OFS Capital Corporation Q1 FY2026 earnings call

• Net investment income was $2.5 million, 18 cents per share, covering the distribution. The decline in net investment income was due to a $465,000 quarter - over - quarter decrease in top - line income, partially offset by a $233,000 decrease in total expenses. - Maintained the quarterly distribution at 17 cents per share. - Net asset value per share decreased by about 11%, mainly because of net unrealized depreciation in CLO holdings and one non - accrual loan. - Exited one long - time non - accrual loan and placed one small loan on non - accrual status. - Focused on monetizing the minority equity position in Fansteel, which had a fair value of approximately $80.4 million at quarter end. - The loan portfolio was constructed to be resilient, with diversification and avoiding highly cyclical industries. - Originations: middle market M&A activity was below expectations, but was engaged with existing portfolio companies. - Strengthened the balance sheet by extending debt maturities, reducing debt balance, fully repaying unsecured notes, extending the Bank of California facility, and entering a new credit facility with Natixis. - The advisor had $4.2 billion assets under management, deep expertise, and over 25 years of experience.

Net investment income was 18 cents per share, covering the 17 cents per share distribution. It was down 2 cents per share from the prior quarter, mainly due to a lower net interest margin. Net asset value at quarter end was $8.16 per share, down from $9.19 per share previously. The decrease in net asset value was mostly because of unrealized depreciation on CLO equity holdings. Non-accrual investments as a percentage of the total portfolio at fair value decreased slightly by 0.7% quarter - over - quarter. The loan portfolio at fair value was relatively stable. The investment portfolio at quarter end was composed of approximately 64% senior secured loans, 25% structured finance securities, and 11% equity securities. There were 56 unique issuers with $308.1 million at fair value. The weighted average performing investment income yield decreased approximately 1% to 12.5% quarter - over - quarter.

• Net interest margin compression was expected following the final redemption of unsecured notes. - Anticipated further top - line attrition due to balance sheet efforts. - The non - recurring dividend income from Fansteel would not be repeated in the future. - Debt maturities were extended to 2028 - 2031, providing operational flexibility. - Focused on preserving capital and strengthening the balance sheet. - Aimed to monetize select non - interest earning equity positions to redeploy capital into income - generating assets.

• Uncertain macro - economic environment. - Geopolitical developments like Middle East conflicts could impact inflation and interest rates. - Uncertainty regarding AI disruption's impact on the loan portfolio, although there was limited enterprise software exposure. - Unrealized depreciation on CLO holdings due to spread tightening and market sentiment. - Internal credit rating downgrade led to placing a loan on non - accrual status even though the borrower was current on interest payments.

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