OFS

• Balance Sheet Improvements

  • All near-term debt maturities have been extended, with the earliest remaining maturity occurring in 2028, and maturities now spanning 2028 to 2031
  • Total debt balance was reduced by $57.6 million over the 12 months ending Q2 2026, with $16.7 million in debt repaid during Q2 alone
  • Regulatory asset coverage ratio increased 7 percentage points quarter-over-quarter to 161%, marking notable improvement in leverage position
  • Net asset value per share rose to $8.41 from $8.16 in the prior quarter, a 3% increase driven by Fansteel's valuation gains

• Portfolio Composition and Performance

  • The entire loan portfolio consists of first and second lien senior secured loans, with 97% of loan holdings in first lien positions by fair value, maintaining a senior position in the capital structure
  • One new loan was placed on non-accrual status in Q2 2026, representing 3.5% of the total portfolio at fair value, marked at 79% of par
  • Non-accrual investments now total 3.7% of the total portfolio by fair value, up from the prior quarter; the portfolio is diversified across industries with limited exposure to highly cyclical sectors
  • The weighted average yield on the interest-bearing performing portfolio decreased 0.4% quarter-over-quarter to 12.1%, impacted by the new non-accrual and lower CLO equity yields
  • As of quarter end, there are $6.0 million in unfunded commitments to existing portfolio companies, across 51 unique total issuers

• Strategic Priorities Shift

  • After multiple quarters focused on balance sheet strengthening and deleveraging, management's focus is now shifting to prudently redeploying capital into new income-generating investments to improve net investment income
  • The firm continues to pursue disciplined monetization opportunities for its large Fansteel equity position, balancing transaction execution with return optimization
  • Originations activity remains focused on add-on acquisition and growth financing for existing portfolio companies, with selective evaluation of new middle market investment opportunities
  • The firm maintains a disciplined underwriting approach focused on borrower cash flow and profitability, with limited direct exposure to enterprise software and no ARR-based lending

• Management maintained the quarterly common stock distribution at $0.17 per share for Q3 2026; the distribution represented a 19.2% annualized yield based on Q2 end market price
• No formal numeric full-year financial guidance was provided, but management confirmed its long-term objective of achieving a higher net investment income than the current Q2 2026 level of $0.08 per share
• Management stated that after completing balance sheet strengthening, the firm is now positioned to deploy capital into attractive investments to grow net investment income going forward, while maintaining disciplined underwriting

By amortized cost at quarter end, OFS Capital's $297.8 million fair value total investment portfolio is divided into three segments: 1) Senior secured loans: 66% of the portfolio, 97% of which are first lien positions by fair value. 2) Structured finance securities: 22% of the portfolio, with CLO equity experiencing $6.5 million in net realized and unrealized losses this quarter due to spread tightening on underlying collateral and challenging market sentiment. 3) Equity securities: 12% of the portfolio, dominated by the Fansteel position that represented 32% of the total portfolio at fair value with a $94.6 million fair value. The Fansteel equity position generated $14.1 million in unrealized appreciation this quarter, which drove the overall increase in net asset value. Total investment income for the quarter was $6.8 million, a 23% decrease quarter-over-quarter, while total expenses were $5.8 million, a 9% decrease quarter-over-quarter. Net investment income totaled $1 million (or $0.08 per share), down from $0.18 per share in Q1 2026.

• Macroeconomic uncertainty from fluctuating interest rates, persistent inflation, and global geopolitical events remains a key downside risk that could cause actual performance to differ from management expectations
• CLO equity holdings continue to face ongoing valuation pressure from spread tightening on underlying loan collateral and weak overall market sentiment, leading to realized and unrealized losses in the quarter
• The large Fansteel equity position creates outsized portfolio concentration risk, representing 32% of total portfolio fair value as of Q2 end
• Idiosyncratic performance stress remains for certain individual borrowers in the loan portfolio, with one new borrower added to non-accrual status in the quarter
• Potential disruption from AI adoption is monitored by management, though no material impacts on the loan portfolio have been observed to date
• All forward-looking statements are subject to unknown risks and uncertainties outside of management's control that could lead to material deviations from projected outcomes, as detailed in the firm's periodic SEC filings

No questions were submitted by conference call attendees after prepared remarks, so the Q&A session concluded immediately with no exchanges.