managed by OFS Advisor and CIM Real Assets & Credit Fund, a registered investment company sub-advised by OFS Advisor | |||||||||||||||||||||||||||
47
Name, Address and Age | Position(s) held with Company | Term of Office and Length of Time Served | Principal Occupation, Other Business Experience During the Past Five Years | Number of Portfolios in Fund Complex Overseen by Director (2) | Other Directorships Held by Director | |||||||||||||||||||||||||||
Interested Directors | ||||||||||||||||||||||||||||||||
Jeffrey A. Cerny Age: 60 | Director, Chief Financial Officer and Treasurer | Director (Since 2017); Chief Financial Officer and Treasurer (Since 2017) | Mr. Cerny has served as our Chief Financial Officer and Treasurer since 2018. Mr. Cerny also serves as the Chief Financial Officer and Treasurer of Hancock Park, as a director, Chief Financial Officer and Treasurer of OFS Capital Corporation, a Senior Managing Director and Chief Financial Officer of OFSC and OFS Advisor, as a Vice President and Chief Financial Officer of OFSAM Holdings and as a member of OFSAM Holdings’s executive committee. He also serves on various investment committees of OFS Advisor and its affiliates. Mr. Cerny oversees the finance and accounting functions of the aforementioned entities as well as underwriting, credit monitoring and CLO portfolio compliance for OFS Advisor’s syndicated senior loan business. Prior to joining OFSC in 1999, Mr. Cerny held various positions at Sanwa Business Credit Corporation, American National Bank and Trust Company of Chicago and Charter Bank Group, a multi-bank holding company. Mr. Cerny holds a Bachelor of Science in Finance from Northern Illinois University, a Masters of Management in Finance and Economics from Northwestern University’s J.L. Kellogg School of Management, and a Juris Doctor. from DePaul University’s School of Law. Mr. Cerny is NACD (National Association of Corporate Directors) Directorship Certified™. Mr. Cerny’s term as a Class III Director expires in 2024. Mr. Cerny brings to our Board extensive accounting and financial experience and expertise. He is also an experienced investor, including lending, structuring and workouts which makes him an asset to our Board. The breadth of his background and experience enables Mr. Cerny to provide unique insight into our strategic process and into the management of our investment portfolio. | 2 | OFS Capital Corporation, a BDC managed by OFS Advisor | |||||||||||||||||||||||||||
(1) The address of each director is 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
(2) The “Fund Complex” includes the Company, OFS Capital Corporation and Hancock Park, each of which are advised by OFS Advisor, and CIM Real Assets & Credit Fund, which is sub-advised by OFS Advisor.
(3) Designated as a preferred stock director.
48
Compensation of Directors
The following table sets forth the compensation paid to our directors for the six months ended April 30, 2023:
| Name of Director | Fees Earned(2) | All Other Compensation | Total Compensation from OFS Credit | Total Compensation from Fund Complex | ||||||||||
| Independent Directors | ||||||||||||||
| Catherine M. Fitta | $ | 30,000 | $ | — | $ | 30,000 | $ | 30,000 | ||||||
Kathleen M. Griggs | 30,000 | — | 30,000 | 30,000 | ||||||||||
Romita Shetty(3) | 30,000 | — | 30,000 | 80,000 | ||||||||||
| Interested Directors | ||||||||||||||
Bilal Rashid(1) | — | — | — | — | ||||||||||
Jeffrey A. Cerny(1) | — | — | — | — | ||||||||||
(1) No compensation is paid to directors who are “interested persons.”
(2) Each independent director receives an annual fee of $50,000. In addition, the chairman of each committee receives an annual fee of $10,000 for additional services in this capacity. The annual fee that each independent director receives will increase to $75,000 when the Company's net asset value reaches $125.0 million. We also reimburse our independent directors for reasonable out-of-pocket expenses incurred in attending our Board and committee meetings, which is not considered fees earned or compensation. We have obtained directors’ and officers’ liability insurance on behalf of our directors and officers.
(3) Independent director of OFS Capital Corporation, a BDC managed by OFS Advisor.
Director Ownership of Company Shares
The table below sets forth the dollar range of the value of shares of our common stock that are owned beneficially by each director as of April 30, 2023. For purposes of this table, beneficial ownership is defined to mean a direct or indirect pecuniary interest.
| Name of Director | Dollar Range of Equity Securities in the Company(1) | |||||||
Independent Directors | ||||||||
| Catherine M. Fitta | None | |||||||
Kathleen M. Griggs | None | |||||||
Romita Shetty | None | |||||||
Interested Directors | ||||||||
Bilal Rashid | Over $100,000(2) | |||||||
Jeffrey A. Cerny | Over $100,000(2) | |||||||
(1) Dollar ranges are as follows: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000 and over $100,000.
(2) Messrs. Rashid and Cerny beneficially own securities of the Company through their indirect ownership of an affiliate of OFS Advisor. Messrs. Rashid and Cerny each own shares of the Company’s common stock directly and each may be deemed to beneficially own the shares of the Company’s common stock that OFSAM Holdings owns.
49
Officers Who Are Not Directors
Information regarding the Company’s officers who are not directors is as follows:
| Name | Age | Position | ||||||||||||
Kyle Spina(1) | 36 | Chief Accounting Officer | ||||||||||||
Mukya S. Porter | 48 | Chief Compliance Officer | ||||||||||||
Tod K. Reichert | 61 | Corporate Secretary | ||||||||||||
(1) On April 10, 2023, Ross A. Teune resigned as Chief Accounting Officer of the Company. Mr. Teune’s resignation as Chief Accounting Officer was effective on April 21, 2023. The resignation was not in any way related to a disagreement with the Company on any matter relating to the Company’s operations, policies, practices or otherwise. On April 12, 2023, the Board voted to appoint Kyle Spina as Chief Accounting Officer of the Company, effective as of April 21, 2023, to fill the vacancy created by Mr. Teune’s resignation.
We do not pay any direct compensation to our officers who are not directors. We have entered into the Administration Agreement pursuant to which OFS Services, our administrator, performs, or arranges for the performance of, our required administrative services, among other things. Payment under the Administration Agreement is equal to an amount based upon our allocable portion (subject to the review and approval of the Board) of OFS Services’s overhead in performing its obligations under the Administration Agreement, including, but not limited to, rent, information technology services and our allocable portion of the cost of our officers who are not directors, and their respective staffs.
The following is information concerning the business experience of our officers.
Kyle Spina currently serves as our Chief Accounting Officer and as Vice President and Controller of Fund Accounting and Reporting of OFS Advisor and OFSC. Mr. Spina has nearly 15 years of experience in public and private accounting. Prior to joining OFSC in April 2021, Mr. Spina held multiple controllership roles, serving as Assistant Controller of Credit Funds for Thoma Bravo, LP from 2020 to 2021 and Controller and Accounting Manager for Fidus Investment Corporation (NASDAQ: FDUS) and affiliates from 2016 to 2020. Mr. Spina began his career in public accounting from 2009 to 2016, including serving as an Audit Manager at BDO from 2014 to 2016, focusing on audits of public companies. Mr. Spina graduated from Purdue University with a Bachelor of Science degree in Accounting and Management and has been an active Certified Public Accountant since 2010.
Mukya S. Porter has served as our Chief Compliance Officer since 2017 and serves as the Chief Compliance Officer of Hancock Park, OFS Capital Corporation, CIM RACR, OFSC and OFS Advisor, in which capacity she oversees the compliance and risk management functions. Ms. Porter has over 15 years of experience advising investment advisers, investment banks and other financial institutions. Prior to joining OFSC, Ms. Porter served as a Senior Vice President of Compliance at Oaktree Capital Management, an alternative investment adviser, from 2012 to 2016, where she was responsible for oversight of the firm’s code of ethics program and the day-to-day management of an affiliated limited-purpose broker dealer. Prior to Oaktree, Ms. Porter held the position of Vice President and Senior Compliance Officer at Pacific Investment Management Company, also known as PIMCO, from 2010 to 2012 and prior to that, from 2004 to 2010, worked, first, as a Vice President in the Legal department at Morgan Stanley Global Wealth Management and, subsequently, as a Vice President of Compliance at Morgan Stanley Investment Management. Ms. Porter received a Bachelor of Science degree, magna cum laude, in Biology from Howard University in 1996 and a J.D. from the University of California, Berkeley School of Law in 2001.
Tod K. Reichert has served as our Corporate Secretary since 2017, as the Corporate Secretary of Hancock Park and OFS Capital Corporation since 2017, and as Managing Director, Chief Administrative Officer and General Counsel of OFS Advisor, in which capacity he oversees the legal and operational functions of the firm. Mr. Reichert has over 25 years of experience as a strategic business partner, providing advice on general corporate governance and transactional matters, with a focus on securities laws, compliance, corporate finance, debt and equity investments, and mergers and acquisitions. Prior to joining OFS Advisor, Mr. Reichert served as General Counsel, Chief Compliance Officer and Corporate Secretary of MCG Capital Corporation (Nasdaq: MCGC), managing the legal and compliance departments, overseeing complex litigation, and providing securities law, disclosure and transactional advice to the Board and senior management team, while serving as a member of the MCG credit committee and the Small Business Investment Company investment committee. Prior to joining MCG, Mr. Reichert worked as an attorney in private practice in New York, Princeton and Boston. Mr. Reichert received his J.D. from the Rutgers University School of Law - Newark and his BFA from the University of North Carolina. Mr. Reichert is NACD (National Association of Corporate Directors) Directorship Certified™ and has received a CERT Certificate in Cyber Oversight through the NACD's Cyber Oversight Program.
Conflicts of Interest
50
Subject to certain 1940 Act restrictions on co-investments with affiliates, OFS Advisor will offer us the right to participate in investment opportunities that it determines are appropriate for us in view of our investment objective, policies and strategies and other relevant factors. Such offers will be subject to the exception that, in accordance with OFS Advisor’s allocation policy, we might not participate in each individual opportunity but will, on an overall basis, be entitled to participate fairly and equitably over time with other entities managed by OFS Advisor and its affiliates.
To the extent that we compete with entities managed by OFS Advisor or any of its affiliates for a particular investment opportunity, OFS Advisor will allocate investment opportunities across the entities for which such opportunities are appropriate, consistent with (i) its internal allocation policy, (ii) the requirements of the Investment Advisers Act of 1940, as amended, and (iii) certain restrictions under the 1940 Act and rules thereunder regarding co-investments with affiliates. OFS Advisor’s allocation policy is intended to ensure that we may generally share fairly and equitably with other investment funds or other investment vehicles managed by OFS Advisor or its affiliates in investment opportunities that OFS Advisor determines are appropriate for us in view of our investment objective, policies and strategies and other relevant factors, particularly those involving a security with limited supply or involving differing classes of securities of the same issuer that may be suitable for us and such other investment funds or other investment vehicles. Under this allocation policy, if two or more investment vehicles with similar or overlapping investment strategies are in their investment periods, an available opportunity will be allocated based on the provisions governing allocations of such investment opportunities in the relevant organizational, offering or similar documents, if any, for such investment vehicles. In the absence of any such provisions, OFS Advisor will consider the following factors and the weight that should be given with respect to each of these factors:
•investment guidelines and/or restrictions, if any, set forth in the applicable organizational, offering or similar documents for the investment vehicles;
•the status of tax restrictions and tests and other regulatory restrictions and tests;
•risk and return portfolio of the investment vehicles;
•suitability/priority of a particular investment for the investment vehicles;
•if applicable, the targeted position size of the investment for the investment vehicles;
•level of available cash for investment with respect to the investment vehicles;
•total amount of funds committed to the investment vehicles; and
•the age of the investment vehicles and the remaining term of their respective investment periods, if any.
When not relying on exemptive relief from the SEC that permits us to co-invest in portfolio companies with certain other funds managed by OFS Advisor and certain of its affiliates (“Affiliated Funds”) provided we comply with certain conditions (the “Order”), priority as to opportunities will generally be given to clients that are in their “ramp-up” period, or the period during which the account has yet to reach sufficient scale such that its investment income covers its operating expenses, over the accounts that are outside their ramp-up period but still within their investment or re-investment periods. However, application of one or more of the factors listed above, or other factors determined to be relevant or appropriate, may result in the allocation of an investment opportunity to a fund no longer in its ramp-up period over a fund that is still within its ramp-up period.
In situations where co-investment with Affiliated Accounts (as defined below) is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer, OFS Advisor will need to decide which account will proceed with the investment. The decision by OFS Advisor to allocate an opportunity to another entity could cause us to forego an investment opportunity that we otherwise would have made. These restrictions, and similar restrictions that limit our ability to transact business with our officers or directors or their affiliates, may limit the scope of investment opportunities that would otherwise be available to us.
Co-Investment With Affiliates. In certain instances, we may co-invest on a concurrent basis with other accounts managed by the Advisor or certain of its affiliates, subject to compliance with applicable regulations and regulatory guidance and our written allocation procedures. On August 4, 2020, we received the Order from the SEC to permit us to co-invest in portfolio companies with Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements, subject to compliance with certain conditions. The Order superseded a previous order that OFS Advisor and certain of the Affiliated Funds received on October 12, 2016, and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds. Pursuant to the Order, we are generally permitted to co-invest with Affiliated Funds if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors makes certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
51
In addition, we may file an application for an amendment to our existing Order to permit us to participate in follow-on investments in our existing portfolio companies with certain private funds that do not hold any investments in such existing portfolio companies. However, if filed, there is no guarantee that such application will be granted.
The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the adviser negotiates no term other than price and certain other conditions are met. As a result, unless under the Order, we only expect to co-invest on a concurrent basis with certain funds advised by OFS Advisor when each of us will own the same securities of the issuer and when no term is negotiated other than price. Any such investment would be made, subject to compliance with existing regulatory guidance, applicable regulations and OFS Advisor’s allocation policy. If opportunities arise that would otherwise be appropriate for us and for another fund advised by OFS Advisor to invest in different securities of the same issuer, OFS Advisor will need to decide which fund will proceed with the investment. The decision by OFS Advisor to allocate an opportunity to another entity could cause us to forego an investment opportunity that we otherwise would have made. Moreover, except in certain circumstances, we will be unable to invest in any issuer in which another fund advised by OFS Advisor has previously invested.
Conflicts Related to Purchases and Sales. Conflicts may arise when we make an investment in conjunction with an investment being made by another account managed by OFS Advisor or an affiliate of OFS Advisor (each, an “Affiliated Account”), or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company’s capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Questions arise as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced.
We may invest in debt and other securities of companies in which an Affiliated Account holds those same securities or different securities, including equity securities. In the event that such investments are made by us, our interests will at times conflict with the interests of such Affiliated Accounts, particularly in circumstances where the underlying company is facing financial distress. Decisions about what action should be taken, particularly in troubled situations, raise conflicts of interest, including, among other things, whether or not to enforce claims, whether or not to advocate or initiate a restructuring or liquidation inside or outside of bankruptcy, and the terms of any work-out or restructuring. The involvement of Affiliated Accounts at both the equity and debt levels could inhibit strategic information exchanges among fellow creditors, including among us or Affiliated Accounts. In certain circumstances, we or an Affiliated Account may be prohibited from exercising voting or other rights and may be subject to claims by other creditors with respect to the subordination of their interest.
In the event that we or an Affiliated Account has a controlling or significantly influential position in a portfolio company, that account may have the ability to elect some or all of the board of directors of such a portfolio company, thereby controlling the policies and operations of such portfolio company, including the appointment of management, future issuances of securities, payment of dividends, incurrence of debt and entering into extraordinary transactions. In addition, a controlling account is likely to have the ability to determine, or influence, the outcome of operational matters and to cause, or prevent, a change in control of such company. Such management and operational decisions may, at times, be in direct conflict with other accounts that have invested in the same portfolio company that do not have the same level of control or influence over the portfolio company.
If additional capital is necessary as a result of financial or other difficulties, or to finance growth or other opportunities, the accounts may or may not provide such additional capital, and if provided each account will supply such additional capital in such amounts, if any, as determined by OFS Advisor. In addition, a conflict arises in allocating an investment opportunity if the potential investment target could be acquired by us, an Affiliated Account, or a portfolio company of an Affiliated Account. Investments by more than one account of OFS Advisor or its affiliates in a portfolio company also raise the risk of using assets of an account of OFS Advisor or its affiliates to support positions taken by other accounts of OFS Advisor or its affiliates, or that an account may remain passive in a situation in which it is entitled to vote. In addition, there may be differences in timing of entry into, or exit from, a portfolio company for reasons such as differences in strategy, existing portfolio or liquidity needs, different account mandates or fund differences, or different securities being held. These variations in timing may be detrimental to us.
The application of our or an Affiliated Account's governing documents and the policies and procedures of OFS Advisor are expected to vary based on the particular facts and circumstances surrounding each investment by two or more accounts, in particular when those accounts are in different classes of an issuer’s capital structure (as well as across multiple issuers or borrowers within the same overall capital structure) and, as such, there may be a degree of variation and potential inconsistencies, in the manner in which potential or actual conflicts are addressed.
Portfolio Information
52
The Company prepares Form N-PORT filings, which contains a complete schedule of the Company’s portfolio holdings, on a monthly basis, and makes its Form N-PORT filings with the SEC on a quarterly basis within 60 days after the end of each quarter. The Company’s Form N-PORT filings for the third month of each quarter are available on the SEC’s website at http://www.sec.gov. This information is also available free of charge by contacting the Company by mail at 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606, by telephone at (847) 734-2000 or on its website at http://www.ofscreditcompany.com.
Proxy Voting Records
Information regarding the policies and procedures that OFS Advisor uses to determine how to vote proxies relating to the Company’s portfolio securities is available: (1) without charge, upon request, by calling collect (847) 734-2000; and (2) on the SEC’s website at http://www.sec.gov. Information about how OFS Advisor voted proxies with respect to the Company’s portfolio securities can be obtained by making a written request for proxy voting information to: OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
Privacy Principles
Your privacy is very important to us. This Privacy Notice sets forth the Company’s policies with respect to non-public personal information provided to us. These policies apply to stockholders of the Company and may be changed at any time, provided a notice of such change is given to you. This notice replaces all previous statements of our privacy policy. Please read this Privacy Notice as it provides important information regarding our privacy practices and an explanation of your rights. If you do not agree with this Privacy Notice, please do not provide us with personal information.
1.What Personal Information We Collect
You may provide us with non-public personal information, such as your name, address, e-mail address, social security and/or tax identification number, date of birth, assets and/or income information: (i) in a trading confirmation or other related account or transaction documentation; (ii) in correspondence and conversations with us and our representatives; and (iii) through transactions with the Company.
Whether you choose to provide any particular information requested by the Company is completely your own choice, but if you choose not to provide the information we request, you may be unable to receive or access certain services, offers and information.
2.Where Do We Obtain Your Personal Data?
We may collect, and may have collected, information about you from a number of sources, including from you directly or from external sources.
Sources from which we may collect your information directly include:
•documentation that you completed when you subscribed for an investment;
•correspondence and conversations with us;
•transactions you have made or will make with us; and
•your purchase of securities from us, including information regarding where to send money.
External sources from which we may collect your information include:
•publicly available and accessible directories and sources;
•tax authorities, including those that are based outside the jurisdiction where you are located if you are subject to tax in another jurisdiction;
•governmental and competent regulatory authorities to whom we have regulatory obligations;
•credit agencies; and
•fraud prevention and detection agencies and organizations.
3.Why Do We Collect Your Personal Data?
We may collect your personal information for the following purposes:
•to administer, manage and set up your investment, and any related accounts on an ongoing basis;
•to facilitate the transfer of funds and administer any other transaction with you;
•to open, maintain or close accounts in connection with your subscription or redemption;
•to send updates, information and notices or otherwise correspond with you in connection with your investment;
•to verify the identity and addresses of our investors (and, if applicable, their beneficial owners);
•to comply with requests from regulatory, governmental, tax and law enforcement authorities;
•to comply with applicable regulatory, accounting, tax and audit requirements;
•to conduct surveillance and investigation;
53
•to maintain statutory registers;
•to comply with the U.S Office of Foreign Assets Control list and other governmental sanctions lists;
•to address or investigate any complaints, claims, proceedings or disputes;
•to provide you with, and inform you about, our investment products and services;
•to send direct marketing communications to you;
•to assist with internal compliance with our policies and process;
•to protect our business against fraud, breach of confidence, theft of proprietary materials and other financial or business crimes (to the extent that this is not required of us by law);
•to monitor and improve our relationships with investors;
•to ensure appropriate group management and governance;
•to keep our internal records;
•to prepare reports on incidents / accidents;
•to analyze and manage commercial risks and operations;
•to seek professional advice, including legal advice;
•to enable any actual or proposed assignee or transferee, participant or sub-participant of our rights or obligations to evaluate proposed transactions;
•to facilitate business asset transactions involving the Company or related investment vehicles;
•to monitor communications to/from us using our systems; and
•to protect the security and integrity of our IT systems.
We only rely on these interests where we have considered that, on balance, our legitimate interests are not overridden by your interests, fundamental rights or freedoms.
4.How We Share Information We Collect
We may share any of the non-public personal information collected from our stockholders, or prospective or former stockholders with our affiliates, such as our investment adviser, and to certain service providers such as our accountants, attorneys, auditors, transfer agents and brokers, in each case for our everyday business purposes, such as to facilitate the acceptance and management of your investment or account or as otherwise permitted by applicable law. We may also disclose the information we collect:
1.As Authorized – if you request or authorize disclosure of the information, in each case in accordance with the agreements governing your investment.
2.As required by law – for example, to cooperate with any government regulators, self-regulatory organizations or law enforcement authorities.
3.As otherwise permitted by law – for example, (i) to service providers who maintain, process or service the Company; (ii) in connection with the making, management or disposition of any fund investment; (iii) as otherwise necessary to effect, administer or enforce investment or fund transactions; or (iv) in connection with a sale or other transfer of the Company. We may also share information with attorneys, accountants, other service providers and with persons otherwise acting in a representative or fiduciary capacity on behalf of investors or the fund.
4.To service providers – we may share information with service providers that perform marketing services on our behalf.
We do not, and will not, sell personal data to third parties.
5.Retention
We keep your personal information for as long as it is required by us for our legitimate business purposes, to perform our contractual obligations, to comply with regulatory requirements, in connection with any investment you are involved in, and in accordance with our data retention schedule. We may retain your personal information for a longer period if doing so is necessary to comply with our legal or reporting obligations, or as otherwise permitted or required by law. We may also retain your personal information in a deidentified or aggregated form so that it can no longer be associated with you. To determine the appropriate retention period for your personal information, we consider various factors, such as the amount, nature, and sensitivity of your information; the potential risk of unauthorized access, use or disclosure; the purposes for which we collect or process your personal information; and applicable legal requirements.
6.Personal Data from Minors
We do not offer financial services and products to minors and do not knowingly collect or sell the personal information of minors. We follow all local legal requirements with respect to the collection and processing of a minor’s personal information.
7.Consent and Our Right To Withdraw It
54
We do not generally rely on obtaining your consent to process your personal data. If we do, you have the right to withdraw this consent at any time. Please contact us at 1-833-687-3622 or send us an e-mail at privacy@ofsmanagement.com at any time if you wish to do so.
8.Feedback, Concerns or Queries
We take your feedback and concerns very seriously. We encourage you to bring to our attention any feedback or concerns you may have about our processing your personal data.
This Privacy Notice was drafted with simplicity and clarity in mind. We are, of course, happy to provide any further information or explanation needed. Please contact us at 1-833-687-3622 or send us an e-mail at privacy@ofsmanagement.com at any time if you wish to do so.
55
9.Protecting Your Personal Information
Except as permitted by law, we require all non-affiliated third-party service providers to whom we disclose non-public personal information about our customers to enter into confidentiality agreements with us.
We implement and maintain reasonable security appropriate to the nature of the personal information that we collect, use, retain, transfer or otherwise process, and will take reasonable steps to protect your personal data against loss or theft, as well as from unauthorized access, disclosure, copying, use or modification, regardless of the format in which it is held. While we are committed to developing, implementing, maintaining, monitoring and updating a reasonable information security program, unfortunately, no data transmission over the Internet or any wireless network can be guaranteed to be 100% secure. Data security incidents and breaches can occur due to vulnerabilities, criminal exploits or other factors that cannot reasonably be prevented. Accordingly, while our reasonable security program is designed to manage data security risks and thus help prevent data security incidents and breaches, it cannot be assumed that the occurrence of any given incident or breach results from our failure to implement and maintain reasonable security. As a result, while we strive to protect your personal information, you acknowledge that: (i) there are security and privacy limitations of the Internet which are beyond our control; (ii) the security, integrity, and privacy of any and all information and data exchanged between you and us through the website cannot be guaranteed; and (iii) any such information and data may be viewed or tampered with in transit by a third party.
If you have any questions regarding this Privacy Notice or the treatment of your non-public personal information, please feel free to e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622.
10.European Privacy Rights and Disclosures
This European Privacy Rights and Disclosure section addresses legal obligations and rights specified in the General Data Protection Regulation (“GDPR”). These obligations and rights apply to individuals who are located in the European Economic Area. This section describes the policies and procedures followed by the Company regarding the collection, use and disclosure of your personal data when you visit the website, or otherwise interact with the Company. For the purposes of this section (European Privacy Rights and Disclosures), “personal data” means any information relating to an identified or identifiable natural person, either directly or indirectly.
According to the GDPR, the Company is the controller of your personal data.
a.Collection of Your Personal Data
When you visit the website, receive services from us or otherwise interact with us, we may collect the following personal data about you: your name, postal address, e-mail address, phone number, account name, date of birth, social security number, driver’s license number, photograph, passport number, employer, job title, bank account information, financial information such as your income and net worth, risk tolerance and transaction history, details about your investment activity or retirement portfolios and information about your transactions with us such as the investment amount and any contributions and/or distributions, as well as any other information you choose to provide to us.
Where the Company carries out background checks on certain individuals for a business purpose, this may involve the processing of data relating to criminal convictions and offences. This data will only be processed where such processing is specifically required or authorized by law.
b.Use of Your Personal Data
We may use the personal data you give us to carry out the following purposes:
•To contact you and to respond to your requests and enquiries when you contact us or subscribe to receive e-mail alerts: We have a legitimate interest to respond to your requests and enquiries for ongoing business administration.
•To deliver services to you: To manage and perform our contract with you.
•For business administration, including statistical analysis: We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•To personalize your visit to the website and to assist you while you use the websites: We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•To improve the website by helping us understand who uses the websites: We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•For fraud prevention and detection and to comply with applicable laws, regulations or codes of practice: To comply with our legal obligations.
56
c.Sharing Your Personal Data
We may share your personal information with others, but only in certain limited situations, including: (i) within our corporate group or among our affiliated entities, all of which follow this Privacy Notice or equivalent privacy policies; (ii) with our service providers or other parties who agree to keep your personal information confidential and use it only on behalf of the Company; (iii) if your investment is transferred from your current custodian to another custodian, we provide your contact details, tax identification number and other personal information contained within transfer documents to the new custodian on your behalf; and (iv) as otherwise agreed by you. Third parties with whom we share your personal information are bound to comply with similar and equally stringent undertakings of privacy and confidentiality.
In some cases, we may be required to disclose certain personal information to comply with legal or regulatory obligations; to comply with the charter of the applicable entity into which you invest; to detect and protect against fraud, or any technical or security vulnerabilities; for an investigation or a legal process, such as a court order or subpoena; to respond to an emergency; or otherwise to protect the rights, property, safety, or security of third parties, visitors to the website, our businesses, or the public. In addition, the Company may disclose certain personal information to any third party that acquires, or is interested in acquiring, all or part of the Company’s assets or shares, or that succeeds the Company in carrying on all or a part of its business, whether by merger, acquisition, reorganization or otherwise.
d.International Transfers
When you are based in the European Union (the “EU”), personal data collected from you, including via the websites may be transferred to certain recipients located outside the EU, which do not provide a similar or adequate level of protection to that provided by countries in the EU. You hereby consent to the transfer of your personal data to recipients as described in this Privacy Notice which are located outside of the EU. You may withdraw your consent at any time. The withdrawal of consent shall not affect the lawfulness of processing based on consent before its withdrawal.
e.Rights of Individuals
You may have certain data privacy rights which may be subject to limitations and/or restrictions. These rights include the right to: (i) request access to and rectification and erasure of your personal data; (ii) obtain restriction of processing or to object to processing of your personal data; and (iii) ask for a copy of your personal data to be provided to you, or a third party, in a digital format. You also have the right to lodge a complaint about the processing of your personal data with your local data protection authority. If you would like to exercise any of these rights, please feel free to e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622.
11.California Privacy Rights and Disclosures
This California Privacy Rights and Disclosure section addresses legal obligations and rights specified in the California Consumer Privacy Act, as amended (the “CCPA” or “Act”). For the purposes of this section (California Privacy Rights and Disclosures), “personal information” means information that identifies, relates to, describes, is reasonably capable of being associated with, or could be reasonably linked, directly or indirectly, with a particular consumer or household. If you need access to this Privacy Notice in a different format for accessibility reasons, please e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622.
These obligations and rights apply to businesses doing business in California and to California residents and information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with California consumers or households. It does not include deidentified or aggregate information, publicly available information, or lawfully obtained, truthful information that is a matter of public concern.
57
The following chart describes the categories of personal information we may collect or have collected about you in the past 12 months and, for each category, where and why we collect it, and the categories of entities to whom we disclose the personal information, if any:
| Category of Personal Information (“PI”) | Sources from which PI is/was collected | Purpose of collection | Categories of entities with whom PI is/was disclosed | ||||||||
Address and other identifiers – such as name, postal address, e-mail address, phone number, account name, date of birth, social security number, driver’s license number, photograph, passport number, or other similar identifiers NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: social security number, driver’s license number, state identification card number, and/or passport number. | •Directly from you; •Automatically when you use our website or services; •From third parties; including business partners, your employer, tax authorities and background/credit check providers; and •Publicly available sources | •To provide you services; •To contact you to discuss the services or products you receive from us; •To respond to any questions or concerns you have raised; •To deal with administrative matters such as capital calls or redemptions; •To perform services on our behalf, such as customer service, processing or fulfilling orders; •To otherwise carry out our obligations arising under our contract with you and to enforce the same; •To carry out anti-money laundering and other compliance checks and controls; •To verify your identity or for other fraud and/or crime prevention; •To debug errors in our systems; •For marketing and advertising purposes; and •For internal research, analytics and development | •Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services; •Service providers, including to provide and support our data management, analytics, security, background and credit checks, and storage systems; •Group companies, for business, marketing and operational purposes; •Transaction (merger and acquisition) partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and •Government authorities or other entities with legal authority to request the information | ||||||||
58
| Category of Personal Information (“PI”) | Sources from which PI is/was collected | Purpose of collection | Categories of entities with whom PI is/was disclosed | ||||||||
Protected status – such as citizenship, ethnic background, gender or other similar identifiers NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: racial, ethnic, or national origin. | •Directly from you; •From third parties; including business partners, your employer and background/credit check providers; and •Publicly available sources | •To provide you services; •To contact you to discuss the services or products you receive from us; •To respond to any questions or concerns you have raised; •To deal with administrative matters; •To perform services on our behalf; •To otherwise carry out our obligations arising under our contract with you and to enforce the same; •To carry out anti-money laundering and other compliance checks and controls; and •To verify your identity or for other fraud and/or crime prevention | •Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services; •Service providers, including to provide and support our data management, analytics, security, background and credit checks, and storage systems; •Group companies, for business, marketing and operational purposes; •Transaction (merger and acquisition) partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and •Government authorities or other entities with legal authority to request the information | ||||||||
Electronic Communication such as e-mail communications and text messages NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: the contents of mail, e-mail, or text messages, to which the business was not the intended recipient. | •Automatically when you use our website or services | •To debug errors in our systems; •For marketing and advertising purposes; and •For internal research, analytics and development | •Group companies, for business, marketing and operational purposes | ||||||||
59
| Category of Personal Information (“PI”) | Sources from which PI is/was collected | Purpose of collection | Categories of entities with whom PI is/was disclosed | ||||||||
Financial information such as bank account details, credit history, income details, assets and investment experience, risk tolerance or other similar identifiers NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: log-in, financial account, debit card, or credit card number, in combination with any required security or access code, password, or credential allowing access to an account. | •Directly from you; •From your employer; •Automatically when you use our website or services; •From third parties acting on your behalf; including business partners, accountancy and law firms; and •Background/credit check providers | •To provide you services; •To deal with administrative matters such as invoicing, renewal or to audit customer transactions; •To perform services on our behalf, such as processing capital calls or redemptions; •To otherwise carry out our obligations arising under our contract with you and to enforce the same; •To carry out anti-money laundering and other compliance checks and controls; and •To verify your identity or for other fraud and/or crime prevention | •Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services; •Service providers, including to provide and support our data management, analytics, security, and storage systems; •Group companies, for business, marketing and operational purposes; •Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and •Government authorities or other entities with legal authority to request the information | ||||||||
| Commercial information – such as records of personal property, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies or other similar identifiers | •Directly from you; •Automatically when you use our website or services; •From third parties acting on your behalf; including business partners and law firms; and •Through publicly available sources | •To provide you services; and •To otherwise carry out our obligations arising under our contract with you and to enforce the same | •Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services; •Group companies, for business, marketing and operational purposes; •Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and •Government authorities or other entities with legal authority to request the information | ||||||||
Education or other professional information, including veteran status or other similar identifiers NOTE: The information in this category may include the following elements as defined in the Act as Sensitive Personal Information: union membership. | •Directly from you; •From your employer; and •Through publicly available sources | •To provide you services; and •To otherwise carry out our obligations arising under our contract with you and to enforce the same | •Group companies, for business, marketing and operational purposes; •Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by you, us, our parent company, or affiliated operating companies; and •Government authorities or other entities with legal authority to request the information | ||||||||
60
| Category of Personal Information (“PI”) | Sources from which PI is/was collected | Purpose of collection | Categories of entities with whom PI is/was disclosed | ||||||||
| Inferences drawn from CCPA PI – such as individual profiles, preferences, characteristics, behaviors or other similar identifiers | •Directly from you; •Automatically when you use our website or services; and •From third parties; including business partners or firms acting on your behalf | •To provide you services; •To contact you to discuss the services or products you receive from us; •To respond to any questions or concerns you have raised; •To deal with administrative matters; •To perform services on your behalf, such as booking travel arrangements; •To otherwise carry out our obligations arising under our contract with you and to enforce the same; •For marketing and advertising purposes; and •For internal research, analytics and development | •Group companies, for business, marketing and operational purposes | ||||||||
a.Your Right to Request Disclosure of Information We Collect and Disclose about You
If you are a California resident, the CCPA grants you the right to request certain information about our practices with respect to personal information. In particular, you can request the following:
1.The categories of your personal information that we’ve collected.
2.The specific pieces of your personal information that we’ve collected.
3.The categories of sources from which we collected your personal information.
4.The categories of your personal information that we’ve sold or disclosed for a business purpose.
5.The business or commercial purposes for which we collected, sold or shared your personal information.
6.The categories of third parties to whom we’ve disclosed your personal information.
To exercise your CCPA right to request this information, either e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622. These requests for disclosure are generally free.
b.Your Right to Request the Deletion of Personal Information
Upon your request, and subject to certain exceptions, we will delete, and direct applicable service providers to delete, the personal information we have collected about you.
To exercise your right to request the deletion of your personal information, either e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622. These requests for deletion are generally free.
c.Your Right to Ask Us Not to Sell or Share Your Personal Information
We do not, and will not, sell or share your personal information.
d.Your Right to Request the Correction of Your Personal Information
Upon your request, and subject to certain limitations, we will correct any inaccurate personal information we maintain about you.
To exercise your right to request the correction of your personal information, either e-mail us at privacy@ofsmanagement.com or contact us at 1-833-687-3622. These requests for correction are generally free.
61
e.Our Use or Disclosure of Sensitive Personal Information
We only use and disclose Sensitive Personal Information for the purposes set forth in Section 7027(m) of the CCPA regulations.
f.Our Support for the Exercise of Your Data Rights
We are committed to providing you control over your personal information. If you exercise any of these rights explained in this section of the Privacy Notice, we will not disadvantage you. You will not be denied or charged different prices or rates for goods or services or provided a different level or quality of goods or services.
g.How We Will Handle a Request to Exercise Your Rights
For requests for access or deletion, we will first acknowledge receipt of your request. We will provide a substantive response to your request as soon as we can, generally within 45 days from when we receive your request, although we may be allowed to take longer to process your request under certain circumstances. If we expect your request is going to take us longer than normal to fulfil, we’ll let you know.
When you make a request to access, correct, or delete your personal information, we will take steps to verify your identity. These steps may include asking you for personal information, such as your name, address, or other information we maintain about you. If we are unable to verify your identity with the degree of certainty required, we will not be able to respond to the request. We will notify you to explain the basis of the denial.
You may also designate an authorized agent to submit requests on your behalf. If you do so, you will be required to verify your identity by providing us with certain personal information as described above. Additionally, we will also require that you provide the agent with written permission to act on your behalf, and we will deny the request if the agent is unable to submit proof to us that you have authorized them to act on your behalf.
[End of Semi-Annual Report]
62
63
64
Item 2. Code of Ethics.
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 3. Audit Committee Financial Expert.
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 4. Principal Accountant Fees and Services.
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 5. Audit Committee of Listed Registrant.
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 6. Investments.
A schedule of investments is included in the Registrant's Report to Stockholders under Item 1 herein.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a) The information required by this Item is only required in an annual report on this Form N-CSR.
(b) There has been no change, as of the date of the filing of this N-CSR, to any of the portfolio managers identified in response to this Item in the Company's most recent annual report on Form N-CSR.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
There have been no purchases by or on behalf of the Company of shares or other units of any class of the Company’s equity securities that are registered pursuant to Section 12 of the Exchange Act during the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which stockholders may recommend nominees to the Company’s Board.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the 1940 Act, the “Disclosure Controls”) as of a date within 90 days prior to the filing date (the “Filing Date”) of this Form N-CSR (the “Report”), the Chief Executive Officer and Chief Financial Officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Company in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Company’s internal control over financial reporting (as defined in Rule 30a-3 (d) under the 1940 Act) that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
The Company did not engage in securities lending activity during the six months ended April 30, 2023.
65
Item 13. Exhibits.
| (a)(1) | |||||
| (a)(2) | |||||
| (b) | |||||
| (c) | |||||
66
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OFS CREDIT COMPANY, INC.
| By: | /s/ Bilal Rashid | |||||||||||||
| Bilal Rashid | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
| Date: June 6, 2023 | ||||||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Bilal Rashid | |||||||||||||
| Bilal Rashid | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
| Date: June 6, 2023 | ||||||||||||||
| By: | /s/ Jeffrey A. Cerny | |||||||||||||
| Jeffrey A. Cerny | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| Date: June 6, 2023 | ||||||||||||||
67
Exhibit 99.(e)
AMENDED AND RESTATED DIVIDEND REINVESTMENT PLAN
OF
OFS CREDIT COMPANY, INC.
OFS Credit Company, Inc., a Delaware corporation (the “Company”), hereby adopts the following plan (the “Plan”) with respect to net investment income dividends and capital gains distributions declared by its Board of Directors on shares of its shares of common stock, par value $0.001 per share (the “Common Stock”):
1. Unless a stockholder specifically elects to receive cash as set forth below, all net investment income dividends and all capital gains distributions hereafter declared by the Board of Directors shall be payable in shares of the Common Stock of the Company, and no action shall be required on such stockholder’s part to receive a distribution in stock.
2. Such net investment income dividends and capital gains distributions shall be payable on such date or dates as may be fixed from time to time by the Board of Directors to stockholders of record at the close of business on the record date(s) established by the Board of Directors for the net investment income dividend and/or capital gains distribution involved.
3. The Company shall use primarily newly issued shares of its Common Stock to implement the Plan, whether its shares are trading at a premium or a discount to net asset value. However, the Company reserves the right to direct the plan administrator and the Company’s transfer agent and registrar, American Stock Transfer & Trust Company (the “Plan Administrator”), to purchase shares of its Common Stock in the open market in connection with the implementation of the Plan. The number of shares to be issued to a stockholder shall be determined by dividing the total dollar amount of the cash dividend or distribution payable to such stockholder by an amount equal to ninety five (95%) percent of the market price per share of the Company’s Common Stock at the close of regular trading on The Nasdaq Capital Market on the valuation date fixed by the Board of Directors for such distribution. Market price per share on that date shall be the closing price for such shares on The Nasdaq Capital Market or, if no sale is reported for such day, at the average of their electronically-reported bid and asked prices. Any shares purchased in open market transactions by the Plan Administrator shall be allocated to each participating stockholder based upon the average purchase price, excluding any brokerage charges or other charges, of all shares of Common Stock purchased with respect to the applicable dividend.
4. A stockholder may elect to receive his or its net investment income dividends and capital gains distributions in cash. To exercise this option, such stockholder shall notify the Plan Administrator in writing so that such notice is received by the Plan Administrator no later than 10 days prior to the record date fixed by the Board of Directors for the net investment income dividend and/or capital gains distribution involved. Such election shall remain in effect until the stockholder shall notify the Plan Administrator in writing of such stockholder’s withdrawal of the election, which notice shall be delivered to the Plan Administrator no later than 10 days prior to the record date fixed by the Board of Directors for the next net investment income dividend and/or capital gains distribution by the Company.
5. The Plan Administrator will set up an account for shares acquired pursuant to the Plan for each stockholder who has not so elected to receive dividends and distributions in cash (each a “Participant”). The Plan Administrator may hold each Participant’s shares, together with the shares of other Participants, in non-certificated form in the Plan Administrator’s name or that of its nominee. Upon request by a Participant, received in writing no later than 10 days prior to the record date, the Plan Administrator will, instead of crediting shares to and/or carrying shares in a Participant’s account, issue, without charge to the Participant, a certificate registered in the Participant’s name for the number of whole shares payable to the Participant and a check for any fractional share.
6. The Plan Administrator will confirm to each Participant each acquisition made pursuant to the Plan as soon as practicable but not later than 10 business days after the date thereof. Although each Participant may from time to time have an undivided fractional interest (computed to three decimal places) in a share of Common Stock of the Company, no certificates for a fractional share will be issued. However, dividends and distributions on fractional shares will be credited to each Participant’s account. In the event of termination of a Participant’s account under the Plan, the Plan Administrator will adjust for any such undivided fractional interest in cash at the market value of the Company’s shares at the time of termination.
7. The Plan Administrator will forward to each Participant any Company related proxy solicitation materials and each Company report or other communication to stockholders, and will vote any shares held by it under the Plan in accordance with the instructions set forth on proxies returned by Participants to the Company.
8. In the event that the Company makes available to its stockholders rights to purchase additional shares or other securities, the shares held by the Plan Administrator for each Participant under the Plan will be added to any other shares held by the Participant in certificated form in calculating the number of rights to be issued to the Participant.
9. The Plan Administrator’s service fee, if any, and expenses for administering the Plan will be paid for by the Company. If a Participant elects by his, her or its written notice to the Plan Administrator to have the Plan Administrator sell part or all of his, her or its shares held by the Plan Administrator in such Participant’s account and remit the proceeds to the Participant, the Plan Administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds.
10. Each Participant may terminate his or its account under the Plan by so notifying the Plan Administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of such Participant’s statement and sending it to the Plan Administrator. Such termination will be effective immediately if the Participant’s notice is received by the Plan Administrator not less than 10 days prior to any dividend or distribution record date; otherwise, such termination will be effective only with respect to any subsequent dividend or distribution. The Plan may be terminated by the Company upon notice in writing mailed to each Participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Company. Upon any termination, the Plan Administrator will cause a certificate or certificates to be issued for the number of whole shares held for the Participant under the Plan and a cash adjustment for any fractional share to be delivered to the Participant without charge to the Participant.
11. These terms and conditions may be amended or supplemented by the Company at any time but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to each Participant appropriate written notice at least 30 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Plan Administrator receives written notice of the termination of his or its account under the Plan. Any such amendment may include an appointment by the Plan Administrator in its place and stead of a successor agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Plan Administrator under these terms and conditions, as amended in accordance with the Plan. Upon any such appointment of any agent for the purpose of receiving dividends and distributions, the Company will be authorized to pay to such successor agent, for each Participant’s account, all dividends and distributions payable on shares of the Company held in the Participant’s name or under the Plan for retention or application by such successor agent as provided in these terms and conditions, as amended in accordance with the Plan.
12. The Plan Administrator will at all times act in good faith and use its best efforts within reasonable limits to ensure its full and timely performance of all services to be performed by it under this Plan and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by the Plan Administrator’s negligence, bad faith, or willful misconduct or that of its employees or agents.
13. These terms and conditions shall be governed by the laws of the State of New York, without regard to the conflicts of law principles thereof, to the extent such principles would require or permit the application of the laws of another jurisdiction.
Exhibit 99.906CERT
Certification Under Section 906
of the Sarbanes-Oxley Act of 2002
Bilal Rashid, Chief Executive Officer, and Jeffrey A. Cerny, Chief Financial Officer of OFS Credit Company, Inc. (the “registrant”), each certify to the best of his knowledge that:
1.The registrant’s periodic report on Form N-CSR for the period ended April 30, 2023 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the registrant.
| By: | /s/ Bilal Rashid | By: | /s/ Jeffrey A. Cerny | |||||||||||||||||
| Bilal Rashid | Jeffrey A. Cerny | |||||||||||||||||||
| President and Chief Executive Officer | Chief Financial Officer | |||||||||||||||||||
Date: June 6, 2023
This certification is being furnished to the Securities and Exchange Commission pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission.
Exhibit 99.CERT
CERTIFICATIONS
(Section 302)
I, Bilal Rashid, Chief Executive Officer of the Registrant, certify that:
1.I have reviewed this report on Form N-CSR of OFS Credit Company, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 6th day of June, 2023.
| By: | /s/ Bilal Rashid | |||||||||||||
| Bilal Rashid | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
Exhibit 99.CERT
CERTIFICATIONS
(Section 302)
I, Jeffrey A. Cerny, Chief Financial Officer of the Registrant, certify that:
1.I have reviewed this report on Form N-CSR of OFS Credit Company, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have
a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 6th day of June, 2023.
| By: | /s/ Jeffrey A. Cerny | |||||||||||||
| Jeffrey A. Cerny | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
Exhibit 99.CODE ETH
OFS Capital Management, LLC OFS CLO Management, LLC OFS CLO Management II, LLC
OFS Capital Corporation
OFS Credit Company, Inc.
Hancock Park Corporate Income, Inc.
Code of Ethics
Restated and Adopted on April 5, 2023
TABLE OF CONTENTS
| Page | |||||||||||
| I. | GENERAL (CODE OF ETHICS) | 1 | |||||||||
| A. | INTRODUCTION | 1 | |||||||||
| B. | STATEMENT OF STANDARDS OF BUSINESS CONDUCT | 3 | |||||||||
| C. | PERIODIC COMPLIANCE AND TRAINING | 7 | |||||||||
| D. | ACKNOWLEDGMENT | 7 | |||||||||
| E. | REPORTING AND SANCTIONS | 7 | |||||||||
| F. | ADDITIONAL RESTRICTIONS AND WAIVERS BY OFS ADVISER AND THE OFS FUNDS | 8 | |||||||||
| G. | REVIEW BY THE BOARD OF DIRECTORS OF EACH OFS FUND | 8 | |||||||||
| H. | CCO REPORTING | 9 | |||||||||
| I. | CCO AND COMPLIANCE OVERSIGHT | 9 | |||||||||
| J. | CONFIDENTIALITY | 10 | |||||||||
| K. | CONFLICT WITH EMPLOYEE HANDBOOK | 10 | |||||||||
| II. | PERSONAL INVESTMENT POLICY | 11 | |||||||||
| A. | INTRODUCTION AND DEFINITIONS | 11 | |||||||||
| B. | RECORDKEEPING AND REPORTING REQUIREMENTS | 13 | |||||||||
| 1. Reports | 13 | ||||||||||
| 2. Determining Whether an Account is an Affiliated Account | 14 | ||||||||||
| 3. Managed Accounts | 15 | ||||||||||
| 4. Non-Transferable Accounts | 15 | ||||||||||
| 5. Transactions Subject to Review | 16 | ||||||||||
| C. | STATEMENT OF RESTRICTIONS | 16 | |||||||||
| 1. Restricted List | 16 | ||||||||||
| 2. Private Placements, Initial Public Offerings and Initial Coin Offerings | 18 | ||||||||||
| 3. Trades by OFS Fund Directors | 18 | ||||||||||
| 4. Trades of OFS Fund Securities or other Affiliated Securities | 18 | ||||||||||
| Page | |||||||||||
| 5. Trades by Access Persons Serving on Company Boards | 19 | ||||||||||
| 6. No Personal Trades Through OFS Adviser’s Traders | 19 | ||||||||||
| 7. Use of Brokerage for Personal or Family Benefit | 19 | ||||||||||
| 8. No “Front Running” | 19 | ||||||||||
| 9. No Short Sale Transactions | 19 | ||||||||||
| 10. Acquiring Five (5) Percent or more of a Publicly Traded Company | 20 | ||||||||||
| D. | REQUIREMENTS OF DISINTERESTED DIRECTORS | 20 | |||||||||
| III. | INSIDE INFORMATION POLICY | 21 | |||||||||
| A. | INTRODUCTION | 21 | |||||||||
| B. | KEY TERMS | 22 | |||||||||
| 1. What is a “Security”? | 22 | ||||||||||
| 2. Who is an Insider? | 22 | ||||||||||
| 3. What is Material Information? | 23 | ||||||||||
| 4. What is Nonpublic Information? | 24 | ||||||||||
| 5. Contacts with Companies | 24 | ||||||||||
| 6. Tender Offers | 24 | ||||||||||
| 7. Penalties for Insider Trading | 24 | ||||||||||
| C. | INSIDER TRADING PROCEDURES | 25 | |||||||||
| 1. Identifying MNPI | 25 | ||||||||||
| 2. Restricting Access to MNPI | 25 | ||||||||||
| 3. Review and Dissemination of Certain Investment Related Information | 26 | ||||||||||
| 4. Determination of Materiality | 26 | ||||||||||
| 5. Policies and Procedures Relating to Paid Research Consultants and Expert Network Firms Regarding Securities | 26 | ||||||||||
| IV. | GIFTS, ENTERTAINMENT AND POLITICAL ACTIVITIES | 28 | |||||||||
| A. | INTRODUCTION | 28 | |||||||||
| B. | GIFTS AND ENTERTAINMENT POLICY | 28 | |||||||||
| 1. Business Meals | 28 | ||||||||||
| 2. Providing Business Gifts | 29 | ||||||||||
| 3. Receiving Gifts | 29 | ||||||||||
| 4. Entertainment | 30 | ||||||||||
| 5. Travel and Lodging | 30 | ||||||||||
| Page | |||||||||||
| 6. Providing Meals, Gifts and Entertainment to Public Officials and Union Employees | 32 | ||||||||||
| 7. Receipt of Meals, Gifts or Entertainment by Traders from Brokers/Agent Bank Employees | 32 | ||||||||||
| 8. Charitable Contributions | 33 | ||||||||||
| C. | POLITICAL ACTIVITY POLICY | 33 | |||||||||
| 1. Introduction | 33 | ||||||||||
| 2. Indirect Violations | 33 | ||||||||||
| 3. Periodic Disclosure | 34 | ||||||||||
| V. | OUTSIDE AFFILIATIONS POLICY | 35 | |||||||||
| A. | OUTSIDE BUSINESS ACTIVITIES | 35 | |||||||||
| B. | DIRECTOR AND OFFICER POSITIONS | 35 | |||||||||
| C. | EMPLOYEE RELATIONSHIPS | 36 | |||||||||
| VI. | ANTI-CORRUPTION POLICY | 37 | |||||||||
| VII. | COMPUTER ACCEPTABLE USE POLICY | 40 | |||||||||
| VIII. | PERSONAL USE OF FIRMS RESOURCES AND RELATIONSHIPS POLICY | 41 | |||||||||
I.GENERAL (CODE OF ETHICS)
A.INTRODUCTION
The Code of Ethics (“Code”) has been jointly adopted by OFS Capital Management, OFS CLO Management, LLC and OFS CLO Management II, LLC (collectively, “OFS Adviser” or the "Firm”) and certain entities that are controlled by or under common control with OFS Adviser (“Affiliates”), as determined from time to time by Senior Management, and each of OFS Capital Corporation, Hancock Park Corporate Income, Inc., OFS Credit Company, Inc. and any investment company that OFS Adviser may sponsor and/or manage from time to time (each, an “OFS Fund” and collectively, “OFS Funds”) in order to establish applicable policies, guidelines and procedures that promote ethical practices and conduct by all Supervised Persons of OFS Adviser, including, but not limited to, certain employees, interns, consultants, temporary employees, principals and others designated by Compliance, and that prevent violations of applicable laws including the Investment Advisers Act of 1940, as amended (“Advisers Act”) and the Investment Company Act of 1940, as amended (“Company Act”).1 “Supervised Person” is defined as any director, officer, member or employee (or other person occupying similar status or performing similar functions) of OFS Adviser or any other person who provides investment advice on behalf of OFS Adviser and is subject to the supervision and control of OFS Adviser2. Unless instructed otherwise or approved by the Compliance Department, temporary employees and consultants will generally be deemed a Supervised Person if the employee’s or consultant’s work assignment or engagement exceeds ninety (90) calendar days. This Code is available to all Supervised Persons on OFS Adviser’s compliance portal. All Supervised Persons must read it carefully and certify at least annually (and at such other times that a Compliance Officer may request) that they have read and understand, and agree to abide by the Code.
The Code is designed to address conflicts of interest that may arise in an employee’s personal dealings as well as those on behalf of the Firm and its Advisory Clients3. The following policies comprise the Code and address certain of these conflicts:
•the Personal Investment Policy,
1 The Code is adopted by OFS Adviser and each OFS Fund pursuant to and in accordance with the requirements of each of Rules 204A-1 and 206(4)- 7 under the Advisers Act and Rules 17j-1 and 38a-1under the Company Act.
2 The Chief Compliance Officer or his/her designee may consider any director, officer, member, principal or employee, including, but not limited to, intern and temporary employees, of an Affiliate of OFS Adviser to be a Supervised Person of OFS Adviser if the Chief Compliance Officer determines that such person performs services for OFS Adviser, through any staffing or similar agreement, such that the person would constitute a Supervised Person if such person was a director, officer, member, employee, intern or temporary employee of OFS Adviser. The Compliance Department maintains a list of all such persons and whether each person is (1) a Supervised Person and (2) an Access Person and will notify each person of relevant requirements. The majority of OFS Adviser’s personnel are employees of Orchard First Source Capital, Inc., an Affiliate of OFS Adviser.
3 Advisory Client means any individual, group of individuals, partnership, trust, company or other investment fund entity for whom OFS Adviser acts as investment adviser. For example, any OFS Fund is an Advisory Client. For the avoidance of doubt, Advisory Clients include public and private investment funds, including comingled funds and single investor funds (“Funds”) and managed accounts managed by OFS Adviser, but do not include the underlying individual investors in such Funds (“Investors”), although certain protections afforded to Advisory Clients pursuant to this Code do extend to Investors through Rule 206(4)-8 of the Advisers Act.
1 | ||
Page -1-
OFS Capital Management
Confidential. Do not copy or distribute.
•the Inside Information Policy,
•the Gifts and Entertainment Policy,
•Political Activity Policy,
•Outside Affiliations Policy,
•Anti-Corruption Policy,
•OFS Acceptable Use Policy; and
•Personal Use of the Firm’s Resources and Relationships Policy
OFS Adviser and each OFS Fund require that all Supervised Persons of OFS Adviser observe the applicable standards of care set forth in these policies and not seek to evade the provisions of the Code in any way, including through indirect acts by Related Persons or other associates.
| All activities involving the OFS Funds are subject to the Company Act and the policies and procedures adopted by each OFS Fund in connection therewith as set forth in the Rule 38a-1 Compliance Manual (“38a-1 Manual”) for each OFS Fund. The obligations set forth in the Code and the 38a-1 Manual are in addition to and not in lieu of the policies and procedures set forth in the Firm’s Employee Handbook and any other Compliance Policies adopted by OFS Adviser in respect of the conduct of its business. | ||
2 | ||
Page -2-
OFS Capital Management
Confidential. Do not copy or distribute.
B.STATEMENT OF STANDARDS OF BUSINESS CONDUCT
As a fundamental mandate, OFS Adviser and each OFS Fund demand the highest standards of ethical conduct and care from all Supervised Persons and OFS Fund Directors. Supervised Persons and OFS Fund Directors must abide by this basic business standard and must not take inappropriate advantage of their position with the Firm or OFS Fund. Each Supervised Person and OFS Fund Director is under a duty to exercise his or her authority and responsibility for the primary benefit of OFS Adviser’s Advisory Clients, including the OFS Funds, and the Firm, and may not have outside interests or engage in activities that inappropriately conflict or appear to conflict with the interests of the Firm or its Advisory Clients, including the OFS Funds. Examples of such conflicts include:
•engaging a service provider on behalf of Advisory Clients or the Firm in which you or your Related Person has a financial interest;
•accepting extravagant or frequent gifts or entertainment from a current or potential service provider to the Firm or OFS Fund;
•making charitable donations at the request of a prospective Advisory Client when the Advisory Client will directly benefit from such donation;
•contributing to the election campaign of a government official or candidate who has, or will have if elected, the authority to appoint pension plan board members who are responsible for selecting investment advisers for such pension plan;
•knowingly purchasing an interest in a company or property that you know the Firm is targeting for investment; and
•assuming an outside position with a company that competes directly with the Firm.
The above list of examples is not exhaustive, and you, as a Supervised Person or OFS Fund Director, are responsible for assessing the unique facts and circumstances of your activities for potential conflicts and consulting with OFS Adviser’s Legal and Compliance Departments prior to engaging in such activities.
Each Supervised Person and OFS Fund Director must avoid circumstances or conduct that adversely affect or that appear to adversely affect OFS Adviser or its Advisory Clients, including the OFS Funds. Every Supervised Person and OFS Fund Director must comply with applicable federal securities laws and must promptly report suspected violations of the Code to a Compliance Officer. OFS Adviser strictly prohibits retaliation against any individual reporting suspected violations, who, in good faith, seeks help or reports known or suspected violations, including Supervised Persons who
3 | ||
Page -3-
OFS Capital Management
Confidential. Do not copy or distribute.
assist in making a report or who cooperate in an investigation (see Section I.E. Reporting and Sanctions).
GENERAL GUIDELINES
1.Supervised Persons and OFS Directors may not employ any device, scheme or artifice to defraud an OFS Fund or any Advisory Client, make any untrue statement of a material fact to an OFS Fund or another Advisory Client, or omit to state a material fact necessary in order to make the statements not misleading, engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon an OFS Fund or another Advisory Client, engage in any manipulative practice with respect to an OFS Fund or another Advisory Client, or engage in any manipulative practice with respect to Securities, including price manipulation.
2.Except with the prior approval of a Compliance Officer, in consultation with a Supervised Person’s supervisor and/or Senior Management, a Supervised Person may not act as a director, officer, general partner, managing member, principal, proprietor, consultant, agent, representative, trustee or employee of any unaffiliated public or private entity or business other than an OFS Fund, OFS Adviser, or an Affiliate of OFS Adviser. (See Section IV)
3.All Supervised Persons must disclose to OFS Adviser any interests they may have in any entity that is not affiliated with OFS Adviser or any OFS Fund and that has a known business relationship with OFS Adviser, an Affiliate of OFS Adviser or any OFS Fund.
4.Except with the prior approval of a Compliance Officer, and as specifically permitted by law, Supervised Persons may not have a material direct or indirect interest (e.g., as principal, co-principal, agent, member, partner, or material shareholder or beneficiary) in any transaction that conflicts with the interests of OFS Adviser or its Advisory Clients.
5.Except with the prior approval of a Compliance Officer, Access Persons and their Related Persons may not invest in any Initial Public Offering (“IPO”), Initial Coin Offering (“ICO”) or Private Placement4 (including hedge funds and other private investment vehicles). (See Section II.C.2) This requirement also applies to Private Placements that are Advisory Clients of OFS Adviser, such as Hancock Park Corporate Income, Inc.
4 Private Placement is defined as an offering that is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to section 4(2) or section 4(5) or pursuant to rule 504, rule 505 or rule 506 thereunder.
4 | ||
Page -4-
OFS Capital Management
Confidential. Do not copy or distribute.
6.No Supervised Person, except in the course of the rightful exercise of his or her job responsibilities, shall reveal to any other person, information regarding any Advisory Client or any investment or Security transaction being considered, recommended or executed on behalf of any Advisory Client. (See Section III.)
7.No OFS Fund Director, except in the course of the rightful exercise of his or her board responsibilities, shall reveal to any other person information regarding any OFS Fund or any “Portfolio Company”, defined as any legal entity in which an OFS Fund or another Advisory Client holds an investment regardless of whether or not the investment is a Security, or any investment or Security transaction being considered, recommended, or executed on behalf of any other Advisory Client. (See Section III.)
8.No Supervised Person shall make any recommendation concerning the purchase or sale of any Security by an Advisory Client without disclosing, to the extent known, the interest of the Firm or any Supervised Person, if any, in such Security or the issuer thereof, including, without limitation (a) any direct or indirect beneficial ownership of any Security of such issuer; (b) any contemplated transaction by such person in such Security; and (c) any present or proposed relationship with respect to such Security, issuer or its affiliates.
9.Subject to certain exceptions permitted by applicable law, each OFS Fund shall not, directly or indirectly extend, maintain or arrange for the extension of credit or the renewal of an extension of credit, in the form of a personal loan to any officer or director of the Fund. Any Supervised Person or person who serves as a director on the board of directors of any OFS Fund (“OFS Fund Director”) who becomes aware that their respective OFS Fund may be extending or arranging for the extension of credit to a director or officer, or person serving an equivalent function, should notify and consult with a Compliance Officer to ensure that the proposed extension of credit complies with this Code and the applicable law.
10.No Supervised Person shall engage in insider trading (as described in the “Inside Information Policy” in Section III.) whether for his or her own benefit or for the benefit of others.
11.No Supervised Person may communicate material, nonpublic information concerning any Security, or its issuer, or Portfolio Company to anyone unless it is properly within his or her duties to do so. No OFS Fund Director may communicate material, nonpublic information to anyone, unless it is properly within their duties to do so, concerning any Security of an issuer in which the OFS Fund Director knows, or should have known, in the course of his or her duties as a director, that the OFS Fund has a current investment, or with respect to which an investment or Security is Being Considered for Purchase or Sale by any OFS Fund (“OFS Fund Portfolio Security”) or Portfolio Company of their respective OFS Fund to anyone unless it is properly within his or her duties to do so. A
5 | ||
Page -5-
OFS Capital Management
Confidential. Do not copy or distribute.
Security is “Being Considered for Purchase or Sale” when a recommendation to purchase or sell the Security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. In all cases, a Security which has been recommended for purchase or sale pursuant to an Investment Committee memorandum, presentation, due diligence package or other formal Investment Committee recommendation shall be deemed to be a Security Being Considered for Purchase or Sale.
12.Each Supervised Person shall complete a compliance questionnaire (the “Regulatory Compliance Disclosure”) prior to employment and/or becoming a Supervised Person and annually thereafter, within the prescribed deadline, as provided by the Compliance Department, (“Compliance Due Date”) through the Firm’s compliance portal. Each Supervised Person shall supplement the Regulatory Compliance Disclosure, as necessary, to reflect any material changes between annual disclosures filings, and must immediately notify Compliance if any of the conditions addressed in the Regulatory Compliance Disclosure become applicable to such Supervised Person.
13.Every Supervised Person must avoid any activity that might give rise to a question as to whether the Firm’s objectivity as a fiduciary has been compromised. (See Section V)
14.Access Persons are required to disclose to a Compliance Officer the existence of any account that has the ability to hold any Reportable Securities (e.g., brokerage or trading accounts and IRAs), as well the account’s holdings (immediately upon commencement of employment (which shall include the accounts and holdings of the Access Person’s Related Persons), and in no case later than ten (10) calendar days beyond the Access Person’s start date. Such Accounts must be disclosed even if they contain a zero balance or non-Reportable Securities. Access Persons are required to disclose accounts that are Managed Accounts; however, disclosing the holdings of such Managed Accounts is not required. With limited exceptions provided herein, Access Persons are also required to maintain Non-Managed Accounts capable of holding Reportable Securities with Approved Brokers, which have contracted to provide holdings and transaction reporting to the Compliance Department on the Firm’s compliance portal. Access Persons must confirm the accuracy and completeness of the information so provided to the Firm on a quarterly and annual basis by the Compliance Due Date. Initial and quarterly reports must disclose the existence of all accounts, even if none of those accounts at the time hold a Reportable Security. (See Section II).
15.The intentional creation, transmission or use of false rumors is inconsistent with the Firm’s commitment to high ethical standards and may violate the antifraud provisions of the Advisers Act, among other securities laws of the United States. Accordingly, no Supervised Person may maliciously create, disseminate or use false rumors. This
6 | ||
Page -6-
OFS Capital Management
Confidential. Do not copy or distribute.
prohibition covers oral and written communications, including the use of electronic communication media such as e-mail, PIN messages, instant messages, tweets, text messages, blogs, and chat rooms. Because of the difficulty identifying “false” rumors, the Firm discourages Supervised Persons from creating, passing, or using any rumor.
C.PERIODIC COMPLIANCE REPORTING AND TRAINING
Each Supervised Person is required to complete all assigned compliance certifications, disclosures and trainings by the Compliance Due Date. Absent an exemption granted to you by a Compliance Officer, failure to complete such items by the Compliance Due Date will likely constitute a violation of this Code and may result in the imposition of sanctions.
The Compliance Department also presents and/or coordinates mandatory training on this Code at least -biennially, and may assign mandatory or voluntary training on the Code or other Firm policies at such other times as the Compliance Department deems appropriate. Failure to attend or complete mandatory training sessions, unless excused in writing by a Compliance Officer, will likely constitute a violation of this Code and may lead to the imposition of sanctions. The Compliance Department maintains an attendance or completion list, as appropriate, of all Supervised Persons assigned to such training sessions.
D.ACKNOWLEDGMENT
Each Supervised Person must certify upon commencement of employment, at least annually thereafter, and at such other times as a Compliance Officer may determine, that he or she has read, understands, is subject to and has complied with the Code. Any Supervised Person who has any questions about the applicability of the Code to a particular situation should promptly consult with a Compliance Officer.
E.REPORTING AND SANCTIONS
While compliance with the provisions of the Code is anticipated, Supervised Persons should be aware that, in response to any violations, the Firm (or any OFS Fund, as applicable) shall take any action deemed necessary under the circumstances including, but without limitation, the imposition of appropriate sanctions. These sanctions may include, among others, verbal or written warnings, the reversal of trades, reallocation of trades to client accounts, disgorgement of profits, suspension or termination of personal trading or investment privileges, reduction in bonus or bonus opportunity, payment of a monetary fine payable to a recognized charitable organization of the Supervised Person’s choice or, in more serious cases, suspension or termination of employment and/or the making of any civil or criminal referral to the appropriate governmental authorities.
Moreover, Supervised Persons are required to promptly report any violation(s) of this Code, any other compliance policies adopted by OFS Adviser or the Rule 38a-1 Manual adopted by any OFS Fund (collectively “Compliance Policies”), or any activity that may adversely affect the Firm’s or any
7 | ||
Page -7-
OFS Capital Management
Confidential. Do not copy or distribute.
OFS Fund’s business or reputation, to a Compliance Officer. The Compliance Department shall maintain a record of all violations of the Code or other Compliance Policies and any corrective actions taken. Supervised Persons are encouraged to report any concerns or problem to their supervisor, however, OFS Adviser has also established a third-party confidential hotline that enables employees to report any incident on a confidential and anonymous basis. Reporting should be made through a letter to a Compliance Officer or via the telephonic and electronic reporting procedures detailed in the Firm’s “Whistleblower Hotline Information” attached hereto as Attachment A. Further, all activities reported by Supervised Persons will be treated anonymously and confidentially (to the extent reasonably practicable) in order to encourage Supervised Persons to come forward with perceived problems. The Firm and each OFS Fund are committed to a full, unbiased review of any matter(s) raised.
The Firm and OFS Fund prohibit retaliation against any such personnel who, in good faith, seeks help or reports known or suspected violations (even if the reported event is determined not to be a violation), including Supervised Persons who assist in making a report or who cooperate in an investigation. Any Supervised Person who engages in retaliatory conduct will be subject to disciplinary action, up to and including termination of employment.
F.ADDITIONAL RESTRICTIONS AND WAIVERS BY OFS ADVISER AND THE OFS FUNDS
From time to time, a Compliance Officer may determine that it is in the best interests of the Firm to subject certain Supervised Persons or other persons (i.e., consultants and third party service providers) to restrictions or requirements in addition to those set forth in the Code. In such cases, the affected persons will be notified of the additional restrictions or requirements and will be required to abide by them as if they were included in the Code. In addition, under extraordinary circumstances, a Compliance Officer may grant a waiver of certain of these restrictions or requirements contained in the Code on a case-by-case basis. In order for a Supervised Person to rely on any such waiver, it must be granted in writing.
Any waiver of the requirements of the Code for OFS Fund Officers or any OFS Fund Director may be made only by the respective OFS Fund’s board of directors or a committee of the board, and must be promptly disclosed to shareholders of the OFS Fund as required by law or relevant exchange rule or regulation.
The Compliance Department maintains a log of all requests for exceptions and waivers and the determinations made with respect to such requests.
G.REVIEW BY THE BOARD OF DIRECTORS OF EACH OFS FUND
The CCO will prepare a written report to be considered by the board of directors of each OFS Fund (1) quarterly, that identifies any violations of the Code with respect to each OFS Fund requiring significant remedial action during the past quarter and the nature of that remedial action; and (2) annually, that (a) describes any issues arising under the Code since the last written report to the Board,
8 | ||
Page -8-
OFS Capital Management
Confidential. Do not copy or distribute.
including, but not limited to, information about material violations of the Code and sanctions imposed in response to such violations, and (b) identifies any recommended changes in existing restrictions or procedures based upon each OFS Fund’s and/or OFS Adviser’s experience under the Code, then- prevailing industry practices, or developments in applicable laws or regulations, and (c) certifies that each OFS Fund and OFS Adviser have each adopted procedures reasonably designed to prevent violations of the Code, and of the federal securities laws in accordance with the requirements of the Advisers Act and the Company Act.
The board of directors of each OFS Fund will also be asked to approve any material changes to the Code within six (6) months after the adoption of such change, based on a determination that the Code, as amended, contains policies and procedures reasonably designed to prevent violations of the federal securities laws.
H.CCO REPORTING
The CCO will prepare a written report to be considered by Senior Management no less than annually, that (a) describes any issues arising under the Code since the last written report, including, but not limited to, information about material violations of the Code and sanctions imposed in response to such violations, and (b) identifies any recommended changes in existing restrictions or procedures based upon OFS Adviser’s experience under the Code, then-prevailing industry practices, or developments in applicable laws or regulations.
The CCO of each OFS Fund, as applicable, prepares a written report to be considered by the relevant OFS Fund Directors no less than annually, that (a) describes any issues arising under the Compliance Policies since the last written report, including, but not limited to, information about material violations of the Compliance Policies and sanctions imposed in response to such violations, and (b) identifies any recommended changes in existing restrictions or procedures based upon each OFS Fund’s and/or OFS Adviser’s experience under the Compliance Policies, then-prevailing industry practices, or developments in applicable laws or regulations.
I.CCO AND COMPLIANCE OVERSIGHT
All requirements and prohibitions under this Code are likewise applicable to the CCO and all Compliance Department employees. For the purpose of addressing actual and perceived conflicts of interest and potential self-dealing, any report and pre-approval request submitted by such employees is to be reviewed, and approved as applicable, by the employee’s supervisor or the CCO. Reports and pre-approval requests from the CCO will be reviewed, and approved as applicable, by CIM’s Chief Legal Counsel (“CLC). Under no circumstances should the CCO or any Compliance Department employee review his/her own report or approve his/her own pre-approval request.
Potential Code violations by the CCO must be reviewed by the CLC. Potential Code violations by a Compliance Department employee must be reviewed by the CCO. If it is determined
9 | ||
Page -9-
OFS Capital Management
Confidential. Do not copy or distribute.
that a violation occurred, the CCO or employee will be subject to the applicable sanction(s) under the Code.
J.CONFIDENTIALITY
Personnel will be given access to and become acquainted with highly confidential information about the Firm such as its financial information, business plans and strategies, investment strategies and opportunities, affiliated companies and internal policies and practices, as well as information relating to past, current and prospective Advisory Clients and Portfolio Companies. Such information must not be disclosed or discussed with anyone other than the Firm’s employees under any circumstances, and only on a “need to know” basis, unless otherwise permitted by the Legal or Compliance Departments.
K.CONFLICT WITH EMPLOYEE HANDBOOK
Where this Code addresses policies that are also addressed in other corporate policies or in the Employee Handbook of Orchard First Source Capital, Inc. or another Affiliate by which a Supervised Person is employed, the policies herein are intended to augment, and not to supersede or replace, the relevant corporate or Employee Handbook policies. In the event of any conflict that would prohibit a Supervised Person from complying with both sets of policies, the Supervised Person should address the conflict to a Compliance Officer.
10 | ||
Page -10-
OFS Capital Management
Confidential. Do not copy or distribute.
II.PERSONAL INVESTMENT POLICY
A.INTRODUCTION AND DEFINITIONS
The Advisers Act, specifically Rule 204A-1, requires “Access Persons” of a registered investment adviser, such as OFS Adviser, to provide periodic reports regarding transactions and holdings in Reportable Securities beneficially owned by Access Persons. Rule 17j-1 under the Company Act requires similar reports for “Access Persons” to a Fund, such as each of the OFS Funds.
The purpose of this Personal Investment Policy and related procedures is to advise Access Persons of their ethical and legal responsibilities with respect to Securities transactions that may involve (i) possible conflicts of interest with Advisory Clients, including the OFS Funds, and (ii) the possession and use of material, nonpublic information (“MNPI”). It is a violation of the Code for any Access Person of OFS Adviser or any OFS Fund to use their knowledge concerning a trade, pending trade, or contemplated trade or investment by an OFS Fund or any other Advisory Client to profit personally, directly or indirectly, as a result of such transaction, including by purchasing or selling such Securities.
The following definitions are utilized within this Personal Investments Policy and more broadly within the rest of the Code.
“Access Person” with respect to OFS Adviser means (a) any Supervised Person who (i) has access to nonpublic information regarding any Advisory Client’s purchase or sale of Securities, or nonpublic information regarding the portfolio holdings of any Advisory Client (including any OFS Fund); or (ii) is involved in making Securities recommendations to Advisory Clients (including any OFS Fund), or has access to such recommendations that are nonpublic; and (b) all directors, officers and partners of OFS Adviser.5
For purposes of the Code, all Supervised Persons are generally considered to be Access Persons of OFS Adviser, and all Access Persons of OFS Adviser are considered to be Access Persons of each OFS Fund. OFS Fund Disinterested Directors are also considered Access Persons of each OFS Fund but are generally exempt from Recordkeeping, Reporting and Statement of Restrictions requirements of Access Persons included in this Code, except as described in Section II.D below.
“Affiliate Account” means: (i) the personal Securities account of an Access Person or the account of any Related Person in which Reportable Securities may be held or transacted; (ii) any such Securities account for which any Access Person serves as custodian, trustee, or otherwise acts in a fiduciary
5 The Chief Compliance Officer or his/her designee may consider any director, officer, principal, member or employee, including, but not limited to, intern and temporary employees, of an Affiliate of OFS Adviser to be a Supervised Person, and Access Person if appropriate, of OFS Adviser if the Chief Compliance Officer determines that such person performs services for OFS Adviser, through any staffing or similar agreement, such that the person would constitute a Supervised Person or Access Person if such person was a director, officer, member, principal or employee, including an intern or temporary employee, of OFS Adviser. The Compliance Department will maintain a list of all such persons and whether each person is (1) a Supervised Person and (2) an Access Person and will notify each person of relevant requirements. The majority of OFS Adviser’s personnel are employees of Orchard First Source Capital, Inc., an Affiliate of OFS Adviser.
11 | ||
Page -11-
OFS Capital Management
Confidential. Do not copy or distribute.
capacity or with respect to which an Access Person either has authority to make investment decisions or from time to time makes investment recommendations, except with respect to Advisory Clients; (iii) any such Securities account of any person, partnership, joint venture, trust or other entity in which an Access Person or his or her Related Person has Beneficial Ownership or other Beneficial Interest; and (iv) and accounts containing Reportable Funds of which an Access Person or his or her Related Person has Beneficial Ownership or Beneficial Interest.
“Beneficial Interest” means an interest whereby a person can, directly or indirectly, control the disposition of a Security or a Reportable Fund or derive a monetary, pecuniary or other right or benefit from the purchase, sale or ownership of a Security or a Reportable Fund (e.g., interest payments or dividends).
“Beneficial Ownership” of a Security, Reportable Fund or account means, consistent with Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 16a- 1(a)(2) thereunder, ownership of Securities, Securities accounts, or Reportable Funds by or for the benefit of a person or his or her Related Person. Beneficial Ownership specifically includes any Security or account in which the Access Person or any Related Persons holds a direct or indirect Beneficial Interest or retains voting power (or the ability to direct such a vote) or investment power (which includes the power to acquire or dispose of, or the ability to direct the acquisition or disposition of, a Security, Securities accounts or Reportable Funds), directly or indirectly (e.g., by exercising a power of attorney or otherwise).
“Exempt Security” is any Security that falls into any of the following categories: (i) shares issued by open-end mutual funds (excluding exchange traded funds (“ETFs”), except Reportable Funds, if any; (ii) shares issued by money market funds; (iii) Security purchases or sales that are part of an automatic dividend reinvestment plan (e.g., DRIP accounts, etc.); (iv) College Direct Savings Plans (e.g., 529 College Savings Program, etc.); (v) shares issued by unit investment trusts that are invested exclusively in one or more open-end funds (so long as such funds are not Reportable Funds); (vi) bankers’ acceptances, bank certificates of deposit or time deposits, commercial paper and other short term high quality debt instruments with one year or less to maturity; and (vii) treasury obligations (e.g., T-bills, notes and bonds) or other Securities issued/guaranteed by the U.S. Government, its agencies, or instrumentalities (e.g., FNMA, GNMA).
“Related Person” means the spouse, domestic partner, child or stepchild, parent or stepparent, grandchild, grandparent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in- law, sister-in-law (including adoptive relationships) of an Access Person, who either resides with, or is financially dependent upon, the Access Person, or whose investments are controlled by the Access Person.
“Reportable Fund” means any Fund for which OFS Advisor or any Affiliate acts as investment adviser, sub-adviser, or underwriter.
12 | ||
Page -12-
OFS Capital Management
Confidential. Do not copy or distribute.
“Reportable Security” means every Security and Reportable Fund in which an Access Person or a Related Person has a Beneficial Ownership or other Beneficial Interest, except for an Exempt Security.
“Security” means any note, stock, treasury stock, bond, debenture, Blockchain ETFs, evidence of indebtedness6, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, reorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, any put, call, straddle, option or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or a put, call, straddle, option or privilege, entered into on a national securities exchange relating to foreign currency, or in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
Note that Security has a different definition for purposes of the Inside Information Policy of the
Code.
B.RECORDKEEPING AND REPORTING REQUIREMENTS
Under the Advisers Act and the Company Act, OFS Adviser and each OFS Fund are required to keep records of transactions in Reportable Securities in which Access Persons have Beneficial Ownership or a direct or indirect Beneficial Interest.
1.Reporting Requirements
The following personal Securities holdings and transaction reporting requirements have been adopted to enable each of OFS Adviser and each OFS Fund to satisfy their legal and regulatory requirements:
•In all cases, within ten (10) calendar days from the date of commencement of employment (or other engagement or arrangement) with the Firm, every new Access Person shall submit to the Compliance Department, through the Firm’s compliance portal, the required information about any Affiliated Accounts (such information must be current as of a date no more than forty-five (45) calendar days prior to the date the person becomes an Access Person);
•Within sixty (60) calendar days of becoming an Access Person, every new Access Person must transfer all Affiliated Accounts in which the Access Person or his or her
6 Note that, for most purposes, evidences of indebtedness are treated as “Securities” for securities law purposes; insider trading prohibitions are an exception to this general rule.
13 | ||
Page -13-
OFS Capital Management
Confidential. Do not copy or distribute.
Related Persons have direct influence or control in the investment decisions (“Non- Managed Accounts”) and in which Reportable Securities are held or are capable of being held to a broker-dealer to which the Compliance Department has access via the Firm’s compliance portal (an “Approved Broker”). Subsequently, any new Non- Managed Accounts opened on behalf of such Access Person or his or her Related Person in which Reportable Securities will be held or transacted must be established with an Approved Broker. The Compliance Department maintains a list of Approved Brokers, which can be found on the Firm’s compliance portal site. Holdings and transactions in Reportable Securities in these accounts are electronically reported to the Compliance Department by the Approved Brokers through the compliance portal.
•Any exception to the Approved Broker policy above must be approved in writing by a Compliance Officer.
•By the Compliance Due Date and no later than thirty (30) calendar days after each quarter end, every Access Person is required to certify all Affiliated Accounts via the Firm’s compliance portal. Any updates to an Access Person’s accounts must be reported via the Firm’s compliance portal within thirty (30) calendar days of opening or closing of such Affiliated Account.
•By the Compliance Due Date and no later than thirty (30) calendar days after each quarter end, every Access Person is required to certify via the Firm’s compliance portal, all transactions in Reportable Securities in Non-Managed Accounts, as recorded by the system during the quarter. Any transactions in Reportable Securities in a Non-Managed Account not included within the Firm’s compliance portal should be reported separately by the Access Person.
•By the Compliance Due Date and no later than forty-five (45) calendar days following the end of each calendar year (i.e., February 14), every Access Person is required to certify, via the Firm’s compliance portal, such Access Person’s Affiliated Accounts and Reportable Securities holdings in all Non-Managed Accounts as of year- end. Any holdings in Reportable Securities in a Non-Managed Account not included within the Firm’s compliance portal should be reported separately by the Access Person.
2.Determining Whether an Account is an Affiliated Account
In most cases, determining whether an Access Person or his or her Related Person has Beneficial Ownership of or a Beneficial Interest in the Reportable Securities held in an account (which would make such account an Affiliated Account for purposes hereof) is a straight-forward process. It is, however, important to note that, in some cases, an owner of an equity interest in an entity may be
14 | ||
Page -14-
OFS Capital Management
Confidential. Do not copy or distribute.
considered to have Beneficial Ownership of the assets of that entity. In general, equity holders are not deemed to have Beneficial Ownership of Securities held by an entity that is not “controlled” by the equity holders or in which the equity holders do not have or share investment control over the entity’s portfolio. Because the determination of whether an equity holder controls an entity or its investment decisions can be complicated, Access Persons are encouraged to seek guidance from a Compliance Officer. To the extent such guidance is not sought, any failure by an Access Person to properly identify all Affiliated Accounts will be treated as a violation of the Code.
3.Managed Accounts
The Firm recognizes that it may be impossible or impractical for accounts that are controlled or invested on a fully discretionary basis by a third party, such as an investment adviser or broker (“Managed Accounts”), to comply with the Reporting and Restricted List procedures of the Code. Therefore, Managed Accounts are exempted from such procedures, provided that the Access Person cedes any and all control over investment decisions for the account (other than general asset class and objectives guidelines) to such third party and does not communicate with such person with respect to individual transactions for the account. Special rules apply with respect to whether an Access Person “controls” the investment decisions of an entity in which he or she invests; guidance from a Compliance Officer should be sought in such instances.
The Firm requires that general information regarding Managed Accounts, including broker, account title, account number, and the status of the account, be reported through the Firm’s compliance portal. In order to properly establish a Managed Account, the Access Persons is required to provide to the Compliance Department evidence that full investment discretion has been provided to the third-party investment adviser or broker (e.g., provide the investment management agreement). Upon establishing a Managed Account in the Firm’s compliance portal and quarterly thereafter, the Access Person is required to certify within the Firm’s compliance portal that he or she does not participate, directly or indirectly in individual investment decisions in the Managed Account or be made aware of such decisions before transactions are executed.
4.Non-Transferable Accounts
The Firm recognizes that it may be impossible or impracticable for certain types of Non- Managed Accounts (e.g. 401(k) accounts) of Access Persons or their Related Persons with other employers, or an account pledged to secure a personal loan, etc. to be transferred to an Approved Broker. A Compliance Officer may exempt any such Non-Managed Account from the Approved Broker procedures set forth above provided that the Access Person shall be responsible for reporting transactions and holdings of Reportable Securities (e.g. employer shares) in such account as set forth above and complying with the Restricted List procedures with respect to such Non-Managed Accounts.
The Firm requires that all such “non-transferable” Non-Managed Accounts be reported to the Compliance Department so that an exemption may properly be granted. General information regarding
15 | ||
Page -15-
OFS Capital Management
Confidential. Do not copy or distribute.
such accounts must be reported through the Firm’s compliance portal. A Compliance Officer may, as a condition to exempting such Affiliated Accounts, require, initially and periodically thereafter, copies of account statements, a certification from the Access Person, or such other information as such Compliance Officer deems prudent.
5.Transactions Subject to Review
Transactions and holding information reported via the Firm’s compliance portal will be reviewed by a Compliance Officer and compared against the investments made or considered by each of the Advisory Clients. Such review and comparison are designed to evaluate compliance with the Code and further, to determine whether there have been any violations of applicable law. Reporting made by a Compliance Officer is reviewed by a different Compliance Officer so that no Compliance Officer is reviewing his or her own reporting.
C.STATEMENT OF RESTRICTIONS
1.Restricted List
No Access Person or Related Person may make a Personal Securities Trade in the Securities of an issuer, a Security whose performance tracks the performance of an issuer (e.g., single stock ETF) or Security that derives its value from the value of an issuer (e.g., futures, options, forwards and swaps) listed on the Firm’s Restricted List. Before an Access Person or his/her Related Person makes a Personal Securities Trade, the Access Person must review the Restricted List and confirm that the Security to be traded, the relevant issuer or underlying issuer of which a Security tracks or derives its performance are not listed thereon. The information that a particular issuer or Security has been placed on the Restricted List is itself sensitive and confidential. The contents of the Restricted List should never be communicated to persons outside of the Firm except in the limited circumstances in which a Compliance Officer has determined that it is necessary and appropriate to disclose such information for bona fide business purposes. The Firm may place an issuer or Security on the Restricted List at any time without prior notice to Access Persons. Therefore, Access Persons who obtain Securities of an issuer that is later placed on the Restricted List may be “frozen in,” or prohibited from disposing of such Securities, until the issuer has been removed from the Restricted List. Because Access Persons and their Related Persons are already required to submit a preclearance request and obtain pre-approval for the purchase of any Private Placement (see below), the Restricted List is limited to the Securities of issuers with a class of publicly-traded Securities.
The Firm understands that an Access Person recently joining the Firm as a new employee (“New Hire”), or their Related Persons, may be financially disadvantaged by being restricted from liquidating holdings of a Security of an issuer included on the Firm’s Restricted List (“Restricted List Security”). Therefore, under limited conditions and prior to his or her start date (i.e., the first day on which the New Hire begins working in his or her position with the Firm), a New Hire may request to place a liquidating trade in a Restricted List Security. As the New Hire will not have access to the Restricted List prior to
16 | ||
Page -16-
OFS Capital Management
Confidential. Do not copy or distribute.
his or her start date, the New Hire must provide any potential securities to be liquidated to Compliance, and Compliance will respond as to whether the issuers of such securities are on the Restricted List. The request to liquidate must be made by the New Hire prior to his or her start date by completing the “Request to Place a Liquidating Trade in a Restricted Security” form, which can be obtained from Compliance. Compliance will review each request on a case-by-case basis and approve or deny the request, assessing all available and relevant information. If approved, specific conditions will be placed on the transaction (e.g., requirement to liquidate all shares within a certain number of days of the approval and prior to the New Hire’s start date).
•Securities
The name of an issuer or Security could be placed on the Restricted List for many reasons, including when:
•the Firm, any investment adviser Affiliate, or an Advisory Client purchases a Security of a particular issuer or such Security is a Security Being Considered for Purchase or Sale;
•the Firm or any investment adviser Affiliate executes a confidentiality agreement with or relating to an issuer;
•the Firm, any investment adviser Affiliate, or an Advisory Client has declared itself “Private” with respect to an issuer in an electronic workspace;
•the Firm becomes bound by a fiduciary obligation or other duty (for example, because an Access Person has become a board member of an issuer);
•an Access Person becomes a member of an issuer’s board on behalf of the Firm or a Portfolio Company;
•an Access Person becomes aware of (or is likely to become aware of) MNPI about a Security or issuer;
•A public reporting company’s financial statements take into account the revenue stream of an issuer in which the Firm’s Advisory Clients intend to invest or are invested; or
•the Firm, as determined by a Compliance Officer, has determined to include an issuer to avoid the appearance of impropriety and protect the Firm’s reputation for integrity and ethical conduct.
•Procedures
The Compliance Department maintains and updates the Firm’s Restricted List. It is the responsibility of Access Persons, however, to ensure that the Firm’s Restricted List is accurate. Please refer to the Confidentiality Policy for further information on the relevant procedures.
•Additions: Access Persons who become aware of any of the circumstances set forth in subsection 1.a) above, or who for any other reason believe an issuer or Security should be added to the Restricted List, should immediately notify a Compliance
17 | ||
Page -17-
OFS Capital Management
Confidential. Do not copy or distribute.
Officer to ensure that the Restricted List is updated.
•Deletions: When the circumstances set forth in subsection 1.a) above no longer exist, or the Firm is no longer bound by the obligations giving rise to the inclusion of an issuer or Security on the Restricted List, Access Persons should notify a Compliance Officer so that the proposed removal can be assessed and the name of the issuer or Security can be promptly removed, as necessary, from the Restricted List.
•Changes: From time to time, the Compliance Department will update the Restricted List as contemplated by this Personal Investment Policy and the Confidentiality Policy. Access Persons are responsible for checking the Restricted List in all cases before engaging in any Personal Securities Trade.
Generally, Securities that are on the Restricted List because OFS Adviser or an investment adviser Affiliate has entered into a confidentiality agreement, declared itself “private” or otherwise accessed MNPI with respect to an issuer, must stay on the list for at least one hundred eighty (180) calendar days after the applicable Advisory Client(s) have liquidated the holding or last accessed MNPI on the relevant Security or issuer of such Security. A Compliance Officer may determine that a longer or shorter “stay” period is appropriate for issuers or Securities in such Compliance Officer’s sole discretion.
2.Private Placements, Initial Public Offerings and Initial Coin Offerings
No IPO, ICO or Private Placement may be purchased for any Affiliated Account, except with the prior, express written approval of (i) a Compliance Officer; or (ii) where such Access Person is the CCO, the prior written approval of the Chief Legal Officer. Requests to make such investments shall be made through the Firm’s compliance portal. A record of such approval (or denial), and a brief description of the reasoning supporting such decision will be maintained in accordance with the recordkeeping requirements of the Advisers Act and the Company Act.
3.Trades by OFS Funds Directors
OFS Funds Directors are prohibited from trading any OFS Funds Portfolio Security.
4.Trades of OFS Funds Securities or other Affiliated Securities
No Access Person may, for direct or indirect personal or a Related Person’s benefit, donate or transact in an affiliated security, including, but not limited to, OFS Funds, CIM Real Assets and Credit Fund, Creative Media & Community Trust Corporation (CMCT) and CIM Real Estate Finance Trust, Inc. (CMFT), except with the prior, express written approval of a Compliance Officer. Such approval will generally be granted only during an open trading window. All approved transactions or donations must be completed within three (3) business days from the date of approval, but before the close of any applicable trading window. If the approved transaction or donation is not completed within three (3) business days, the Access Person must seek a new preapproval from a Compliance Officer.
18 | ||
Page -18-
OFS Capital Management
Confidential. Do not copy or distribute.
5.Trades by Access Persons Serving on Company Boards
Companies for which Access Persons serve on the board of directors may permit members of its board of directors to purchase or sell stock based on a predetermined schedule (such as a Rule 10b5- 1 Plan7) that is approved by the company (“Predetermined Schedule”). Personal Securities Trades made in accordance with a Predetermined Schedule by Access Persons who serve on the board of directors of such companies are exempt from the restriction against trading in Securities added to the Restricted List after the adoption of the Predetermined Schedule, however such Predetermined Schedules are subject to the prior notice to a Compliance Officer prior to making the trade and are subject to the reporting requirements set forth in the section above. Further, purchases and sales of Securities by such company’s directors during an established trading window may be permitted with prior notice to, and at the discretion of, a Compliance Officer.
6.No Personal Trades Through OFS Adviser’s Traders
No Personal Securities Trades may be effected through OFS Adviser’s trading personnel.
7.Use of Brokerage for Personal or Family Benefit
No Access Person may, for direct or indirect personal or a Related Persons benefit, execute a trade with a broker by using the influence (actual or implied) of OFS Adviser or any Access Person’s influence (actual or implied) with OFS Adviser.
8.No “Front Running”
Front running is the illegal practice of purchasing a Security based on advance non-public information. Personal Securities Trades based on insider knowledge or ahead of anticipated OFS Advisory Client transactions are prohibited. No Personal Securities Trade may be executed by any Access Persons or Related Persons who are aware, or should be aware, that:
(i)there is a pending buy or sell order in the Securities of that same issuer for any Advisory Client of OFS Adviser, or
(ii)a purchase or sale of the Securities of that same issuer can reasonably be anticipated for an OFS Adviser Advisory Client in the next five (5) calendar days.
19 | ||
Page -19-
OFS Capital Management
Confidential. Do not copy or distribute.
9.Short Sale Transactions
No Access Person or Related Person may enter into a short sale transaction or any transaction that has the same economic effect (e.g., inverse single stock ETF, short common stock, purchase a put option or sell a naked call option) on any Security of an issuer for which a position is held long by an Advisory Client. A list of public issuers for which a position is held long by the Firm’s Advisory Clients (“Client Securities List”) is maintained by Compliance and available via the Firm’s compliance portal. Before an Access Person or his/her Related Person makes a short sale transaction, the Access Person must review the Client Securities List and confirm that the issuer of such Security is listed thereon. The fact that a particular issuer has been placed on the Client Securities List is itself sensitive and confidential. The contents of the Clients Securities List should never be communicated to persons outside of the Firm, except in limited circumstances in which a Compliance Officer has determined that it is necessary and appropriate to disclose such information for bona fide business purposes. The Firm may place an issuer on the Client Securities List at any time without prior notice to Access Persons.
10.Acquiring Five (5) Percent or more of a Publicly Traded Company
Access Persons are required to report to a Compliance Officer, via the Firm’s compliance portal, any ownership exceeding 5% of a class of equity securities of a publicly traded company that they or their Related Persons or Family Members have a beneficial interest in.
D.REQUIREMENTS OF DISINTERESTED DIRECTORS
The Recordkeeping, Reporting, and Statement of Restrictions provisions listed above (except those in Section II(C)(3-4) do not apply to any OFS Fund Director who is not an interested person of any OFS Fund within the meaning of Section 2(a)(19) of the Company Act (“Disinterested Directors”) of each of the OFS Funds, except as the following describes. A Disinterested Director need only report a transaction if, at the time of a Personal Securities Trade in a Reportable Security, the Disinterested Director knew, or, in the ordinary course of fulfilling his or her duties as a director, should have known that during the fifteen (15) day period immediately preceding or after the date of the transaction, their OFS Fund purchased or sold the Security or the Security was Being Considered for Purchase or Sale by their OFS Fund or OFS Adviser.
7 A Rule 10b5-1 plan is a written plan for trading Securities that is designed in accordance with Rule 105-1(c). Any person executing pre-planned transactions pursuant to a Rule 10b5-1 plan that was established in good faith at a time when that person was unaware of material nonpublic information has an affirmative defense against accusations of insider trading, even if actual trades made pursuant to the plan are executed at a time when the individual may be aware of material nonpublic information.
20 | ||
Page -20-
OFS Capital Management
Confidential. Do not copy or distribute.
III.INSIDE INFORMATION POLICY
A.INTRODUCTION
The prohibitions against insider trading set forth in the federal securities laws play an essential role in maintaining the fairness, health, and integrity of our markets. These laws also establish fundamental standards of business conduct that govern our daily activities and help to ensure that Advisory Client’s trust and confidence are not compromised in any way. Consistent with these principles, OFS Adviser forbids any Supervised Person from (i) trading Securities for the Firm, any Advisory Client or any account in which a Supervised Person has a Beneficial Interest, if that Supervised Person is “aware” of material and nonpublic information (“MNPI” or “Inside Information”) concerning an issuer; or (ii) communicating MNPI to others in violation of the law. This conduct is frequently referred to as “insider trading.” This policy applies to all Supervised Persons, and extends to activities within and outside of each Supervised Person’s duties at OFS Adviser or with any OFS Fund.
The term “insider trading” is not specifically defined under the federal securities laws (most guidance in this area can be found under case law and related judicial decisions), but generally is used to refer to improper trading in Securities8 on the basis of MNPI (whether or not the person trading is an insider). A person is generally deemed to trade “on the basis of MNPI if that person is aware of MNPI when making the purchase or sale, regardless of whether the person specifically relied on the information in making an investment decision. It is generally understood that the law prohibits trading by an insider on the basis of MNPI about the Security or issuer. To be held liable under the law, the person trading generally must violate a duty of trust or confidence owed directly, indirectly or derivatively to the issuer of that Security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information (e.g., an employer). The law also prohibits the communication of inside information to others and provides for penalties and punitive damages against the “tipper” even if he or she does not gain personally from the improper trading.
8 OFS Adviser often transacts in syndicated or other loan interests on the basis of information that is not available to other members of the syndicate, or to the public in general; however, for the limited purpose of this policy, “Securities” (as defined in the Exchange Act) do not include such loan interests or other “evidences of indebtedness.” If you are uncertain as to whether a particular investment is a “security” for purposes of this policy, contact the Legal/Compliance Department.
21 | ||
Page -21-
OFS Capital Management
Confidential. Do not copy or distribute.
B.KEY TERMS
1.What is a “Security”?
The Exchange Act, which covers insider trading, defines “Security” very broadly to include most types of financial instruments,9 except bank debt.10 There may be instances where Supervised Persons receive information about such investments that is not generally known by other institutional investors - even those institutional investors who may be similarly situated (e.g., lenders that are privy to nonpublic information and have access to bank-level information or primary lender meetings). Although trading in “non-security” investments on the basis of nonpublic information is not prohibited by federal securities laws, such trading may be prohibited by fiduciary obligations, other federal or state statutes, or contractual obligations such as confidentiality agreements11. In situations where OFS Adviser has access to MNPI to which other potential investors/counterparties may not have access, Supervised Persons should consult with a Compliance Officer or Senior Management, as appropriate, as to whether a proposed purchase or sale of an investment should be made, and, if made, should include the use of a “Big Boy” letter (see the Firm’s Confidentiality Policy), a confidentiality agreement (see the Firm’s Confidentiality Policy), or, if the investment is a syndicated loan, the execution by OFS Adviser of the standard LSTA form, which includes disclosure concerning the possibility of access to such information. In addition, even if trading in a “non-security” investment is permissible because the above standards are met, Supervised Persons are still prohibited from trading in any Securities issued by the relevant borrower, either for an Advisory Client or themselves, if the information obtained would be material with respect to the Securities transaction. This would also include indirect participation in such a transaction; for example, by participating in an Investment Committee meeting in which a decision regarding such Securities was being considered.
2.Who is an Insider?
The concept of an “insider” is broad. It includes officers, directors, and employees of a company. In addition, a person can be a “temporary insider” if he or she enters into a special confidential relationship in the conduct of a company’s affairs and as a result is given access to information solely for the company’s purposes. A temporary insider can include, among others, a company’s attorneys,
9 For purposes of the Inside Information Policy, “Security” means any note, stock, treasury stock, security feature, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral- trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.
10 Note that, for most purposes, evidences of indebtedness are treated as “securities” for securities law purposes; insider trading prohibitions are an exception to this general rule.
11 The Compliance Department maintains the Private Company List and Advisory Clients may not transact in these investments unless an exception to the prohibition from trading a security on the Private Company List has been granted by the CCO or his or her designee. Please refer to the Confidentiality Policy for more information.
22 | ||
Page -22-
OFS Capital Management
Confidential. Do not copy or distribute.
3.What is Nonpublic Information?
Information is nonpublic until it has been effectively communicated to the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal, Bloomberg, or other publications of general circulation would be considered public. Supervised Persons should seek specific guidance from a Compliance Officer in situations where information concerning an issuer or its affiliated entities (e.g., subsidiaries) may not have been made available to the investment community generally but was made available to a group of institutional investors.
4.Contacts with Companies
From time to time, Supervised Persons may meet with members of senior management at publicly-traded companies associated with an investment/deal or a prospective investment/deal. OFS Adviser may make investment decisions on the basis of the Firm’s conclusions formed through such contacts and analysis of publicly-available information regarding foreign and U.S. companies. Difficult legal issues arise when, during these contacts, a Supervised Person becomes aware of MNPI about those companies. This could happen, for example, if a company’s chief financial officer prematurely discloses quarterly results to a Supervised Person, a broker, or a securities analyst, or if an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Supervised Persons should immediately contact a Compliance Officer if he or she believes that he or she may have received MNPI about a publicly traded company.
5.Tender Offers
Tender offers raise heightened concerns in the law of insider trading for two reasons. First, tender offer activity often produces gyrations in the price of the target company’s Securities. Trading during this period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and “tipping” while in possession of MNPI regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Supervised Persons should exercise caution any time they become aware of nonpublic information relating to a tender offer.
6.Penalties for Insider Trading
Penalties for trading on or inappropriately communicating MNPI are severe, both for the individuals involved and their employers. A person can be subject to some or all of the penalties below, even if he or she does not personally benefit from the violations. Penalties include:
•civil injunctions;
•disgorgement of profits;
23 | ||
Page -23-
OFS Capital Management
Confidential. Do not copy or distribute.
accountants, consultants, bank lending officers, investment advisers (such as OFS Adviser) and the employees of such organizations. OFS Adviser may become a temporary insider by signing a confidentiality agreement or by accessing material nonpublic information on a private electronic workspace.
7.What is Material Information?
Trading on inside information is not a basis for liability unless the information is deemed material. “Material” information generally is defined as information with respect to which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that could reasonably be expected to have a substantial effect on the price of a company’s Securities.
Among other things, the following types of information are generally regarded as “material”:
•dividend or earnings announcements
•write-downs or write-offs of assets
•additions to reserves for bad debts or contingent liabilities
•expansion or curtailment of company or major division operations
•merger, joint venture announcements
•new product/service/marketing announcements
•new supplier/manufacturing/production announcements
•material charge/impairment announcements
•senior management changes
•changes in control
•material restatement of previously issued financial statements
•discovery or research developments
•criminal indictments and civil and government investigations, litigations and/or settlements
•pending labor disputes
•debt service or liquidity problems
•bankruptcy or insolvency problems
•tender offers, stock repurchase plans, etc.
•recapitalizations
Material information does not have to relate to a company’s business. For example, in Carpenter v. U.S., 18 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a Security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal and whether those reports would be favorable or not.
24 | ||
Page -24-
OFS Capital Management
Confidential. Do not copy or distribute.
•punitive damages (i.e., fines for the person who committed the violation of up to three (3) times the profit gained, or loss avoided, irrespective of whether the person actually benefited personally);
•felony convictions which include possible jail sentences; and
•fines and sanctions against the employer or other controlling person.
C.INSIDER TRADING PROCEDURES
The following procedures have been established to assist Supervised Persons in avoiding insider trading, and to aid OFS Adviser in preventing, detecting, and imposing sanctions for insider trading. The following procedures should be read in conjunction with other policies set forth in this Code, and in the Compliance Policies.
1.Identifying MNPI
Before trading in the Securities of a company about which they may have potential MNPI, Supervised Persons should ask themselves the following questions:
•Is the information material? Is this information that an investor would consider important in making his or her investment decisions (e.g., whether the investor should buy, sell, or hold a Security)? Is this information that would substantially affect the market price of the Securities if generally disclosed?
•Is the information nonpublic? To whom has this information been provided? Has the information been effectively communicated to the marketplace by being published in Reuters, The Wall Street Journal, Bloomberg, or other publications of general circulation? Remember that information that has been communicated to a relatively large group of sophisticated investors does not by itself mean that the information is public (e.g., large group of potential bank debt investors during an invitation only meeting).
2.Restricting Access to MNPI
Care should be taken so that MNPI is secure. For example, files containing MNPI should be sealed or locked; access to computer files containing MNPI should be restricted. As a general matter, materials containing such information should not be removed from the Firm’s premises and, if they are, appropriate measures should be maintained to protect the materials from loss or disclosure. Among other things, Supervised Persons should:
•distribute materials containing MNPI only on a need-to-know” basis;
•take care so that telephone conversations cannot be overheard when discussing matters involving MNPI (e.g., speaker telephones should generally be used in a way
25 | ||
Page -25-
OFS Capital Management
Confidential. Do not copy or distribute.
so that outsiders who might be in OFS Advisers’ offices are not inadvertently exposed to this information);
•limit access to offices and conference rooms when these rooms contain MNPI; and
•not leave materials containing MNPI displayed on the computer screen when they leave their computers unattended.
3.Review and Dissemination of Certain Investment Related Information
As part of its consideration of certain investments, including in certain types of “non-Securities” (e.g., bank debt instruments), the Firm may enter into confidentiality agreements with third parties (e.g., issuers, sponsors, syndicate members or other lenders) that could have implications for the Firm’s compliance with federal securities laws. Those agreements may sometimes contain so-called “stand- still” provisions, which specifically restrict the Firm’s activity in Securities of identified issuers, but more typically simply raise the possibility that nonpublic information may be disclosed to the recipient and seek the receiving party’s acknowledgment of that understanding and agreement not to disclose any MNPI transmitted. The procedures for executing confidentiality agreements are set forth in the Firm’s Confidentiality Policy. Many potential counterparties or their agents specifically require that potential investors sign a confidentiality agreement before they will be provided access to investment- related information. Because of the importance of our policies regarding access to and use of confidential information, confidentiality agreements may only be reviewed, negotiated, and executed as set forth in the Firm’s Confidentiality Policy.
4.Determination of Materiality
Given the unique asset classes in which OFS Adviser typically invests, Supervised Persons may receive detailed information about a Security that may not be otherwise readily available to the investing public. The issue of “materiality” and the ultimate determination as to whether the information provided rises to the level of MNPI should not be made independently by a Supervised Person. Rather, the employee should contact the Compliance Department to conduct a materiality assessment and an informed determination may be made. Unless otherwise determined by the Compliance Department, in consultation with investment staff and outside legal counsel, as appropriate, information received about a publicly-traded Security that is not readily available to the investing public shall be deemed to be and treated as material.
5.Use of Expert Network
While it is permissible to utilize Expert Networks, which provide information, advice, analysis, market expertise or industry experience for use in the due diligence process of a potential investment, formulating investment views or on-going oversight of current investments, OFS Adviser must be particularly sensitive about the information that these Expert Networks provide. Accordingly, OFS Adviser has adopted an Expert Network Policy which governs the contact and interaction with Expert Networks, and requires Supervised Persons to obtain preapproval from the Compliance Department before engaging an Expert
26 | ||
Page -26-
OFS Capital Management
Confidential. Do not copy or distribute.
Network. OFS Adviser’s Expert Network Policy is hereby incorporated into this Code by reference. Those Supervised Person who have been approved to use Expert Networks are required to fully comply with all policies, procedures, certifications and training requirements associated with the Expert Network Policy, and any instance of non-compliance will likely constitute a violation of the Code.
27 | ||
Page -27-
OFS Capital Management
Confidential. Do not copy or distribute.
IV.GIFTS, ENTERTAINMENT AND POLITICAL ACTIVITIES
A.INTRODUCTION
OFS Adviser attempts to minimize any activity that might give rise to a question as to whether the Firm’s objectivity as a fiduciary has been compromised.
B.GIFTS AND ENTERTAINMENT POLICY
One possible area of fiduciary concern relates to providing or receiving meals, gifts or entertainment from third parties with which OFS Adviser or its Advisory Clients do business, including each OFS Fund, joint business partners, service providers and current and prospective clients (collectively “Outside Parties” and each an “Outside Party”).
Supervised Persons are prohibited from soliciting anything of value from Outside Parties. Further, no Supervised Person may give or receive any gift, meal or entertainment that could or is intended to influence decision-making or to make a person beholden, in any way, to another person or company that seeks to do or is currently doing business with the Firm or its Advisory Clients. Lavish or luxurious gifts and entertainment, and gifts and entertainment that are received or provided on a frequent basis, are generally deemed to meet this standard and, unless a Compliance Officer indicates otherwise, are prohibited. In addition, depending upon a Supervised Person’s responsibilities, specific regulatory requirements may dictate the types and extent of gifts and entertainment that Supervised Persons may give or receive. The Firm is committed to competing solely on the merit of its products and services, and Supervised Persons should avoid any actions that create a perception that favorable treatment of Outside Parties by the Firm was sought, received or given in exchange for a particular decision or action.
1.Business Meals
Generally, Supervised Persons may share food and beverages (meals) with Outside Parties in the ordinary course of business. Meals received by Supervised Persons from Outside Parties should not exceed $250 per person per meal, unless preapproved by Compliance. Meals provided by Supervised Persons to Outside Parties are generally permissible and should also not exceed $250 per person per meal, unless preapproved by Compliance. No food or beverage should be provided to Public Officials without preclearance and preapproval by Compliance.
28 | ||
Page -28-
OFS Capital Management
Confidential. Do not copy or distribute.
2.Providing Business Gifts
Any Supervised Person who offers a gift to an Outside Party must be sure that it cannot reasonably be interpreted as an attempt to gain an unfair business advantage or otherwise reflect negatively upon the Firm. In addition, a Supervised Person may never use personal funds or resources to do something that cannot be done with Firm resources. A gift may include any services or merchandise of any kind or discounts on merchandise or services and other items of value. Generally, Supervised Persons are prohibited from giving gifts of cash, cash equivalents (such as gift cards and gift certificates) and securities to Outside Parties. This policy does not prohibit the provision of occasional or nominal non-cash gift items, such as holiday gifts, to Outside Parties so long as the amount provided by a Supervised Person to any one recipient over a calendar year does not exceed $250. Once the aggregate amount proposed to be provided by a Supervised Person to any one recipient during one calendar year exceeds $250, that Supervised Person must submit a preclearance request and obtain preapproval via the Firm’s compliance portal. Further, anything of value (e.g., meals, beverages, gifts, and entertainment) to be provided to Public Officials requires preclearance approval via the Firm’s compliance portal.
The Compliance Department shall periodically review gifts provided for compliance with this Code as part of quarterly expense reimbursement review process.
If you are unsure of OFS Adviser’s policy with respect to providing gifts in any circumstance, you should consult with a Compliance Officer.
3.Receiving Gifts
No Supervised Person should obtain any material personal benefits or favors because of his or her position with the Firm. Each Supervised Person’s decisions on behalf of the Firm must be free from undue influence. Soliciting gifts from Outside Parties is strictly prohibited. A gift may include any services or merchandise of any kind or discounts on merchandise or services and other items of value. Supervised Persons are prohibited from receiving gifts of cash, cash equivalents (such as gift cards and gift certificates) and securities from Outside Parties. This policy does not prohibit the receipt of occasional or nominal non-cash gift items, such as holiday gifts, so long as the amount received by a Supervised Person from any one source over a calendar year does not exceed $250. Any gift that will cause the total received by that Supervised Person from a single source to exceed $250 for the calendar year, and any additional gift thereafter received during the calendar year, requires preapproval by a Compliance Officer. Also, one of the following actions will generally be required: return the gift, donate the gift to charity or to OFS for a corporate raffle or keep the gift and write a check to charity for the difference between the fair market value of the gift and $250. Such requests should be submitted via the Firm’s compliance portal.
29 | ||
Page -29-
OFS Capital Management
Confidential. Do not copy or distribute.
Gifts in any amount received by a Supervised Person from an Outside Party, except for gifts of nominal value (such as logo items, including pens, notepads, coffee mugs and baseball caps) must be disclosed in the Firm’s compliance portal at the time of receipt.
4.Entertainment
The gift policies above are not intended to prohibit the acceptance or provision of non- extravagant entertainment that facilitates the handling of the Firm’s business. Business entertainment (e.g., concerts, exhibitions or sporting events, where the person providing the entertainment is present), that is not frequent or “lavish” and does not influence the selection of vendors or other Outside Parties, is acceptable. Entertainment received by a Supervised Person where the outside party providing the entertainment is not in attendance is considered a “gift.” From time to time, an employee may have the opportunity to invite a guest to a business entertainment event hosted by an Outside Party – the guest’s ticket is considered as a “gift” for purposes of this policy. Business meals are not considered entertainment for purposes of this Policy (see Section IV.B. 1. “Business Meals” above for additional information).
No Supervised Person may provide or accept extravagant or excessive entertainment to or from an Outside Party. Any entertainment that a Supervised Person reasonably expects to exceed $1,000 in market value per person must be pre-approved by a Compliance Officer. Also, if the entertainment provided by the Supervised Person is part of an entertainment program (e.g., purchasing season box seats, where multiple events are scheduled over multiple dates, for multiple Outside Parties), and although the market value per person may be below the $1000 limit, these programs must also be approved in advance by a Compliance Officer. Further, entertainment of any value to be provided to Public Officials requires pre-approval from a Compliance Officer. Such requests should be submitted via the Firm’s compliance portal.
A Supervised Person receiving entertainment in an amount less than the $1,000 limit must disclose the entertainment via the Firm’s compliance portal. The disclosure should be made no later than 30 calendar days of the date of participating in such event.
5.Travel and Lodging
Supervised Persons may occasionally be invited to conferences or other events by Outside Parties, which include an offer of travel and/or lodging. Employees must contact a Compliance Officer to obtain approval prior to accepting the travel and/or lodging. Requests to accept travel or lodging that appear to be extravagant or frequent in nature will generally
30 | ||
Page -30-
OFS Capital Management
Confidential. Do not copy or distribute.
be prohibited.
6.Giving Gifts, Entertainment and Meals to Public Officials
Specific requirements and restrictions apply regarding the offering of meals, gifts and entertainment (including any food and beverages) to Public Officials and can vary depending on the governmental branch/body, state, or other jurisdiction. For example, many government pension plans place strict limits on the value of any meal provided by a service provider, such as the Firm, to the pension plans’ employees. Certain jurisdictions even ban service providers from providing anything of value to their public employees, including promotional items of nominal value. Penalties for violating these gift laws can range from monetary fines to disqualification from RFP participation and rescindment of existing investment mandates. Private unions are subject to Department of Labor gift rules and regulations and service providers, such as the Firm, must comply with prescribed limits and reporting requirements when providing gifts and entertainment (including any food and beverages) to union employees. Accordingly, it is against Firm policy to offer or give gifts, entertainment (including any food and beverages), or anything of value to Public Officials or union officials or employees unless the regulations applicable to that individual permit acceptance of such items. Further, Supervised Persons are required to obtain preapproval from a Compliance Officer to offer or give anything of value, including nominal items or snacks, to Public Officials or union officials or employees. Such requests for prior approval should be submitted via the Firm’s compliance portal.
If you plan to contact a Public Official for the first time in order to solicit business or to request that any action or decision be made by a Public Official or its affiliated public body, you may need to register as a lobbyist. Many states and other local jurisdictions have enacted lobbying laws that can vary in how they define “lobbying” and registration as a “lobbyist” is required. Further, in the event that you are required to register as a lobbyist, you will likely be subject to lower gift and entertainment limits. Accordingly, you should contact Compliance for further guidance prior to initial contact with Public Officials.
If you are unsure of applicable laws, rules, and regulations with respect to providing gifts, meals and entertainment (including any food or beverages) to Public Officials or union official or employees in any circumstance, you should consult with a Compliance Officer.
7.Receiving Gifts or Entertainment from Traders or Brokers/Agent Bank Employees
Traders or other investment professionals with the ability to influence the selection of brokers/agent banks with respect to trading in Securities and broadly syndicated loans are prohibited from receiving meals over $250 and gifts or entertainment of any value from an employee of such
31 | ||
Page -31-
OFS Capital Management
Confidential. Do not copy or distribute.
broker/agent bank without submitting a preclearance request and receiving preapproval from Compliance. Such request for pre-approval should be submitted via the Firm’s compliance portal.
8.Charitable Contributions
Certain charitable contributions require preapproval by a Compliance Officer. Charitable contributions by an employee, at the request or for the benefit of a Public Official or a Public Official’s immediate family member or close associate may be permissible only if the Compliance Officer can reasonably conclude that the contribution is lawful, ethical and in compliance with the policies and standards under this Code.
In all cases, the Compliance Officer shall ensure that the beneficiary of the contribution is an organization formed under section 501(c)(3) of the U.S. Internal Revenue Code or is otherwise operating exclusively as a non-profit civic charity that is not involved in any political or lobbying activity. Further, such contributions should never be used as bribes (i.e., to improperly influence or reward any action or decision for OFS’s benefit).
C.POLITICAL ACTIVITY POLICY
1.Introduction
The SEC, along with certain states, municipalities and public pension plans, have adopted regulations limiting or completely disqualifying investment advisers from providing services to, or accepting placements from, a government entity if certain political contributions12 are made or solicited13 by the Firm, certain of its Supervised Persons, or, in some instances, a Supervised Person’s Related Persons. Under these “pay to play” regulations, a single prohibited political contribution to a candidate or officeholder, political party, political action committee or other political organization at practically every level of government (including local, state and federal) may preclude the Firm from providing services to, or accepting placements from, the applicable government entity and may compel the firm to repay compensation received by the Firm for with such services or placements.
OFS Adviser and its Affiliates (other than natural persons, as provided below) generally do not make or solicit contributions in any amount to any federal, state, county or local political campaign, candidate or officeholder, or any political organization (e.g., political party committee and political action committee (“PAC”)). As such, Supervised Persons are prohibited from making or soliciting contributions in the name of or on behalf of OFS Advisers and/or its
12 Contributions include cash, checks, gifts, subscriptions, loans, advances, deposits of money, “in kind” contributions (e.g., the provision of free professional services) or anything else of value provided for the purpose of influencing an election for a federal, state or local office, including any payments for debts incurred in such an election.
13 Solicitation of contributions encompasses any fundraising activity on behalf of a candidate, campaign or political organization, including direct solicitation, hosting of events and/or aggregating, coordinating or “bundling” the contributions of others.
32 | ||
Page -32-
OFS Capital Management
Confidential. Do not copy or distribute.
Affiliates unless otherwise approved by the Compliance Department and a member of Senior Management.
No Supervised Person of the Firm or his/her Related Persons may engage in any Political Activity for any federal, state, county, or local political campaign, candidate or officeholder, or any political organizations (e.g., political party committee, political action committee), without the prior written approval of a Compliance Officer. Such requests should be submitted via the Firm’s compliance portal. “Political Activity” for the purpose of this Policy is defined as monetary or in-kind campaign contributions to, or for the benefit of, any government official, candidate running for office, political party or legislative leadership, politically active non-profit, ballot measure committee or PAC as well as the solicitation and coordination of campaign contributions. Volunteering for a campaign that does not include solicitation or coordination of campaign contributions does not require pre-approval.
A Supervised Person and their Related Persons wishing to engage in a Political Activity must submit a Political Activity pre-clearance request on behalf of the Supervised Person (or his or her Related Person) through the Firm’s compliance portal prior to engaging in Political Activity, and such submission must include all pertinent information related to the proposed activity, including, but not limited to, the individual wishing to contribute, amount of the contribution, the name of the intended recipient, the nature of the recipient’s candidacy, whether the proposed recipient holds an existing political office (whether local, state or federal), and whether the Supervised Person (or his or her Related Person, where applicable) is legally entitled to vote for the proposed recipient. Because of the serious nature of the sanctions applicable to a pay to play violation, requests to engage in Political Activity for candidates seeking election to state and local offices will generally be limited, depending on whether a Supervised Person is legally entitled to vote for the candidate. As such, requests to donate to state or local candidates and officials may be approved up to $350, where the Supervised Person is legally entitled to vote for the candidate, and is limited to $150 or less, where a Supervised Person is not legally entitled to vote for the candidate or where the relevant jurisdiction imposes more restrictive limits.
The Firm expects that every Supervised Person will explain the importance of compliance with this policy to his/her Related Persons, and ensure their clear understanding of the obligation to follow these requirements. Moreover, the applicable laws in this area are complex and a trap for the unwary - no Supervised Person should attempt to decide for himself or herself whether a Political Activity is prohibited or permissible. Supervised Persons are responsible for complying with and tracking their own Political Activity limits.
2.Indirect Violations
The pay to play laws also prohibit actions taken indirectly that the Firm or its Supervised Persons could not take directly without violating the law. For example, it is improper and unlawful to provide funds to a third party (such as a consultant or attorney) with the understanding that the third party will use such funds to make an otherwise prohibited contribution. Such indirect violations may trigger disqualification of the Firm from receiving compensation and result in other sanctions, including
33 | ||
Page -33-
OFS Capital Management
Confidential. Do not copy or distribute.
possible criminal penalties. If any Supervised Person learns of facts and circumstances suggesting a possible indirect violation, that Supervised Person must report such facts and circumstances to a Compliance Officer immediately.
3.Periodic Disclosure
In order to ensure compliance with this policy, every Supervised Person must submit via the Firm’s compliance portal, a disclosure and certification setting forth all Political Activity by the Supervised Person and his/her Related Persons for the previous two (2) years or confirming that no such contributions have been made, prior to and at commencement of employment and/or first becoming a Supervised Person. Supervised Persons are also required to disclose and certify all Political Activity in which they or their Related Persons have engaged on a quarterly basis.
34 | ||
Page -34-
OFS Capital Management
Confidential. Do not copy or distribute.
V.OUTSIDE AFFILIATIONS POLICY
A.OUTSIDE BUSINESS ACTIVITIES
From time to time, Supervised Persons may be asked and/or desire to own, work for or serve as a general partner, managing member, principal, proprietor, consultant, agent, representative, or employees of an outside organization for or without compensation, all of which are considered “Outside Business Activities”. These organizations may include public or private corporations, limited and general partnerships, businesses, family trusts, endowments, and foundations.
Outside Business Activities may, however, create potential conflicts of interest and/or provide access to MNPI. So that the Compliance Department can address these potential issues, Supervised Persons must obtain prior approval from their supervisor and a Compliance Officer to engage in Outside Business Activities. Approval should be requested through the Firm’s compliance portal.
Prior approval is generally not required to assume positions with charitable and other non- profit organizations or civic and trade associations. However, if your responsibilities will include the provision of investment advice, such as participation on the investment committee of a non-profit organization, or the organization is a client or business partner of the Firm or its Affiliates, you must obtain prior approval from your supervisor and a Compliance Officer.
B.DIRECTOR AND OFFICER POSITIONS
In other instances, Supervised Persons may be asked or desire to serve as a director, trustee or officer, with or without compensation, for organizations unaffiliated with the Firm and its Affiliates (“Outside Director and Officer Positions”). Separately, Supervised Persons may be asked to serve as a director or officer, with or without compensation, for organizations that are affiliated with the Firm, or its Affiliates (“Affiliated Director and Officer Positions”).
As a prospective board member, trustee or officer, it is critical that you coordinate with the Compliance Department to ensure that potential conflicts of interest are addressed and special measures are taken to handle and maintain the confidentiality of any information that you may obtain in your new position.
1.Outside Director and Officer Positions
As such, in the event that you wish to assume an Outside Director and Officer Position, you must obtain prior approval from your supervisor and a Compliance Officer. Outside Director and Officer Positions will be approved only if any associated conflicts of interest and risks, actual or apparent, can be satisfactorily mitigated or resolved. Please note, however, you are not required to seek pre-approval or provide disclosure to serve as a board member or officer of a personal residential organization, such as a homeowner’s association or coop board, or an entity formed for personal estate planning purposes.
35 | ||
Page -35-
OFS Capital Management
Confidential. Do not copy or distribute.
2.Affiliated Positions
If you are assuming an Affiliated Director and Officer Position, you must only disclose your new position to the Compliance Department and in a timely manner. However, you are not required to pre-clear or disclose director or officer positions with holding companies, or “pass- through” entities affiliated with OFS, the OFS Funds or the OFS Funds’ underlying assets.
Disclosures of Affiliated Director and Officer Positions should be made through the Firms’ compliance portal.
C.EMPLOYEE RELATIONSHIPS
The Firm needs to be aware of relationships maintained by Supervised Persons with third parties that may create the potential for conflicts of interest. The Firm uses this information to assess the need to prohibit certain Supervised Persons from handling matters where such a conflict exists or institute mitigating controls surrounding the levels of business activity or contract negotiations where a relationship posing a conflict has been identified. This may include situations where a Supervised Person’s Related Person or Family Member is: 1) a director, an owner of more than 5% of or a senior management executive of a public company, 2) employed or engaged by a company with which the Firm is conducting or may conduct business, and such Related Person or Family Member is in a position to make decisions with respect to such business or is directly involved with the relationship with the Firm (e.g. a law firm, real estate broker or general contractor), or 3) employed with or serving in an office of a state or local government entity (e.g., city retirement system, state office, public university), in which the Related Person or Family Member has the authority, directly or indirectly, to affect the entity’s current or prospective relationship with the Firm. Such relationships should be disclosed using the Firm’s compliance portal.
For purposes of this Code, “Family Member” means the parents, children, brothers, sisters, aunts, uncles, and in-laws of the Supervised Person regardless of residence, financial dependence, or investment control.
36 | ||
Page -36-
OFS Capital Management
Confidential. Do not copy or distribute.
VI.ANTI-CORRUPTION POLICY
The purpose of the OFS Adviser’s Anti-Corruption Policy is to ensure compliance by the Firm and its employees with applicable anti-bribery laws. As such, the Policy prohibits OFS Adviser employees from offering, promising, paying or providing, or authorizing the promising, paying or providing (in each case, directly or indirectly, including through third parties) of any amount of money or anything of value to any Public Official or Private Sector Counterparty (defined below), including a person actually known to be an immediate family member of such parties, in order to improperly influence or reward any action or decision by such person for the Firm’s benefit.
Neither funds from the Firm nor funds from any other source may be used to make any such payment or gift on behalf of or for the Firm’s benefit.
(a)Requirements for Interaction with Public Officials
The U.S. Foreign Corrupt Practices Act (also referred to as the “FCPA”) is a U.S. federal law that generally prohibits the bribery of foreign officials (also referred to as “Public Officials”), directly or indirectly, by any individual, business entity or employee of any such entity for the purpose of obtaining or retaining business and/or gaining an unfair advantage.
“Public Official”, for purposes of this Policy, includes any person who is employed full- or part-time by a government, or by regional subdivisions of governments, including states, provinces, districts, counties, cities, towns and villages or by independent agencies, state-owned businesses, state- controlled businesses or public academic institutions. This would include, for example, employees of sovereign wealth funds, government-sponsored pension plans (i.e. pension plans for the benefit of government employees), heads of state, lower level employees of state-controlled businesses and government-sponsored university endowments. “Public Official” also includes political party officials and candidates for political office. For example, a campaign contribution is the equivalent of a payment to a Public Official under the FCPA. In certain cases, providing a payment or thing of value to a person actually known to be an immediate family member of a Public Official or a charity associated with a Public Official may be the equivalent of providing a thing of value to the Public Official directly.
Under the FCPA, the employees of public international organizations, such as the African and Asian Development Banks, the European Union, the International Monetary Fund, the United Nations, and the Organization of American States, are considered Public Officials.
In April 2010, the United Kingdom, passed its own anti-bribery law, the Bribery Act 2010 (the “Bribery Act”). However, the law went further than the FCPA, prohibiting not only bribery of “foreign public officials” but also the bribery of private parties. Further, the Bribery Act, unlike the
37 | ||
Page -37-
OFS Capital Management
Confidential. Do not copy or distribute.
FCPA, prohibits “passive” bribery or the acceptance of bribes, in addition to “active” bribery, or giving a bribe.
The OFS Adviser Anti-Corruption Policy is applicable to all OFS Adviser employees, regardless of their country of citizenship or residency. Although the FCPA and the Bribery Act are the principal anti-bribery statutes applicable to OFS Adviser and its employees worldwide, OFS Adviser and its employees are also subject to the applicable anti-bribery laws of all jurisdictions in which they do business and any jurisdictions involved in OFS Adviser’s cross-border transactions. OFS Adviser employees who are not U.S. or U.K. citizens or residents may also be subject to anti-bribery laws of their countries of citizenship or residency, as applicable.
Prior to transacting business (including merger and acquisition transactions and the retention of certain third parties) outside the U.S. or U.K., you should consult with the CCO or Chief Legal Officer or local counsel to obtain the applicable policies, requirements and procedures pertinent to complying with the applicable anti-bribery laws of such jurisdictions.
(b)Requirements for Interaction with Private Sector Counterparty Representatives
OFS employees should be sensitive to anti-corruption issues in their dealings directly or indirectly, with Private Sector Counterparty Representatives. A Private Sector Counterparty Representative is an owner, employee, or representative of a private entity, such as a partnership or corporation, with which OFS Adviser is conducting or seeking to conduct business. Individuals affiliated with current and prospective clients, joint venture partners and service providers and other third parties in such a capacity are all “Private Sector Counterparty Representatives”.
Bribery concerns may arise in connection with your day-to-day interactions with Private Sector Counterparty Representatives, regarding, for example, the offering of investment opportunities or the solicitation of OFS Adviser business by service providers. It is important to be mindful of the anti- bribery laws and to avoid any action that may give the appearance of bribery in your dealings with such individuals. While you may engage in the exchange of gifts, meals and entertainment with Private Sector Counterparty Representatives in the normal and routine course of business, it is important that you adhere to this Policy and to the Gifts and Entertainment Policy of this Code to avoid running afoul of the anti-corruption laws.
(c)Requirements for Retention of Certain Third Parties
Payments by OFS Adviser to Third Parties raise special concerns under the FCPA, Bribery Act and any other applicable anti-bribery laws. A “Third Party” is defined as any consultant, investor, joint venture partner, local partner, broker, agent or other third party retained or to be retained by OFS Adviser for purposes of dealing with a Public Official or a Private Sector Counterparty Representative
38 | ||
Page -38-
OFS Capital Management
Confidential. Do not copy or distribute.
on behalf of OFS Adviser or where the contemplated services are likely to involve business-related interactions with a Public Official or Private Sector Counterparty Representative on behalf of OFS Adviser. Because of the risk that a Third Party may seek to secure business for OFS Adviser or its Advisory Clients through violations of the FCPA or Bribery Act and that OFS Adviser or its Advisory Client’s Portfolio Companies may be subject to liability under the FCPA or Bribery Act as a result, any agreement with a Third Party that is engaged to do business with OFS Adviser is subject to specific due diligence and contractual requirements to assure compliance with the Firm’s Anti-Corruption Policy.
(d)Pre-Approval Reporting, Due Diligence and Contractual Requirements
Unless otherwise authorized by the CCO or a Compliance Officer, you are required to adhere to the following policies and procedures, designed to facilitate your compliance with applicable anti- bribery laws.
You must submit a preclearance request and obtain pre-approval for the following types of expenses, donations, and contributions:
•Gifts and entertainment, including food and beverages, travel, or lodging or anything of value provided to a Public Official or a person known to be an immediate family member or guest of a Public Official;
•Charitable donations made on behalf of OFS Adviser at the request of a Private Sector Counterparty Representative;
•Charitable donations made in an individual capacity or on behalf of OFS Adviser at the request of or for the benefit of a Public Official; and
•Any political contributions.
Preclearance requests should be submitted via the Firm’s compliance portal.
(e)Reporting Obligations
On a quarterly basis, you must certify to all previously approved and/or disclosed political contributions, charitable donations, items to Public Officials and all gifts and entertainment received, as specified above. Certification must be made via the Firm’s compliance portal.
39 | ||
Page -39-
OFS Capital Management
Confidential. Do not copy or distribute.
VII.COMPUTER ACCEPTABLE USE POLICY
OFS’ Computer Acceptable Use Policy is hereby incorporated into this Code by reference. Supervised Persons are required to fully comply with all policies, procedures and certification and training requirements associated with the OFS Computer Acceptable Use Policy, and any instance of non-compliance will likely constitute a violation of this Code. The OFS Computer Acceptable Use Policy is available to all Supervised Persons on the Firm’s public network drive and compliance portal.
40 | ||
Page -40-
OFS Capital Management
Confidential. Do not copy or distribute.
VIII.PERSONAL USE OF FIRM RESOURCES AND RELATIONSHIP POLICY
OFS email and other OFS-sponsored communication mediums (e.g., Skype for Business) (collectively, “OFS communication platforms”) should generally only be used for conducting OFS business. While occasional use of OFS email for personal communications is permissible, Supervised Persons are prohibited from using OFS communication platforms to conduct personal outside business activities (including those involving political, civic or charitable solicitations), which may imply OFS’s sponsorship or endorsement of such activities. Use of OFS stationary for personal correspondence or other personal purposes is strictly prohibited. All communications made via OFS communication platforms are the property of OFS and use of such platforms must comply with the OFS Computer Acceptable Use Policy.
Absent an exemption granted by Human Resources or Compliance, Supervised Persons are prohibited from assigning tasks associated with personal business activities to staff or soliciting assistance for such personal endeavors from staff in a junior role to the requestor.
Further, Supervised Persons are prohibited from leveraging relationships with OFS clients, vendors, and other business contacts (“OFS Contacts”) gained over the course of their employment for personal purposes. Personal purposes include, but are not limited to, charitable and political activities, including solicitation of donations, and the conduct of personal business activities.
OFS reserves the right to search and monitor the computer files of and OFS communication platforms used by any Supervised Persons, without advance notice, for purposes of monitoring compliance with this policy.
41 | ||
Page -41-
OFS Capital Management
Confidential. Do not copy or distribute.
ATTACHMENTS
Whistleblower Information..................................................................................... Attachment A
The listed attachment is also available on OFS Adviser’s public network drive and compliance portal, or from the Compliance Department.
1
ATTACHMENT A
Whistleblower Hotline Information
Effective whistleblowing mechanisms to mitigate bribery and corruption issues are a key feature in our commitment to a high level of integrity and ethics. As part of our Whistleblower Policy, we have established a third-party confidential hotline, Report It. This hotline enables you and external parties, including our suppliers and vendors, to confidentially, and anonymously if preferred, report any suspected violation(s) of our various codes of conduct, any activity that may adversely affect the Firm’s business or reputation, any ESG-related concerns or violations, or any other inappropriate conduct.
Although we encourage you to report any concerns or problems you may have to your supervisor, there may be times where you may not feel comfortable voicing these concerns or problems to them. If you desire or need to report a violation or misconduct, you can do so by either calling the Report It hotline or by logging into their website. The OFS Report It username and password information is listed below.
•Username: OFS Management
•Password: OFS Management
1.Toll free hotline number: 1-877-778-5463 (1 -877-RPT-LINE)
2.Website address: www.reportit.net
a.Click on the Report It Online link
b.Click on the Report It Now button
c.Type the Username/Password under the “Create Report” column
d.Click on the Report It Now button
You will be able to anonymously file a wide variety of reports from questionable accounting or auditing matters to harassment or hostile work environment through either the website or the toll- free hotline number. Any report that you submit will be handled anonymously by Report It, and your name will not be provided by Report It to any OFS contact should you so choose to remain anonymous. We hope that by implementing this hotline service, you will be able to keep our organization free from fraudulent and unethical accounting/auditing activity while achieving our goal to maintain and conduct our business at the utmost level of professional standards and best practices.
2
Page -2-
OFS Capital Management Confidential. Do not copy or distribute.