OFS Capital Corporation Q4 FY2025 earnings call

• Net investment income decline due to lower net interest margin from higher interest rates on new unsecured notes and Fed's rate cuts affecting loan portfolio interest rates. • Net asset value decline mainly from markdowns of non-performing loans and unrealized depreciation on CLO equity holdings. • Placed one loan on non-accrual but one back on accrual following restructuring. • Focus on monetizing minority equity position in Fansteel, largest portfolio position with fair value ~$79.4M at quarter end, which has generated ~$4.2M in distributions since 2014. • Actively engaged with existing portfolio companies, prepared to deploy additional capital if needed. • Successfully extended debt maturities with earliest remaining maturity in 2028, lowered total debt balance by $18.8M, repaid unsecured notes and extended credit facility maturities, entered new credit facility with Natixis. • Loan portfolio is resilient with first and second lien senior secured loans, 95% in first lien positions. • Approximately $13.2M in unfunded commitments to portfolio companies as of quarter end.

Net investment income totaled $0.20 per share, down from $0.22 per share in the prior quarter. Net asset value at December 31 was $9.19 per share, compared to $10.17 per share in the prior quarter. Net investment income was $2.7 million, or 20 cents per share for the fourth quarter, down two cents per share from the third quarter. Total investment income decreased approximately 11% to $9.4 million this quarter. Total expenses decreased by approximately 12% during the period to $6.7 million. Our loan portfolio at fair value was relatively stable quarter over quarter based on internal credit ratings. At quarter end, regulatory asset coverage ratio was 156%, a decrease of one percentage point from prior quarter. Investment portfolio was comprised of approximately 65% senior secured loans, 24% structured finance securities, and 11% equity securities. Weighted average performing investment income yield increased modestly to 13.5%, up about 0.2% quarter over quarter.

• Anticipate further net interest margin compression due to lower reference rates from Fed rate cuts, impacting yields on floating rate loan portfolio. • Continue to observe net interest margin compression following partial reduction of February 2026 unsecured notes. • Focus on defensively positioning balance sheet by continuing to reduce overall debt, building upon $18.8M debt reduction during quarter. • Focus on increasing net investment income over long term through monetizing non-interest earning equity positions like investment in Fansteel.

• Macroeconomic environment uncertainty, potential for additional Fed rate cuts which could put pressure on net investment income for floating rate loan portfolio. • Uncertainty regarding monetization of equity positions like Fansteel, need to balance timing of exit with realization value. • Potential impact of loan portfolio borrowers performing below expectations, as observed with a couple of non-performing loans and monitoring certain borrowers.

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