UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-23299
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OFS Credit Company, Inc.
(Exact name of registrant as specified in charter)
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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)
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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
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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]
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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;
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•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.
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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% | |||||||||||||||||
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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: | ||
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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).
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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).
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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).
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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).
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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 | % | ||||||||||||||||||||||||||||||||||||||||||
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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 | ||||||||||||||||||||