Annual Statements Open main menu

OFS Capital Corp - Quarter Report: 2022 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______

Commission file number 814-00813
OFS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware46-1339639
State or Other Jurisdiction ofI.R.S. Employer Identification No.
Incorporation or Organization
10 S. Wacker Drive, Suite 2500, Chicago, Illinois
60606
Address of Principal Executive OfficesZip Code
(847) 734-2000
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareOFSThe Nasdaq Global Select Market
4.95% Notes due 2028OFSSHThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý     No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ¨     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer¨
Non-accelerated filerSmaller reporting company¨
Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨     No  ý

The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of August 3, 2022 was 13,429,777.



OFS CAPITAL CORPORATION

TABLE OF CONTENTS
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2
Item 3.
Item 4.
Item 5.
Item 6.




Defined Terms
We have used “we,” “us,” “our,” “our company” and “the Company” to refer to OFS Capital Corporation in this report. We also have used several other terms in this report, which are explained or defined below:
TermExplanation or Definition
1940 ActInvestment Company Act of 1940, as amended
Adjusted NII
A financial measure calculated and presented on a basis other than in accordance with GAAP and represents net investment income excluding the capital gains incentive fee
Administration AgreementAdministration Agreement between the Company and OFS Services dated November 7, 2012
Affiliated AccountAn account, other than the Company, managed by OFS Advisor or an affiliate of OFS Advisor
Affiliated Fund
Certain other funds, including other BDCs and registered investment companies managed by OFS Advisor or by registered investment advisers controlling, controlled by, or under common control with, OFS Advisor
ASCAccounting Standards Codification, as issued by the FASB
BDCBusiness Development Company under the 1940 Act
BLABusiness Loan Agreement, as amended, with Pacific Western Bank, as lender, which provides the Company with a senior secured revolving credit facility
BNP FacilityA secured revolving credit facility, as amended, that provides for borrowings in an aggregate principal amount up to $150,000,000 issued pursuant to a Revolving Credit and Security Agreement, as amended, by and among OFSCC-FS, the lenders from time to time parties thereto, BNP Paribas, as administrative agent, OFSCC-FS Holdings, LLC, a wholly owned subsidiary of the Company, as equityholder, the Company, as servicer, Citibank, N.A., as collateral agent and Virtus Group, LP, as collateral administrator
BoardThe Company’s board of directors
CLOCollateralized loan obligation
CodeInternal Revenue Code of 1986, as amended
CompanyOFS Capital Corporation and its consolidated subsidiaries
DRIPDistribution reinvestment plan
EBITDAEarnings before interest, taxes, depreciation and amortization
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
GAAPAccounting principles generally accepted in the United States
HPCIHancock Park Corporate Income, Inc., a Maryland corporation and non-traded BDC for whom OFS Advisor serves as investment adviser
ICTIInvestment company taxable income, which is generally net ordinary income plus net short-term capital gains in excess of net long-term capital losses
Indicative PricesMarket quotations, prices from pricing services or bids from brokers or dealers
Investment Advisory AgreementInvestment Advisory and Management Agreement between the Company and OFS Advisor dated November 7, 2012
LIBORLondon Interbank Offered Rate
NAVNet asset value. NAV is calculated as consolidated total assets less consolidated total liabilities and can be expressed in the aggregate or on a per share basis
Net Loan FeesThe cumulative amount of fees, such as origination fees, discounts, premiums and amendment fees that are deferred and recognized as income over the life of the loan
OCCIOFS Credit Company, Inc., a Delaware corporation and a non-diversified, closed-end management investment company for whom OFS Advisor serves as investment adviser
OFS AdvisorOFS Capital Management, LLC, a wholly owned subsidiary of OFSAM and registered investment advisor under the Investment Advisers Act of 1940, as amended
OFS ServicesOFS Capital Services, LLC, a wholly owned subsidiary of OFSAM and affiliate of OFS Advisor
OFSAMOrchard First Source Asset Management, LLC, a full-service provider of capital and leveraged finance solutions to U.S. corporations
OFSCC-FSOFSCC-FS, LLC, an indirect wholly owned subsidiary of the Company



TermExplanation or Definition
OFSCC-FS AssetsAssets held by the Company through OFSCC-FS
OFSCC-MBOFSCC-MB, Inc., a wholly owned subsidiary taxed under subchapter C of the Code that generally holds the equity investments of the Company that are taxed as pass-through entities
OIDOriginal issue discount
OrderAn exemptive relief order from the SEC to permit us to co-invest in portfolio companies with Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions
ParentOFS Capital Corporation
PIKPayment-in-kind, non-cash interest or dividends payable as an addition to the loan or equity security producing the income
Portfolio Company InvestmentA debt or equity investment in a portfolio company. Portfolio Company Investments exclude Structured Finance Notes
Prime RateUnited States Prime interest rate
PWB Credit FacilityA senior secured revolving credit facility, as amended, with Pacific Western Bank, as lender, that provides for borrowings to the Company in an aggregate principal amount up to $35,000,000
RICRegulated investment company under the Code
SBAUnited States Small Business Administration
SBICA fund licensed under the SBA Small Business Investment Company Program
SBIC AcquisitionThe Company's acquisition of the remaining ownership interests in SBIC I LP and OFS SBIC I GP, LLC on December 4, 2013
SBIC I LPOFS SBIC I, LP, a wholly owned SBIC subsidiary of the Company
SBIC I GPOFS SBIC I GP, LLC
SECUnited States Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
SOFRSecured Overnight Financing Rate
Stock Repurchase ProgramThe open market stock repurchase program for shares of the Company’s common stock under Rule 10b-18 of the Exchange Act
Structured Finance NotesCLO mezzanine debt, CLO subordinated debt and CLO loan accumulation facility positions
Transaction PriceThe price in an arm’s length transaction involving the same security
Unsecured NotesThe Unsecured Notes Due September 2023, the Unsecured Notes Due April 2025, the Unsecured Notes Due October 2025, the Unsecured Notes Due October 2026, the Unsecured Notes Due February 2026 and the Unsecured Notes Due October 2028
Unsecured Notes Due April 2025 The Company’s $50.0 million aggregate principal amount of 6.375% notes due April 30, 2025, which were redeemed on March 12, 2021
Unsecured Notes Due February 2026    The Company’s $125.0 million aggregate principal amount of 4.75% notes due February 10, 2026
Unsecured Notes Due October 2025The Company’s $48.5 million aggregate principal amount of 6.5% notes due October 30, 2025, which were redeemed on March 12, 2021
Unsecured Notes Due October 2026The Company's $54.3 million aggregate principal amount of 5.95% notes due October 31, 2026, which were redeemed on November 22, 2021
Unsecured Notes Due October 2028The Company’s $55.0 million aggregate principal amount of 4.95% notes due October 31, 2028
Unsecured Notes Due September 2023The Company’s $25.0 million aggregate principal amount of 6.25% notes due September 30, 2023, which were redeemed on November 1, 2021



Forward-Looking Statements
This Quarterly Report on Form 10-Q 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,” “believes,” “seeks,” “estimates,” “would,” “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 ability and experience operating a BDC or an SBIC, or maintaining our tax treatment as a RIC under Subchapter M of the Code;
our dependence on key personnel;
our ability to maintain or develop referral relationships;
our ability to replicate historical results;
the ability of OFS Advisor to identify, invest in and monitor companies that meet our investment criteria;
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;
actual and potential conflicts of interest with OFS Advisor and other affiliates of OFSAM;
restrictions on our ability to enter into transactions with our affiliates;
the impact of interest and inflation rates on our business prospects and the prospects of our portfolio companies;
our ability to comply with SBA regulations and requirements;
the use of borrowed money to finance a portion of our investments;
our ability to incur additional leverage pursuant to Section 61(a)(2) of the 1940 Act and the impact of such leverage on our net investment income and results of operations;
competition for investment opportunities;
our plans to focus on first lien senior secured loans to larger borrowers and the impact on our risk profile, including our belief that the seniority of such loans in a borrower's capital structure may provide greater downside protection against adverse economic changes, including those caused by the ongoing impacts of the coronavirus (“COVID-19”) pandemic, the ongoing conflict between Russia and Ukraine, and rising interest and inflation rates;
the percentage of investments that will bear interest on a floating rate or fixed rate basis;
interest rate volatility, including the transition from LIBOR to SOFR and/or other alternative reference rate(s);
the ability of SBIC I LP to make distributions enabling us to meet RIC requirements;
plans by SBIC I LP to repay its outstanding SBA debentures;
our ability to raise debt or equity capital as a BDC;
the timing, form and amount of any distributions from our portfolio companies;
the impact of a protracted decline in the liquidity of credit markets on our business;
the general economy and its impact on the industries in which we invest;
the impact of current political, economic and industry conditions, including changes in the interest rate environment, significant market volatility, supply chain disruptions, other conditions affecting the financial and capital markets, and the ongoing impacts of the COVID-19 pandemic on our business, financial condition, results of operations and fair value of our portfolio investments;
the impact of the ongoing conflict between Russia and Ukraine;
the belief that we have sufficient levels of liquidity to support our existing portfolio companies and deploy capital in new investment opportunities;
1


the belief that long-dated financing affords us operational flexibility;
the fluctuation of the fair value of our investments due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value; and
the effect of new or modified laws or regulations governing our operations.
    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, those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include, among others, those described or identified in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 4, 2022, and “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed on May 6, 2022, and this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.
    We have based the forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q. 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 Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. The forward-looking statements and projections contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
2


PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
OFS Capital Corporation and Subsidiaries
Consolidated Statements of Assets and Liabilities
(Dollar amounts in thousands, except per share data)
June 30,
2022
December 31,
2021
(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments (amortized cost of $489,849 and $428,398, respectively)$456,076 $421,567 
Affiliate investments (amortized cost of $17,635 and $17,650, respectively)91,601 72,584 
Control investment (amortized cost of $0 and $11,264, respectively)— 12,948 
Total investments, at fair value (amortized cost of $507,484 and $457,312, respectively)547,677 507,099 
Cash14,844 43,048 
Interest receivable1,883 1,475 
Receivable for investments sold— 14,893 
Prepaid expenses and other assets2,917 2,533 
Total assets$567,321 $569,048 
Liabilities
Revolving lines of credit$134,100 $100,000 
SBA debentures (net of deferred debt issuance costs of $319 and $555, respectively)50,601 69,365 
Unsecured notes (net of deferred debt issuance costs of $4,155 and $4,554, respectively)175,845 175,446 
Interest payable3,714 3,685 
Payable to adviser and affiliates (Note 3)2,672 6,217 
Payable for investments purchased3,905 8,788 
Accrued professional fees383 452 
Other liabilities389 1,351 
Total liabilities371,609 365,304 
Commitments and contingencies (Note 6)
Net assets
Preferred stock, par value of $0.01 per share, 2,000,000 shares authorized, -0- shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively$— $— 
Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 13,429,777 and 13,422,413 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively134 134 
Paid-in capital in excess of par185,195 185,113 
Total distributable earnings10,383 18,497 
Total net assets195,712 203,744 
Total liabilities and net assets$567,321 $569,048 
Number of shares outstanding13,429,777 13,422,413 
Net asset value per share$14.57 $15.18 

See Notes to Consolidated Financial Statements (unaudited).
3


OFS Capital Corporation and Subsidiaries
Consolidated Statements of Operations (unaudited)
(Dollar amounts in thousands, except per share data)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Investment income
Interest income:
Non-control/non-affiliate investments
$10,345 $9,384 $20,047 $18,245 
Affiliate investments
— 932 — 1,860 
Control investment
— 322 141 689 
Total interest income
10,345 10,638 20,188 20,794 
Dividend income:
Non-control/non-affiliate investments
— — 713 — 
Affiliate investments
59 106 
Control investment
— 136 45 136 
Total dividend income
195 763 242 
Fee income:
Non-control/non-affiliate investments
82 583 421 834 
Affiliate investments
— — — 37 
Control investment
— — — 
Total fee income
82 583 427 871 
Total investment income
10,432 11,416 21,378 21,907 
Expenses
Interest expense3,943 4,241 7,567 9,066 
Management fee2,056 1,876 4,076 3,710 
Income Incentive Fee— 809 — 809 
Capital Gains Fee(2,988)— (1,916)— 
Professional fees352 489 759 876 
Administration fee423 439 874 1,007 
Other expenses398 327 765 654 
Total expenses4,184 8,181 12,125 16,122 
     Net investment income
6,248 3,235 9,253 5,785 
Net realized and unrealized gain (loss) on investments
Net realized loss on non-control/non-affiliate investments(190)(10,841)(203)(10,750)
Net realized gain on control investments— — 278 — 
Income tax expense on net realized investment gains— — (48)— 
Net unrealized appreciation (depreciation) on non-control/non-affiliate investments(22,158)18,071 (26,942)19,655 
Net unrealized appreciation on affiliate investments7,241 11,465 19,033 13,391 
Net unrealized appreciation (depreciation) on control investment
— 716 (1,684)1,104 
Deferred tax benefit (expense) on investments net unrealized appreciation/depreciation35 (205)(6)(271)
Net gain (loss) on investments(15,072)19,206 (9,572)23,129 
Loss on extinguishment of debt— — (144)(2,299)
Net increase (decrease) in net assets resulting from operations$(8,824)$22,441 $(463)$26,615 
Net investment income per common share – basic and diluted
$0.47 $0.24 $0.69 $0.43 
Net increase (decrease) in net assets resulting from operations per common share – basic and diluted$(0.66)$1.67 $(0.03)$1.98 
Distributions declared per common share$0.29 $0.22 $0.57 $0.42 
Basic and diluted weighted average shares outstanding13,425,477 13,411,998 13,423,970 13,410,524 
See Notes to Consolidated Financial Statements (unaudited).
4

OFS Capital Corporation and Subsidiaries
Consolidated Statements of Changes in Net Assets (unaudited)
(Dollar amounts in thousands)


Preferred StockCommon StockPaid-in capital in excess of parTotal distributable earnings (losses)Total net assets
Number of sharesPar valueNumber of sharesPar value
Balances at December 31, 2020— $— 13,409,559 $134 $187,124 $(28,302)$158,956 
Net increase in net assets resulting from operations:
  Net investment income— — — — — 5,785 5,785 
  Net realized loss on investments, net of taxes— — — — — (10,750)(10,750)
Loss on extinguishment of debt— — — — — (2,299)(2,299)
  Net unrealized appreciation on investments, net of taxes— — — — — 33,879 33,879 
Distributions to stockholders:
  Common stock issued from reinvestment of stockholder distributions
— — 6,376 — 60 — 60 
  Dividends declared— — — — — (5,633)(5,633)
Common stock repurchased under Stock Repurchase Program— — (700)— (5)— (5)
Net increase for the six month period ended June 30, 2021— — 5,676 — 55 20,982 21,037 
Balances at June 30, 2021— $— 13,415,235 $134 $187,179 $(7,320)$179,993 
Balances at March 31, 2021— $— 13,411,962 $134 $187,146 $(26,810)$160,470 
Net increase in net assets resulting from operations:
  Net investment income— — — — — 3,235 3,235 
  Net realized loss on investments, net of taxes— — — — — (10,841)(10,841)
  Net unrealized appreciation on investments, net of taxes— — — — — 30,047 30,047 
Distributions to stockholders:
  Common stock issued from reinvestment of stockholder distributions
3,273 — 33 — 33 
  Dividends declared— — — — — (2,951)(2,951)
Net increase for the three month period ended June 30, 2021— — 3,273 — 33 19,490 19,523 
Balances at June 30, 2021— $— 13,415,235 $134 $187,179 $(7,320)$179,993 
5

OFS Capital Corporation and Subsidiaries
Consolidated Statements of Changes in Net Assets (unaudited)
(Dollar amounts in thousands)

Preferred StockCommon StockPaid-in capital in excess of parTotal distributable earnings (losses)Total net assets
Number of sharesPar valueNumber of sharesPar value
Balances at December 31, 2021— $— 13,422,413 $134 $185,113 $18,497 $203,744 
Net decrease in net assets resulting from operations:
  Net investment income— — — — — 9,253 9,253 
  Net realized gain on investments, net of taxes— — — — — 27 27 
  Loss on extinguishment of debt— — — — — (144)(144)
  Net unrealized depreciation on investments, net of taxes— — — — — (9,599)(9,599)
Distributions to stockholders:
  Common stock issued from reinvestment of stockholder distributions
— — 7,364 — 82 — 82 
  Dividends declared— — — — — (7,651)(7,651)
Net increase (decrease) for the six month period ended June 30, 2022— — 7,364 — 82 (8,114)(8,032)
Balances at June 30, 2022— $— 13,429,777 $134 $185,195 $10,383 $195,712 
Balances at March 31, 2022— $— 13,425,429 $134 $185,152 $23,100 $208,386 
Net decrease in net assets resulting from operations:
Net investment income— — — — — 6,248 6,248 
Net realized loss on investments, net of taxes— — — — — (190)(190)
Net unrealized depreciation on investments, net of taxes— — — — — (14,882)(14,882)
Distributions to stockholders:
  Common stock issued from reinvestment of stockholder distributions
— — 4,348 — 43 — 43 
Dividends declared— — — — — (3,893)(3,893)
Net increase (decrease) for the three month period ended June 30, 2022— — 4,348 — 43 (12,717)(12,674)
Balances at June 30, 2022— $— 13,429,777 $134 $185,195 $10,383 $195,712 

See Notes to Consolidated Financial Statements (unaudited).
6


OFS Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(Dollar amounts in thousands)
Six Months Ended June 30,
20222021
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations$(463)$26,615 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Net realized (gain) loss on investments(75)10,750 
Income tax expense on net realized investment gains48 — 
Loss on extinguishment of debt
144 2,299 
Net unrealized (appreciation) depreciation on investments, net of taxes9,599 (33,879)
Amortization of Net Loan Fees
(794)(1,521)
Amendment fees collected
112 97 
Payment-in-kind interest and dividend income
(316)(943)
Accretion of interest income on Structured Finance Notes(4,785)(4,670)
Amortization of debt issuance costs
751 888 
Amortization of intangible asset
205 111 
Purchase and origination of portfolio investments
(122,608)(128,848)
Proceeds from principal payments on portfolio investments
54,525 100,817 
Proceeds from sale or redemption of portfolio investments
12,179 10,294 
Proceeds from distributions received from Structured Finance Notes11,214 6,356 
Changes in operating assets and liabilities:
Interest receivable
(408)247 
Interest payable
29 912 
Payable to adviser and affiliates
(3,545)100 
Receivable for investment sold
14,893 — 
Payable for investments purchased
(4,883)7,952 
Other assets and liabilities
(535)249 
Net cash used in operating activities(34,713)(2,174)
Cash flows from financing activities
Distributions paid to stockholders
(7,569)(5,573)
Borrowings under revolving lines of credit
49,850 42,400 
Repayments under revolving lines of credit
(15,750)(50,400)
Repayments of SBA debentures
(19,000)(9,765)
Redemption of unsecured notes— (98,525)
Proceeds from unsecured notes offering, net of discounts
— 121,791 
Payment of deferred financing costs
(1,022)(298)
Repurchases of common stock under Stock Repurchase Program
— (5)
Net cash provided by (used in) financing activities6,509 (375)
Net decrease in cash(28,204)(2,549)
   Cash at beginning of period43,048 37,708 
   Cash at end of period$14,844 $35,159 
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
$6,787 $7,266 
Reinvestment of distributions to stockholders
82 60 
See Notes to Consolidated Financial Statements (unaudited).
7

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Non-control/Non-affiliate Investments
Debt and Equity Investments
24 Seven Holdco, LLC (15)Temporary Help Services
Senior Secured Loan7.60%(L +6.00%)1/28/202211/16/2027$8,955 $8,893 $8,861 4.4 %
Aegion Corporation (15) (22)Water and Sewer Line and Related Structures Construction
Senior Secured Loan6.27%(L +4.75%)4/1/20215/17/20282,426 2,395 2,250 1.1 
Allen Media, LLC (14) (15)Cable and Other Subscription Programming
Senior Secured Loan7.70%(SOFR +5.50%)3/2/20212/10/20273,788 3,782 3,393 1.7 
All Star Auto Lights, Inc. (4) (15)Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan8.41%(L +6.50%)12/19/20198/20/202523,217 22,935 23,217 11.9 
Astro One Acquisition CorporationOther Miscellaneous Nondurable Goods Merchant Wholesalers
Senior Secured Loan10.75%(L +8.50%)1/31/20229/14/20293,000 2,656 2,486 1.3 
Asurion, LLCCommunication Equipment Repair and Maintenance
Senior Secured Loan6.92%(L +5.25%)6/28/20221/31/20282,000 1,745 1,718 0.9 
Atlantis Holding, LLC (15)Electronics and Appliance Stores
Senior Secured Loan9.30%(SOFR +7.25%)3/29/20223/31/20298,421 8,116 7,716 3.9 
Autokiniton US Holdings, Inc. (14) (15)Automotive Parts and Accessories Stores
Senior Secured Loan5.62%(L +4.50%)3/26/20214/6/20282,683 2,675 2,488 1.3 
Avison Young (15) (22)Nonresidential Property Managers
Senior Secured Loan6.99%(L +5.75%)11/25/20211/31/20263,966 3,951 3,940 2.0 
Bass Pro Group, LLC (14) (15)Sporting Goods Stores
Senior Secured Loan5.42%(L +3.75%)2/26/20213/6/2028979 974 895 0.5 
8

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Baymark Health Services, Inc. (15)Outpatient Mental Health & Sub. Abuse Centers
Senior Secured Loan10.17%(L +8.50%)6/10/20216/11/2028$4,962 $4,898 $4,997 2.6 %
Senior Secured Loan (Delayed Draw) (5)10.17%(L +8.50%)6/10/20216/11/20282,760 2,645 2,818 1.4 
7,722 7,543 7,815 4.0 
Boca Home Care Holdings, Inc. (20)Services for the Elderly and Persons with Disabilities
Senior Secured Loan (Delayed Draw) (5) (15)8.80%(SOFR +6.50%)2/25/20222/25/20279,669 9,579 9,421 4.8 
Senior Secured Loan (Revolver) (5)n/m (18)(SOFR +6.50%)2/25/20222/25/2027— (12)(33)— 
Common Equity (1,290 Class A units) (10) (13)2/25/2022— 1,290 1,178 0.6 
9,669 10,857 10,566 5.4 
Constellis Holdings, LLC (10)Other Justice, Public Order, and Safety Activities
Common Equity (20,628 common shares)3/27/2020703 29 — 
Convergint Technologies Holdings, LLCSecurity Systems Services (except Locksmiths)
Senior Secured Loan8.42%(L +6.75%)9/28/20183/30/20294,838 4,827 4,795 2.5 
Corel Inc. (14) (15)Software Publishers
Senior Secured Loan6.57%(L +5.00%)3/2/20217/2/2026636 635 610 0.3 
Creation Technologies (15) (22)Bare Printed Circuit Board Manufacturing
Senior Secured Loan6.46%(L +5.50%)9/24/202110/5/20282,000 1,986 1,761 0.9 
Dessert HoldingsIce Cream and Frozen Dessert Manufacturing
Senior Secured Loan9.50%(L +7.25%)2/2/20226/8/20291,667 1,639 1,593 0.8 
DHX Media Ltd. (14) (15) (22)Motion Picture and Video Production
Senior Secured Loan5.92%(L +4.25%)3/19/20213/18/20283,954 3,913 3,741 1.9 
Diamond Sports Group, LLC (14) (15)Television Broadcasting
Senior Secured Loan9.18%(SOFR +8.00%)3/9/20225/25/2026254 247 253 0.1 
Senior Secured Loan4.43%(SOFR +3.25%)11/19/20198/24/20261,945 1,945 473 0.2 
2,199 2,192 726 0.3 
9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Directv Financing, LLC (14) (15)Wired Telecommunications Carriers
Senior Secured Loan6.67%(L +5.00%)7/22/20218/2/2027$2,097 $2,093 $1,936 1.0 %
East West Manufacturing (15)Fluid Power Pump and Motor Manufacturing
Senior Secured Loan7.28%(SOFR +5.75%)2/11/202212/22/20281,959 1,941 1,891 1.0 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(SOFR +2.88%)2/11/202212/22/2028— (3)(10)— 
1,959 1,938 1,881 1.0 
Eblens Holdings, Inc. (20)Shoe Store
Subordinated Loan (6) (11)12.50% cash / 1.50% PIKN/A7/13/20171/13/20239,261 9,210 7,142 3.6 
Common Equity (71,250 Class A units) (10)7/13/2017713 — — 
9,261 9,923 7,142 3.6 
Electrical Components International, Inc.Current-Carrying Wiring Device Manufacturing
Senior Secured Loan10.03%(L +8.50%)4/8/20216/26/20263,679 3,314 3,471 1.8 
EnergySolutions, LLC (14) (15)Hazardous Waste Treatment and Disposal
Senior Secured Loan6.00%(L +3.75%)7/8/20215/9/20251,778 1,775 1,663 0.8 
Envocore Holding, LLC (F/K/A LRI Holding, LLC) (4) (19)Electrical Contractors and Other Wiring Installation Contractors
Senior Secured Loan7.50%N/A12/31/202112/31/20256,391 6,391 6,391 3.3 
Senior Secured Loan (6)10.00% PIKN/A12/31/202112/31/20266,751 6,584 3,221 1.6 
Senior Secured Loan (Revolver) (5)7.50%N/A11/29/202112/31/2025771 771 771 0.4 
Equity Participation Rights (23)12/31/2021— 4,722 — — 
13,913 18,468 10,383 5.3 
Excelin Home Health, LLC (4)Home Health Care Services
Senior Secured Loan11.75%(L +9.50%)10/25/20189/30/20254,250 4,172 4,208 2.2 
GGC Aerospace Topco L.P.Other Aircraft Parts and Auxiliary Equipment Manufacturing
Common Equity (368,852 Class A units) (10)12/29/2017450 — — 
Common Equity (40,984 Class B units) (10)12/29/201750 — — 
500 — — 
10

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Honor HN Buyer IncServices for the Elderly and Persons with Disabilities
Senior Secured Loan (15)8.25%(L +6.00%)10/15/202110/15/2027$6,565 $6,449 $6,352 3.2 %
Senior Secured Loan (Delayed Draw) (5) (15)8.25%(L +6.00%)10/15/202110/15/20271,913 1,859 1,779 0.9 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.00%)10/15/202110/15/2027— (13)(25)— 
8,478 8,295 8,106 4.1 
IderaComputer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan7.82%(L +6.75%)1/27/20223/2/20294,000 4,000 3,744 1.9 
Inergex Holdings, LLCOther Computer Related Services
Senior Secured Loan (11)9.25% cash / 1.0% PIK(L +8.00%)10/1/201810/1/202415,260 15,001 15,260 7.8 
Senior Secured Loan (Revolver) (5)n/m (18)(L +7.00%)10/1/201810/1/2024— (11)— — 
15,260 14,990 15,260 7.8 
Intouch Midco Inc. (15) (22)All Other Professional, Scientific, and Technical Services
Senior Secured Loan6.42%(L +4.75%)12/20/20198/24/20252,894 2,862 2,846 1.5 
Ivanti Software, Inc. (14) (15)Software Publishers
Senior Secured Loan5.85%(L +4.25%)3/26/202112/1/20272,978 2,988 2,573 1.3 
JP Intermediate B, LLC (15)Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan6.74%(L +5.50%)1/14/202111/15/20255,553 5,379 4,859 2.5 
Karman Buyer Corp (14) (15)Advertising Agencies
Senior Secured Loan6.17%(L +4.50%)3/2/202210/28/20272,296 2,264 2,119 1.1 
KNS Acquisition Corp. (14) (15)Electronic Shopping and Mail-Order Houses
Senior Secured Loan8.50%(L +6.25%)4/16/20214/21/20276,869 6,830 6,635 3.4 
Kreg LLCOther Ambulatory Health Care Services
Senior Secured Loan (15)8.50%(L +6.25%)12/20/202112/20/202620,244 20,108 19,889 10.2 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.25%)12/20/202112/20/2026— (15)(39)— 
20,244 20,093 19,850 10.2 
11

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
LogMeIn, Inc. (14) (15)Data Processing, Hosting, and Related Services
Senior Secured Loan6.35%(L +4.75%)3/26/20218/31/2027$2,961 $2,960 $2,287 1.2 %
Magenta Buyer LLC (14) (15)Software Publishers
Senior Secured Loan5.98%(L +4.75%)7/28/20217/27/20284,838 4,825 4,363 2.2 
McGraw Hill Global Education Holdings, LLC (14) (15)All Other Publishers
Senior Secured Loan5.55%(L +4.75%)4/1/20217/28/20282,298 2,278 2,088 1.1 
Metasource (15)All Other Business Support Services
Senior Secured Loan7.78%(SOFR +6.25%)5/17/20225/17/20272,793 2,766 2,766 1.4 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(SOFR +6.25%)5/17/20225/17/2024— (11)(11)— 
2,793 2,755 2,755 1.4 
Milrose Consultants, LLC (4)Administrative Management and General Management Consulting Services
Senior Secured Loan (15)8.75%(L +6.50%)7/16/20197/16/202522,250 22,250 21,803 11.1 
Senior Secured Loan (Revolver) (5)8.75%(L +6.50%)7/16/20197/16/2025476 469 444 0.2 
22,726 22,719 22,247 11.3 
Molded Devices, Inc.Other Industrial Machinery Manufacturing
Senior Secured Loan (15)7.00%(L +6.00%)11/1/202111/1/20268,029 7,959 7,798 4.0 
Senior Secured Loan (Delayed Draw) (5) (15)n/m (18)(L +6.00%)11/1/202111/1/2026— (6)(42)— 
Senior Secured Loan (Revolver) (5)7.00%(L +6.00%)11/1/202111/1/2026603 594 575 0.3 
8,632 8,547 8,331 4.3 
Odyssey Logistics and Technology Corporation (14) (15)Freight Transportation Arrangement
Senior Secured Loan5.24%(L +4.00%)4/5/202110/12/2024987 977 950 0.5 
One GI LLCOffices of Other Holding Companies
Senior Secured Loan (Delayed Draw) (15)8.42%(L +6.75%)12/13/202112/22/20257,545 7,414 7,221 3.7 
Senior Secured Loan (Delayed Draw) (5) (15)n/m (18)(L +6.75%)12/13/202112/13/2023— (29)(171)(0.1)
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.75%)12/13/202112/22/2025— (25)(62)— 
7,545 7,360 6,988 3.6 
12

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Parfums Holding Company, Inc. (14) (15)Cosmetics, Beauty Supplies, and Perfume Stores
Senior Secured Loan 5.67%(L +4.00%)6/25/20196/30/2024$1,462 $1,462 $1,384 0.7 %
Peraton Inc. (14) (15)Management Consulting Services
Senior Secured Loan5.42%(L +3.75%)4/2/20212/1/2028408 408 384 0.2 
Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC) (6) (10)Software Publishers
Senior Secured Loan4.00%N/A3/13/20183/12/202316,728 14,192 7,303 3.7 
PM Acquisition LLC (10) (20)All Other General Merchandise Stores
Common Equity (499 units)9/30/2017499 1,119 0.6 
Professional Pipe Holdings, LLCPlumbing, Heating, and Air-Conditioning Contractors
Senior Secured Loan9.75% cash / 1.00% PIK(L +9.75%)3/23/20183/24/20252,559 2,550 2,584 1.3 
RC Buyer, Inc.Other Automotive Mechanical and Electrical Repair and Maintenance
Senior Secured Loan8.75%(L +6.50%)6/24/20227/30/20291,125 1,080 1,080 0.6 
Reception Purchaser LLC (15)Transportation and Warehousing
Senior Secured Loan8.20%(SOFR +6.00%)4/28/20223/24/20285,109 5,034 5,034 2.6 
Resource Label Group, LLC (14) (15)Commercial Printing (except Screen and Books)
Senior Secured Loan5.92%(L +4.25%)7/2/20217/7/20283,420 3,411 3,207 1.6 
RPLF Holdings, LLC (10) (13)Software Publishers
Common Equity (345,339 Class A units)1/17/2018492 735 0.4 
13

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
RSA Security (15)Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan (14)5.93%(L +4.75%)4/16/20214/27/2028$2,783 $2,769 $2,412 1.2 %
Senior Secured Loan8.97%(L +7.75%)4/16/20214/27/20294,450 4,396 4,049 2.1 
7,233 7,165 6,461 3.3 
RumbleOn, Inc. (15) (22)Other Industrial Machinery Manufacturing
Senior Secured Loan9.25%(L +8.25%)8/31/20218/31/20264,169 3,968 3,884 2.0 
Senior Secured Loan (Delayed Draw) (5)9.25%(L +8.25%)8/31/20212/23/20231,261 1,249 1,139 0.6 
Warrants (warrants to purchase up to $600,000 in common stock)8/31/20212/28/2023 (12)200 — 
5,430 5,417 5,025 2.6 
Sentry Centers Holdings, LLC (10) (13)Convention and Trade Show Organizers
Preferred Equity (1,603 Series B units)9/4/2020160 101 0.1 
Signal Parent, Inc. (14) (15)New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan5.17%(L +3.50%)3/25/20214/3/20281,831 1,815 1,611 0.8 
Southern Technical Institute, LLC (4) (23)Colleges, Universities, and Professional Schools
Equity appreciation rights6/27/2018— 7,192 3.7 
Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.,) (15)Child Day Care Services
Senior Secured Loan10.50%(L +8.25%)7/26/20187/30/20266,399 6,355 6,034 3.1 
SSJA Bariatric Management LLC (15)Offices of Physicians, Mental Health Specialists
Senior Secured Loan7.20%(SOFR +5.00%)8/26/20198/26/20249,725 9,683 9,679 4.9 
Senior Secured Loan7.20%(SOFR +5.00%)12/31/20208/26/20241,051 1,044 1,046 0.5 
Senior Secured Loan7.20%(SOFR +5.00%)12/8/20218/26/20242,647 2,626 2,634 1.3 
Senior Secured Loan (Revolver) (5)n/m (18)(SOFR +5.00%)8/26/20198/26/2024— (3)(3)— 
13,423 13,350 13,356 6.7 
14

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
SS Acquisition, LLC (15)Sports and Recreation Instruction
Senior Secured Loan (8)7.87%(L +6.87%)12/30/202112/30/2026$3,042 $3,014 $3,016 1.5 %
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +6.87%)12/30/202112/30/2026— — (15)— 
3,042 3,014 3,001 1.5 
Staples, Inc. (14) (15) (22)Business to Business Electronic Markets
Senior Secured Loan6.29%(L +5.00%)6/24/20194/16/20262,915 2,866 2,548 1.2 
STS Operating, Inc.Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan9.67%(L +8.00%)5/15/20184/30/20269,073 9,071 9,035 4.5 
The Escape Game, LLC (4)Other amusement and recreation industries
Senior Secured Loan8.67%(L +7.00%)12/21/202112/22/202416,333 16,333 16,234 8.3 
Senior Secured Loan (Revolver) (5)n/m (18)(L +7.00%)12/21/202112/22/2024— (38)(28)— 
16,333 16,295 16,206 8.3 
Thryv, Inc. (14) (15)Directory and Mailing List Publishers
Senior Secured Loan9.74%(L +8.50%)2/18/20213/1/20262,889 2,835 2,832 1.4 
Tolemar Acquisition, INC.Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan (15)7.67%(L +6.00%)10/14/202110/14/202615,583 15,516 15,559 7.9 
Senior Secured Loan (Revolver) (5)7.67%(L +6.00%)10/14/202110/14/2026746 735 742 0.4 
16,329 16,251 16,301 8.3 
Tony's Finer Foods Enterprises, LLCSupermarkets and Other Grocery (except Convenience) Stores
Senior Secured Loan (15)7.15%(SOFR +6.00%)4/20/20224/20/20287,953 7,877 7,877 4.0 
Senior Secured Loan (Revolver) (5)n/m (18)(SOFR +6.00%)4/20/20224/20/2027— (10)(10)— 
7,953 7,867 7,867 4.0 
TruGreen Limited PartnershipLandscaping Services
Senior Secured Loan10.75%(L +8.50%)5/13/202111/2/20284,500 4,620 4,498 2.3 
United Biologics Holdings, LLC (4) (10)Medical Laboratories
Preferred Equity (4,701 units)4/16/201316 — 
Warrants (3,976 units) 7/26/20124/16/2023 (12)— 
17 24 — 
15

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
West Corporation (14) (15)All Other Telecommunications
Senior Secured Loan5.17%(L +3.50%)2/26/202110/10/2024$871 $861 $746 0.4 %
Senior Secured Loan5.67%(L +4.00%)7/29/202110/10/20242,564 2,519 2,192 1.1 
3,435 3,380 2,938 1.5 
Yahoo / Verizon Media (14) (15)Internet Publishing and Broadcasting and Web Search Portals
Senior Secured Loan7.17%(L +5.50%)7/21/20219/1/20273,210 3,179 3,053 1.6 
Total Debt and Equity Investments$385,215 $387,507 $366,198 186.8 %
Structured Finance Note Investments
Subordinated Notes and Mezzanine Debt (9) (22)
Apex Credit CLO 2020 Ltd. (7)
Subordinated Notes15.27%11/16/202010/20/2031$11,080 $9,520 $8,186 4.2 %
Apex Credit CLO 2021 Ltd (7)
Subordinated Notes14.87%5/28/20217/18/20348,630 7,052 5,594 2.9 
Apex Credit CLO 2022-1A (7)
Subordinated Notes13.36%4/28/20224/22/203310,726 8,694 8,694 4.4 
Ares L CLO
Mezzanine debt - Class E6.69%(L +5.65%)2/17/20221/15/20326,000 5,708 5,329 2.7 
Barings CLO 2019-I Ltd.
Mezzanine debt - Class E7.90%(L +6.86%)2/23/20224/15/20358,000 7,889 7,348 3.8 
Battalion CLO XI, Ltd.
Mezzanine debt - Class E8.03%(L +6.85%)4/25/20224/24/20346,000 5,824 5,478 2.8 
Dryden 53 CLO, Ltd. (7)
Subordinated Notes - Income21.46%10/26/20201/15/20312,700 1,507 1,162 0.6 
Subordinated Notes21.43%10/26/20201/15/20312,159 1,205 929 0.5 
4,859 2,712 2,091 1.1 
Dryden 76 CLO, Ltd. (7)
Subordinated Notes19.10%9/27/201910/20/20322,750 2,118 1,894 1.0 
16

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Elevation CLO 2017-7, Ltd. (7) (16)
Subordinated Notes0.0%2/6/20197/15/2030$5,860 $1,722 $378 0.2 %
Flatiron CLO 18, Ltd. (7)
Subordinated Notes18.90%1/2/20194/17/20319,680 6,748 5,615 2.9 
Madison Park Funding XXIII, Ltd. (7)
Subordinated Notes22.74%1/8/20207/27/204710,000 6,106 5,393 2.8 
Madison Park Funding XXIX, Ltd. (7)
Subordinated Notes14.50%12/22/202010/18/20479,500 6,532 5,596 2.9 
Monroe Capital MML CLO X, Ltd.
Mezzanine debt - Class E-R10.06%(SOFR +8.75%)4/22/20225/20/20341,000 937 937 0.5 
Octagon Investment Partners 39, Ltd. (7)
Subordinated Notes18.28%1/23/202010/20/20307,000 4,484 3,450 1.8 
Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine debt - Class E8.36%(L +7.30%)1/26/20211/20/20341,000 976 905 0.5 
Redding Ridge 4 (7)
Subordinated Notes14.47%3/4/20214/15/20301,300 1,050 785 0.4 
Regatta II Funding
Mezzanine debt - Class DR27.99%(L +6.95%)6/5/20201/15/2029800 757 738 0.4 
Regatta XXII Funding Ltd
Mezzanine debt - Class E8.52%(L +7.19%)5/6/20226/16/20353,000 2,970 2,970 1.5 
THL Credit Wind River 2019‐3 CLO Ltd (7)
Subordinated Notes14.48%4/5/20194/15/20317,000 5,449 4,199 2.1 
Trinitas CLO VIII (7)
Subordinated Notes21.80%3/4/20217/20/21175,200 3,023 2,374 1.2 
17

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
Venture 45 CLO Ltd.
Mezzanine debt - Class E8.57%(SOFR +7.70%)4/18/20227/20/2035$3,000 $2,926 $2,926 1.5 %
Wellfleet CLO 2018-2 (7)
Subordinated Notes21.70%3/4/202110/20/20311,000 645 498 0.3 
Total Subordinated Notes and Mezzanine Debt Investments$123,385 $93,842 $81,378 41.9 %
Loan Accumulation Facility (17) (22)
Brightwood Capital MM CLO 2022-1, LTD
Loan accumulation facility14.50%1/5/202212/31/2032$8,500 $8,500 $8,500 4.3 %
Total Loan Accumulation Facility Investment$8,500 $8,500 $8,500 4.3 %
Total Structured Finance Notes$131,885 $102,342 $89,878 46.2 %
Total Non-control/Non-affiliate Investments$517,100 $489,849 $456,076 233.0 %
Affiliate Investments
Contract Datascan Holdings, Inc. (4) (10) (20)Office Machinery and Equipment Rental and Leasing
Preferred Equity (3,061 Series A shares), 10% PIK 8/5/2015$5,849 $4,487 2.3 %
Common Equity (11,273 shares) 6/28/2016104 134 0.1 
5,953 4,621 2.4 
DRS Imaging Services, LLC (10) (13) (20)Data Processing, Hosting, and Related Services
Common Equity (1,135 units)3/8/20181,135 1,269 0.6 
Master Cutlery, LLC (4) (10) (20)Sporting and Recreational Goods and Supplies Merchant Wholesalers
Subordinated Loan (6) (11)13.00%N/A4/17/20157/20/20238,046 4,680 161 0.1 
Preferred Equity (3,723 Series A units), 8% PIK 4/17/20153,483 — — 
Common Equity (15,564 units)4/17/2015— — — 
8,046 8,163 161 0.1 
Pfanstiehl Holdings, Inc. (4) (20) (21)Pharmaceutical Preparation Manufacturing
Common Equity (400 Class A shares)1/1/2014217 83,153 42.5 
18

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

Portfolio Company (1)
Investment Type
IndustryInterest Rate (2)Spread Above Index (2)Initial Acquisition DateMaturityPrincipal AmountAmortized CostFair Value (3)Percent of Net Assets
TalentSmart Holdings, LLC (10) (13) (20)Professional and Management Development Training
Common Equity (1,595,238 Class A shares) 10/11/2019$1,595 $1,050 0.5 %
TRS Services, LLC (4) (20)Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance
Preferred Equity (1,937,191 Class A units), 11% PIK 12/10/2014— 1,347 0.7 
Common Equity (3,000,000 units) (10)12/10/2014572 — — 
572 1,347 0.7 
Total Affiliate Investments$8,046 $17,635 $91,601 46.8 %
Total Investments$525,146 $507,484 $547,677 279.8 %

(1)Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as “restricted securities” as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule 144.
(2)At June 30, 2022, the Company held loans with an aggregate principal amount of $345,313, or 93% of the total loan portfolio, that bear interest at a variable rate indexed to LIBOR (L) or SOFR, and reset monthly, quarterly, or semi-annually. As of June 30, 2022, variable-rate loans with an aggregate principal amount of $42,778 were subject to reference rate floor provisions of 1.00%. For each variable-rate investment, the Company has provided the spread over the reference rate and current interest rate in effect at June 30, 2022. Unless otherwise noted, all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.
(3)Unless otherwise noted by footnote 14, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
(4)Investments (or portion thereof) held by SBIC I LP. These assets are pledged as collateral of the SBA debentures and cannot be pledged under any debt obligation of the Company.
(5)Subject to unfunded commitments. See Note 6.
(6)Investment was on non-accrual status as of June 30, 2022, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.
(7)Amortized cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO subordinated debt investments. CLO subordinated debt positions are entitled to recurring distributions which are generally equal to the residual cash flow of payments received on underlying securities less contractual payments to debt holders and fund expenses.
(8)The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of June 30, 2022:
Portfolio CompanyReported Interest RateInterest Rate per Credit AgreementAdditional Interest per Annum
SS Acquisition, LLC7.87%7.50%0.37%

(9)The rate disclosed on subordinated note investments is the estimated effective yield, generally established at purchase and re-evaluated upon receipt of distributions, and based upon projected amounts and timing of future distributions and the projected amount and timing of terminal principal payments at the time of estimation. The estimated yield and investment cost may ultimately not be realized.
(10)Non-income producing.
19

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)
June 30, 2022
(Dollar amounts in thousands)

(11)The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed as of June 30, 2022:
Portfolio CompanyInvestment TypeRange of PIK
Option
Range of Cash
Option
Maximum PIK
Rate Allowed
Eblens Holdings, Inc. Subordinated Loan0% or 1.50%12.50% or 14.00%1.00%
Inergex Holdings, LLCSenior Loan0% or 1.00%9.25% to 10.25%1.00%
Master Cutlery, LLCSubordinated Loan0% to 13.00%0% to 13.00%13.00%

(12)Represents expiration date of the warrants.
(13)All or portion of investment held by a wholly-owned subsidiary subject to income tax.
(14)Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
(15)Investments (or portion thereof) held by OFSCC-FS. These assets are pledged as collateral of the BNP Facility and cannot be pledged under any debt obligation of the Parent.
(16)As of June 30, 2022, 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 optional redemption, is less than current amortized cost. Projected distributions are periodically monitored and re-evaluated. All actual distributions 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.
(17)Loan accumulation facilities are financing structures intended to aggregate loans that are expected to form part of the portfolio of a future CLO vehicle. Reported yields represent an estimated yield to be earned on the investment. 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. As of June 30, 2022, the fair value of loan accumulation facilities were determined by reference to Transaction Price as an approximation of fair value.
(18)Not meaningful as there is no outstanding balance on the revolver or delayed draw facility. The Company earns unfunded commitment fees on undrawn revolving lines of credit balances, which are reported in fee income.
(19)The Company holds at least one seat on the portfolio company’s board of directors.
(20)The Company has an observer seat on the portfolio company’s board of directors.
(21)Portfolio company represents greater than 5% of total assets at June 30, 2022.
(22)Non-qualifying assets under Section 55(a) of the 1940 Act. Qualifying assets as defined in Section 55 of the 1940 Act must represent at least 70% of the Company's assets immediately following the acquisition of any additional non-qualifying assets. As of June 30, 2022, approximately 80% of the Company's assets were qualifying assets.
(23)Equity participation rights issued by unaffiliated third party fully covered with underlying positions in the portfolio company.

See Notes to Consolidated Financial Statements (unaudited).
20

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Non-control/Non-affiliate Investments
AAdvantage Loyalty IP Ltd. and American Airlines, Inc. (14) (15) (22)Scheduled Passenger Air Transportation
Senior Secured Loan5.50%(L +4.75%)3/10/20214/20/2028$364 $360 $377 0.2 %
Aegion Corporation (15) (22)Water and Sewer Line and Related Structures Construction
Senior Secured Loan5.50%(L +4.75%)4/1/20215/17/2028630 627 628 0.3 
Allen Media, LLC (14) (15)Cable and Other Subscription Programming
Senior Secured Loan5.72%(L +5.50%)3/2/20212/10/20273,807 3,801 3,810 1.8 
All Star Auto Lights, Inc. (4) (15)Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan8.25%(L +7.25%)12/19/20198/20/202523,335 23,005 23,052 11.3 
Autokiniton US Holdings, Inc. (14) (15)Automotive Parts and Accessories Stores
Senior Secured Loan5.00%(L +4.50%)3/26/20214/6/20282,696 2,688 2,704 1.3 
Avison Young (15)Nonresidential Property Managers
Senior Secured Loan5.97%(L +5.75%)11/25/20211/31/20262,987 2,972 2,972 1.5 
Ball MetalpackMetal Can Manufacturing
Senior Secured Loan9.75%(L +8.75%)6/8/20217/31/20262,167 2,143 2,167 1.1 
Bass Pro Group, LLC (14) (15)Sporting Goods Stores
Senior Secured Loan4.50%(L +3.75%)2/26/20213/6/20281,967 1,958 1,972 1.0 
BayMark Health Services, Inc. (15)Outpatient Mental Health and Substance Abuse Centers
Senior Secured Loan9.50%(L +8.50%)6/10/20216/11/20284,962 4,893 5,061 2.5 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +8.50%)6/10/20216/11/2028— (124)170 0.1 
4,962 4,769 5,231 2.6 
Constellis Holdings, LLC (10)Other Justice, Public Order, and Safety Activities
Common Equity (20,628 common shares)3/27/2020703 29 — 
21

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Convergint Technologies Holdings, LLCSecurity Systems Services (except Locksmiths)
Senior Secured Loan7.50%(L +6.75%)9/28/20183/30/2029$4,838 $4,827 $4,887 2.4 %
Corel Inc. (14) (15)Software Publishers
Senior Secured Loan5.18%(L +5.00%)3/2/20217/2/20262,271 2,265 2,270 1.1 
Creation Technologies (15) (22)Bare Printed Circuit Board Manufacturing
Senior Secured Loan6.00%(L +5.50%)9/24/202110/5/20282,000 1,985 1,977 1.0 
DHX Media Ltd. (14) (15) (22)Motion Picture and Video Production
Senior Secured Loan5.00%(L +4.25%)3/19/20213/18/20283,974 3,929 3,970 1.9 
Diamond Sports Group, LLC (14) (15)Television Broadcasting
Senior Secured Loan3.36%(L +3.25%)11/19/20198/24/20261,955 1,957 918 0.5 
DIRECTV Financing, LLC (14) (15)Wired Telecommunications Carriers
Senior Secured Loan5.75%(L +5.00%)7/22/20218/2/20274,395 4,388 4,405 2.2 
Eblens Holdings, Inc. (20)Shoe Store
Subordinated  Loan (11)12.00% cash / 1.00% PIKN/A7/13/20171/13/20239,207 9,181 9,049 4.4 
Common Equity (71,250 Class A units) (10)7/13/2017713 292 0.1 
9,207 9,894 9,341 4.5 
Electrical Components International, Inc.Current-Carrying Wiring Device Manufacturing
Senior Secured Loan8.60%(L +8.50%)4/8/20216/26/20263,000 2,653 2,954 1.4 
EnergySolutions, LLC (14) (15)Hazardous Waste Treatment and Disposal
Senior Secured Loan4.75%(L +3.75%)7/8/20215/9/20251,837 1,833 1,837 0.9 
22

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Envocore Holding, LLC (F/K/A LRI Holding, LLC) (4)Electrical Contractors and Other Wiring Installation Contractors
Senior Secured Loan7.50%N/A12/31/202112/31/2025$6,424 $6,424 $6,424 3.2 %
Senior Secured Loan10.00% PIKN/A12/31/202112/31/20266,424 6,424 4,645 2.3 
Senior Secured Loan (Revolver) (5)7.50%N/A11/29/202112/31/2025563 563 563 0.3 
Equity Participation Rights (23)12/31/2021— 4,722 — — 
13,411 18,133 11,632 5.8 
Excelin Home Health, LLC (4)Home Health Care Services
Senior Secured Loan11.50%(L +9.50%)10/25/20189/30/20254,250 4,182 4,250 2.1 
GGC Aerospace Topco L.P.Other Aircraft Parts and Auxiliary Equipment Manufacturing
Common Equity (368,852 Class A units) (10)12/29/2017450 77 — 
Common Equity (40,984 Class B units) (10)12/29/201750 — 
500 80 — 
Honor HN Buyer Inc (15)Services for the Elderly and Persons with Disabilities
Senior Secured Loan7.00%(L +6.00%)10/15/202110/15/20276,598 6,471 6,471 3.2 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +6.00%)10/15/202110/15/2027— (40)(40)— 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.00%)10/15/202110/15/2027— (15)(15)— 
6,598 6,416 6,416 3.2 
Hunter Fan Company (14) (15)Small Electrical Appliance Manufacturing
Senior Secured Loan5.75%(L +5.00%)8/10/20215/8/20284,988 4,997 4,997 2.5 
Inergex Holdings, LLCOther Computer Related Services
Senior Secured Loan8.00% cash / 1.00% PIK(L +8.00%)10/1/201810/1/202415,260 15,030 15,260 7.5 
Senior Secured Loan (Revolver) (5)n/m (18)(L +7.00%)10/1/201810/1/2024— (13)— — 
15,260 15,017 15,260 7.5 
Intouch Midco Inc. (15) (22)All Other Professional, Scientific, and Technical Services
Senior Secured Loan4.85%(L +4.75%)12/20/20198/24/20252,909 2,872 2,865 1.4 
Ivanti Software, Inc. (14) (15)Software Publishers
Senior Secured Loan5.00%(L +4.25%)3/26/202112/1/20272,985 2,996 2,993 1.5 
23

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
JP Intermediate B, LLC (15)Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan6.50%(L +5.50%)1/14/202111/15/2025$5,736 $5,529 $5,550 2.7 %
KNS Acquisition Corp. (14) (15)Electronic Shopping and Mail-Order Houses
Senior Secured Loan7.00%(L +6.25%)4/16/20214/21/20276,956 6,913 6,870 3.4 
Kreg LLC (15)Other Ambulatory Health Care Services
Senior Secured Loan7.25%(L +6.25%)12/20/202112/20/202620,500 20,347 20,347 10.0 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.25%)12/20/202112/20/2026— (17)(17)— 
20,500 20,330 20,330 10.0 
LogMeIn, Inc. (14) (15)Data Processing, Hosting, and Related Services
Senior Secured Loan4.86%(L +4.75%)3/26/20218/31/20272,979 2,977 2,966 1.5 
Magenta Buyer LLC (14) (15)Software Publishers
Senior Secured Loan5.75%(L +5.00%)7/28/20217/27/20284,850 4,836 4,845 2.4 
McGraw Hill Global Education Holdings, LLC (14) (15)All Other Publishers
Senior Secured Loan4.85%(L +4.75%)4/1/20217/28/20282,310 2,288 2,303 1.1 
Milrose Consultants, LLC (4)Administrative Management and General Management Consulting Services
Senior Secured Loan (15)7.50%(L +6.50%)7/16/20197/16/202522,364 22,364 22,024 10.8 
Senior Secured Loan (Revolver)7.50%(L +6.50%)7/16/20197/16/2025634 626 610 0.3 
22,998 22,990 22,634 11.1 
Molded Devices, Inc. (15)Other Industrial Machinery Manufacturing
Senior Secured Loan8.25%(Prime + 5.00%)11/1/202111/1/20268,069 7,991 7,991 3.9 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(Prime + 5.00%)11/1/202111/1/2026— (7)(7)— 
Senior Secured Loan (Revolver) (5)n/m (18)(Prime + 5.00%)11/1/202111/1/2026— (9)(9)— 
8,069 7,975 7,975 3.9 
24

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Odyssey Logistics and Technology Corporation (14) (15)Freight Transportation Arrangement
Senior Secured Loan5.00%(L +4.00%)4/5/202110/12/2024$1,985 $1,960 $1,970 1.0 %
One GI LLC (15)Offices of Other Holding Companies
Senior Secured Loan (Delayed Draw)7.75%(L +6.75%)12/13/20213/13/20225,515 5,403 5,403 2.7 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +6.75%)12/13/202112/13/2023— (39)(39)— 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.75%)12/13/202112/22/2025— (29)(29)— 
5,515 5,335 5,335 2.7 
Parfums Holding Company, Inc. (14) (15)Cosmetics, Beauty Supplies, and Perfume Stores
Senior Secured Loan4.10%(L +4.00%)6/25/20196/30/20241,534 1,533 1,531 0.8 
Peraton Inc. (14) (15)Management Consulting Services
Senior Secured Loan4.50%(L +3.75%)4/2/20212/1/2028835 836 837 0.4 
Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC (6) (10)Software Publishers
Senior Secured Loan4.00%N/A3/13/20183/12/202316,728 14,358 7,027 3.3 
PM Acquisition LLC (20)All Other General Merchandise Stores
Common Equity (499 units) (10) (13)9/30/2017499 1,698 0.8 
Professional Pipe Holdings, LLCPlumbing, Heating, and Air-Conditioning Contractors
Senior Secured Loan9.75% cash / 1.00% PIK(L +9.75%)3/23/20183/24/20255,367 5,344 5,378 2.6 
Resource Label Group, LLC (14) (15)Commercial Printing (except Screen and Books)
Senior Secured Loan5.00%(L +4.25%)7/2/20217/7/2028694 692 694 0.3 
Senior Secured Loan (Delayed Draw)5.00%(L +4.25%)7/2/20217/2/20282,743 2,735 2,742 1.3 
3,437 3,427 3,436 1.6 
RPLF Holdings, LLC (10) (13)Software Publishers
Common Equity (345,339 Class A units)1/17/2018492 794 0.4 
25

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
RSA Security (15)Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan (14)5.50%(L +4.75%)4/16/20214/27/2028$2,797 $2,782 $2,680 1.3 %
Senior Secured Loan8.50%(L +7.75%)4/16/20214/27/20294,450 4,392 4,223 2.1 
7,247 7,174 6,903 3.4 
RumbleOn, Inc. (15) (22)Other Industrial Machinery Manufacturing
Senior Secured Loan9.25%(L +8.25%)8/31/20218/31/20264,190 3,964 4,006 2.0 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +8.25%)8/31/20212/23/2023— (18)(79)— 
Warrants (warrants to purchase up to $600,000 in common stock) 8/31/20212/28/2023 (12)— 200 274 0.1 
4,190 4,146 4,201 2.1 
Sentry Centers Holdings, LLC (10) (13)Other Professional, Scientific, and Technical Services
Preferred Equity (2,248 Series A units)9/4/202051 — — 
Preferred Equity (1,603 Series B units)9/4/2020160 12 — 
Common Equity (269 units)9/4/2020— — 
214 12 — 
Signal Parent, Inc. (14) (15)New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan4.25%(L +3.50%)3/25/20214/3/20281,840 1,823 1,794 0.9 
SourceHOV Tax, Inc. (4)Other Accounting Services
Senior Secured Loan7.50%(L +6.50%)3/16/20203/16/202519,790 19,648 19,935 9.8 
Senior Secured Loan (Revolver) (5)n/m (18)(L +6.50%)5/17/20213/17/2025— (15)— — 
19,790 19,633 19,935 9.8 
Southern Technical Institute, LLC (4) (10)(23)Colleges, Universities, and Professional Schools
Equity Participation Rights6/27/2018— 7,408 3.6 
Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) (15)Child Day Care Services
Senior Secured Loan8.47%(L +8.25%)7/26/20187/30/20266,399 6,336 5,916 2.9 
26

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
SSJA Bariatric Management LLC (15)Offices of Physicians, Mental Health Specialists
Senior Secured Loan6.00%(L +5.00%)8/26/20198/26/2024$9,775 $9,723 $9,775 4.8 %
Senior Secured Loan6.00%(L +5.00%)12/31/20208/26/20241,056 1,048 1,056 0.5 
Senior Secured Loan6.00%(L +5.00%)12/8/20218/26/20242,660 2,634 2,660 1.3 
Senior Secured Loan (Revolver) (5)n/m (18)(L +5.00%)8/26/20198/26/2024— (4)— — 
13,491 13,401 13,491 6.6 
SS Acquisition, LLC (15)Sports and Recreation Instruction
Senior Secured Loan (8)7.88%(L +6.88%)12/30/202112/30/20263,042 3,011 3,011 1.5 
Senior Secured Loan (Delayed Draw) (5)n/m (18)(L +6.88%)12/30/202112/30/2026— — — — 
3,042 3,011 3,011 1.5 
Staples, Inc. (14) (15) (22)Business to Business Electronic Markets
Senior Secured Loan5.13%(L +5.00%)6/24/20194/16/20262,930 2,875 2,838 1.4 
STS Operating, Inc.Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan9.00%(L +8.00%)5/15/20184/30/20269,073 9,071 9,073 4.5 
Teneo Global LLC (14) (15)Management Consulting Services
Senior Secured Loan6.25%(L +5.25%)9/10/20217/11/20251,421 1,415 1,427 0.7 
The Escape Game, LLC (4)Other amusement and recreation industries
Senior Secured Loan8.00%(L +7.00%)12/21/202112/22/202416,333 16,333 16,382 8.0 
Senior Secured Loan (Revolver) (5)n/m (18)(L +7.00%)12/21/2021— (46)14 — 
16,333 16,287 16,396 8.0 
Thryv, Inc. (14) (15)Directory and Mailing List Publishers
Senior Secured Loan9.50%(L +8.50%)2/18/20213/1/20262,050 2,004 2,085 1.0 
Tolemar Acquisition, INC. (15)Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan7.00%(L +6.00%)10/14/202110/14/202614,889 14,818 14,818 7.3 
Senior Secured Loan (Revolver) (5)7.00%(L +6.00%)10/14/202110/14/2026360 348 348 0.2 
15,249 15,166 15,166 7.5 
TruGreen Limited PartnershipLandscaping Services
Senior Secured Loan9.25%(L +8.50%)5/13/202111/2/20284,500 4,630 4,590 2.3 
27

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
United Biologics Holdings, LLC (4) (10)Medical Laboratories
Preferred Equity (151,787 units)4/16/2013$$17 — %
Warrants (29,374 units)7/26/20123/5/2022 (12)82 — 
91 25 — 
West Corporation (14) (15)All Other Telecommunications
Senior Secured Loan4.50%(L +3.50%)2/26/202110/10/2024887 874 838 0.4 
Senior Secured Loan5.00%(L +4.00%)7/29/202110/10/20242,611 2,555 2,485 1.2 
3,498 3,429 3,323 1.6 
Yahoo / Verizon Media (14) (15)Internet Publishing and Broadcasting and Web Search Portals
Senior Secured Loan6.25%(L +5.50%)7/21/20219/1/20273,294 3,249 3,299 1.6 
Total Debt and Equity Investments$350,939 $353,447 $346,366 170.1 %
Structured Finance Note Investments (22)
Subordinated Notes and Mezzanine Debt (9) (16)
Apex Credit CLO 2020 (7)
Subordinated Notes10.20%11/16/202010/20/2031$11,080 $9,297 $9,090 4.5 %
Apex Credit CLO 2021 Ltd (7)
Subordinated Notes14.53%5/28/20217/18/20348,630 7,797 7,442 3.7 
Dryden 53 CLO, LTD. (7)
Subordinated Notes - Income23.72%10/26/20201/15/20312,700 1,611 1,672 0.8 
Subordinated Notes23.69%10/26/20201/15/20312,159 1,289 1,337 0.7 
4,859 2,900 3,009 1.5 
Dryden 76 CLO, Ltd. (7)
Subordinated Notes15.73%9/27/201910/20/20322,750 2,119 2,374 1.2 
Elevation CLO 2017-7, Ltd. (7)
Subordinated Notes11.96%2/6/20197/15/203010,000 6,137 5,357 2.6 
Flatiron CLO 18, Ltd. (7)
Subordinated Notes19.09%1/2/20194/17/20319,680 6,942 7,331 3.6 
28

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Madison Park Funding XXIII, Ltd. (7)
Subordinated Notes24.21%1/8/20207/27/2047$10,000 $6,370 $7,211 3.5 %
Madison Park Funding XXIX, Ltd. (7)
Subordinated Notes15.88%12/22/202010/18/20479,500 6,899 7,001 3.4 
Monroe Capital MML CLO X, LTD.
Mezzanine debt - Class E10.92%(L +8.85%)8/7/20208/20/20311,000 949 996 0.5 
Octagon Investment Partners 39, Ltd. (7)
Subordinated Notes17.69%1/23/202010/20/20307,000 4,733 4,845 2.4 
Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine debt - Class E8.63%(L +7.30%)1/26/20211/20/20341,000 974 988 0.5 
Redding Ridge 4 (7)
Subordinated Notes18.023/4/20214/15/20301,300 1,104 1,106 0.5 
Regatta II Funding
Mezzanine debt - Class DR213.42%(L +6.95%)6/5/20201/15/2029800 737 795 0.4 
THL Credit Wind River 2019‐3 CLO Ltd. (7)
Subordinated Notes13.09%4/5/20194/15/20317,000 5,710 5,231 2.6 
Trinitas CLO VIII (7)
Subordinated Notes21.34%3/4/20217/20/21175,200 3,128 3,229 1.6 
Wellfleet CLO 2018-2 (7)
Subordinated Notes19.74%3/4/202110/20/20311,000 655 696 0.3 
Total Subordinated Notes and Mezzanine Debt Investments$90,799 $66,451 $66,701 32.8 %
29

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
Loan Accumulation Facility (17) (22)
Apex Credit CLO 2021-II Ltd
Loan accumulation facility13.50%7/14/20217/14/2022$8,500 $8,500 $8,500 4.2 %
Total Structured Finance Notes$99,299 $74,951 $75,201 37.0 %
Total Non-control/Non-affiliate Investments$450,238 $428,398 $421,567 207.1 %
Affiliate Investments
Contract Datascan Holdings, Inc. (4) (10) (20)Office Machinery and Equipment Rental and Leasing
Preferred Equity (3,061 Series A shares) 10% PIK8/5/2015$5,849 $2,748 1.3 %
Common Equity (11,273 shares)6/28/2016104 25 — 
5,953 2,773 1.3 
DRS Imaging Services, LLC (20)Data Processing, Hosting, and Related Services
Common Equity (1,135 units) (10) (13)3/8/20181,135 1,289 0.6 
Master Cutlery, LLC (4) (10)(20)Sporting and Recreational Goods and Supplies Merchant Wholesalers
Subordinated Loan (6) (11)13.00% (11)N/A4/17/20157/20/20227,563 4,696 699 0.3 
Preferred Equity (3,723 Series A units), 8% PIK4/17/20153,483 — — 
Common Equity (15,564 units)4/17/2015— — — 
7,563 8,179 699 0.3 
Pfanstiehl Holdings, Inc. (4) (20) (21)Pharmaceutical Preparation Manufacturing
Common Equity (400 Class A shares)1/1/2014217 65,740 32.3 
TalentSmart Holdings, LLC (20)Professional and Management Development Training
Common Equity (1,595,238 Class A shares) (10) (13)10/11/20191,595 1,095 0.5 
30

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
Portfolio Company (1)
Investment Type
IndustryInterest Rate (2) Spread Above
Index (2)
Initial Acquisition DateMaturityPrincipal
Amount
Amortized CostFair Value (3)Percent of
Net Assets
TRS Services, LLC (4) (10) (20)Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance
Preferred Equity (1,937,191 Class A units), 11% PIK12/10/2014$— $988 0.5 %
Common Equity (3,000,000 units)12/10/2014572 — — 
572 988 0.5 
Total Affiliate Investments$7,563 $17,650 $72,584 35.5 %
Control Investment
MTE Holding Corp. (4) (19)Travel Trailer and Camper Manufacturing
Subordinated Loan (to Mirage Trailers, LLC, a controlled, consolidated subsidiary of MTE Holding Corp.)11.00% cash / 5.00% PIK(L +15.00%)11/25/20154/30/2022$8,195 $8,195 $8,195 4.0 %
Common Equity (554 shares)11/25/20153,069 4,753 2.3 
8,195 11,264 12,948 6.3 
Total Control Investment$8,195 $11,264 $12,948 6.3 %
Total Investments$465,995 $457,312 $507,099 248.9 %

(1)Equity ownership may be held in shares or units of companies affiliated with the portfolio company. The Company's investments are generally classified as "restricted securities" as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule 144.
(2)Substantially all of the investments that bear interest at a variable rate are indexed to LIBOR (L), generally between 0.75% and 1.00% at December 31, 2021, and reset monthly, quarterly, or semi-annually. Variable-rate loans with an aggregate cost of $316,558 include LIBOR reference rate floor provisions of generally 0.75% to 1.00% at December 31, 2021, the reference rates on such instruments were generally below the stated floor provisions. For each investment, the Company has provided the spread over the reference rate and current interest rate in effect at December 31, 2021. Unless otherwise noted, all investments with a stated PIK rate require interest payments with the issuance of additional securities as payment of the entire PIK provision.
(3)Unless otherwise noted with footnote 14, fair value was determined using significant unobservable inputs for all of the Company's investments and are considered Level 3 under GAAP. See Note 5 for further details.
(4)Investments (or portion thereof) held by SBIC I LP. These assets are pledged as collateral of the SBA debentures and cannot be pledged under any debt obligation of the Company.
(5)Subject to unfunded commitments. See Note 6.
(6)Investment was on non-accrual status as of December 31, 2021, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.
(7)CLO subordinated debt positions are entitled to recurring distributions generally equal to the residual cash flow of payments received on underlying securities less contractual payments to debt holders and fund expenses.
31

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments
December 31, 2021
(Dollar amounts in thousands)
(8)The Company has entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, it has agreed to receive its payment after the repayment of certain co‑lenders pursuant to a payment waterfall. The table below provides additional details as of December 31, 2021:
Portfolio CompanyReported Interest RateInterest Rate per Credit AgreementAdditional Interest per Annum
SS Acquisition, LLC7.88%7.50%0.38%
(9)The rate disclosed is the estimated effective yield, generally established at purchase and re-evaluated upon receipt of distributions, and based upon projected amounts and timing of future distributions and the projected amount and timing of terminal principal payments at the time of estimation. The estimated yield and investment cost may ultimately not be realized.
(10)Non-income producing.
(11)The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed as of December 31, 2021:
Portfolio CompanyInvestment TypeRange of PIK
Option
Range of Cash
Option
Maximum PIK
Rate Allowed
Eblens Holdings, Inc. Subordinated Loan0% or 1.00%13.00% or 12.00%1.00%
Master Cutlery, LLCSenior Secured Loan0% to 13.00%13.00% to 0%13.00%
(12)Represents expiration date of the warrants.
(13)All or portion of investment held by a wholly owned subsidiary subject to income tax.
(14)Fair value was determined by reference to observable inputs other than quoted prices in active markets and are considered Level 2 under GAAP. See Note 5 for further details.
(15)Investments (or portion thereof) held by OFSCC-FS. These assets are pledged as collateral of the BNP Facility and cannot be pledged under any other debt obligation of the Company.
(16)Amortized cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO subordinated debt investments.
(17)Loan accumulation facilities are financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle. Reported yields represent the realized yield since acquisition. Income notes associated with loan accumulation facilities generally pay returns equal to the actual income earned on facility assets less costs of senior financing. As of December 31, 2021, the fair value of loan accumulation facilities were determined by reference to Transaction Price.
(18)Not meaningful as there is no outstanding balance on the revolver or delayed draw loan. The Company earns unfunded commitment fees on undrawn revolving lines of credit balances, which are reported in fee income.
(19)The Company holds at least one seat on the portfolio company’s board of directors.
(20)The Company has an observer seat on the portfolio company’s board of directors.
(21)Portfolio company at fair value represents greater than 5% of total assets at December 31, 2021.
(22)Non-qualifying assets under Section 55(a) of the 1940 Act. Qualifying assets as defined in Section 55 of the 1940 Act must represent at least 70% of the Company's assets immediately following the acquisition of any additional non-qualifying assets. As of December 31, 2021, approximately 85% of the Company's assets were qualifying assets.
(23)Equity participation rights issued by unaffiliated third party fully covered with underlying positions in the portfolio company.

See Notes to Consolidated Financial Statements.

32

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)

Note 1. Organization
OFS Capital Corporation, a Delaware corporation, is an externally managed, closed-end, non-diversified management investment company. The Company has elected to be regulated as a BDC under the 1940 Act. In addition, for income tax purposes, the Company has elected to be treated as a RIC under Subchapter M of the Code.
The Company’s investment objective is to provide stockholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments.
OFS Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company. In addition, OFS Advisor serves as the investment adviser for HPCI, a non-traded BDC with an investment strategy and objective similar to that of the Company. OFS Advisor also serves as the investment adviser for OCCI, a non-diversified, externally managed, closed-end management investment company that has registered as an investment company under the 1940 Act and that primarily invests in Structured Finance Notes. Additionally, OFS Advisor serves as the collateral manager to CLOs, adviser to separately-managed accounts and sub-advisor to investment companies managed by an affiliate.
The Company may make investments directly or through one or more of its subsidiaries: SBIC I LP, OFSCC-FS or OFSCC-MB.
SBIC I LP is an investment company subsidiary licensed under the SBA’s small business investment company program. The Company is limited to follow-on investments in current portfolio companies held through SBIC I LP. SBIC I LP is subject to SBA regulations and policies, including periodic examinations by the SBA. Over time, SBIC I LP intends to repay its outstanding SBA debentures prior to their scheduled maturity dates.
OFSCC-FS, an indirect wholly owned and consolidated subsidiary of the Company, is a special-purpose vehicle formed in April 2019 for the purpose of acquiring senior secured loan investments. OFSCC-FS has debt financing through its BNP Facility, which provides OFSCC-FS with borrowing capacity of up to $150,000.
OFSCC-MB is a wholly-owned and consolidated subsidiary taxed under subchapter C of the Code that generally holds the Company’s equity investments in portfolio companies that are taxed as pass-through entities.
Note 2. Summary of Significant Accounting Policies
Basis of presentation: The Company is an investment company as defined in the accounting and reporting guidance under ASC Topic 946, Financial Services–Investment Companies. The accompanying interim consolidated financial statements of the Company and related financial information have been prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q, and Articles 6, 10 and 12 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. However, in the opinion of management, the consolidated financial statements include all adjustments, consisting only of normal and recurring accruals and adjustments, necessary for fair presentation as of and for the periods presented. These consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 4, 2022. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
Significant Accounting Policies: The following information supplements the description of significant accounting policies contained in Note 2 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes thereto. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities or total net assets, or consolidated statements of changes in net assets and consolidated statements of cash flows classifications.
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. Actual results could differ significantly from those estimates.
Intangible asset: On December 4, 2013, in connection with the SBIC Acquisition, the Company recorded an intangible asset of $2,500 attributable to the SBIC license. The Company amortizes this intangible asset on a straight-line basis over its estimated
33

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
useful life. During the first quarter of 2022, the Company changed its estimate of the useful life to terminate on March 1, 2024 due to continued early redemptions of SBA debentures.
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 may exceed the federally insured limits. 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. The amount of loss due to credit risk from its investments, if borrowers completely fail to perform according to the terms of the contracts, is equal to the sum of the Company’s recorded investments and the unfunded commitments disclosed in Note 6.
Valuation of Portfolio Investments: In December 2020, the SEC issued a final rule adopting Rule 2a-5 under the 1940 Act to establish requirements for determining fair value in good faith for purposes of the 1940 Act. The Company is evaluating the impact of adopting Rule 2a-5 on the consolidated financial statements and intends to comply with the new rule’s mandatory requirements on or before the compliance date in September 2022.
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 the Investment Advisory Agreement. The continuation of the Investment Advisory Agreement was most recently approved by the Board on April 5, 2022. Under the terms of the Investment Advisory Agreement, which are in accordance with the 1940 Act and subject to the overall supervision of the Board, OFS Advisor is responsible for sourcing potential investments, conducting research and diligence on potential investments and equity sponsors, analyzing investment opportunities, structuring investments, and monitoring investments and portfolio companies on an ongoing basis.
OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to the Company, and OFS Advisor is free to furnish similar services to other entities, including other funds affiliated with OFS Advisor, so long as its services to the Company are not impaired. OFS Advisor also serves as the investment adviser or collateral manager to CLO funds and other companies, including HPCI and OCCI.
OFS Advisor receives fees for providing services to the Company, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.75% and based on the average value of the Company’s total assets (other than cash, but including assets purchased with borrowed amounts and assets owned by any consolidated entity) at the end of the two most recently completed calendar quarters, adjusted for any share issuances or repurchases during the quarter. OFS Advisor has elected to exclude the value of the intangible asset resulting from the SBIC Acquisition from the base management fee calculation.
Effective January 1, 2022, OFS Advisor agreed to reduce its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (excluding cash) at the end of the two most recently completed calendar quarters. OFS Advisor’s base management fee reduction is renewable on an annual basis, and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets. OFS Advisor most recently renewed the agreement for the calendar year 2022 on February 4, 2022.
The incentive fee has two parts. The first part of the incentive fee (“Income Incentive Fee”) is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. 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 and sourcing, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies, but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest or dividend feature (such as OID, debt instruments with PIK interest, equity investments with accruing or PIK dividend and zero coupon securities), accrued income that the Company has not yet received in cash.
Pre-incentive fee net investment income is expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter and adjusted for any share issuances or repurchases during such quarter.
The incentive fee with respect to pre-incentive fee net income is 20.0% of the amount, if any, by which the pre-incentive fee net investment income for the immediately preceding calendar quarter exceeds a 2.0% hurdle rate (which is 8.0% annualized) and a
34

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
“catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, OFS Advisor receives no incentive fee until the net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100.0% of the 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 rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, OFS Advisor will receive 20.0% of the pre-incentive fee net investment income.
Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the base management fee. These calculations are appropriately prorated for any period of less than three months.
The second part of the incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.0% of the Company’s aggregate realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation at the end of such year, less all previous amounts paid in respect of the Capital Gains Fee. Since inception through June 30, 2022, the Company has not made a Capital Gains Fee payment.
The Company accrues the Capital Gains Fee if, on a cumulative basis, the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation) is positive. An accrued Capital Gains Fee relating to net unrealized appreciation is deferred, and not due to OFS Advisor, until the close of the year in which such gains are realized. If, on a cumulative basis, the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation) decreases during a period, the Company will reverse any excess Capital Gains Fee previously accrued such that the amount of Capital Gains Fee accrued is no more than 20% of the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation). As of June 30, 2022 and December 31, 2021, Capital Gains Fees of $-0- and $1,916, respectively, were accrued and are included in the amounts payable to the investment adviser and affiliates as listed on the consolidated statements of assets and liabilities.
License Agreement: The Company is party to a license agreement with OFSAM under which OFSAM has granted the Company a non-exclusive, royalty-free license to use the name “OFS.”
Administration Agreement: 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 the Administration Agreement. The Administration Agreement was most recently approved by the Board on April 5, 2022. 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 SEC or any other regulatory authority. In addition, OFS Services assists the Company in determining and publishing its net asset value, 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. Under the Administration Agreement, OFS Services also provides managerial assistance on the Company’s behalf to those portfolio companies that have accepted the Company’s offer to provide such assistance. Payment under the Administration Agreement is equal to an amount based upon the Company’s allocable portion 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 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.
Equity Ownership: As of June 30, 2022, affiliates of OFS Advisor held approximately 3,019,694 shares of common stock, which is approximately 22.5% of the Company's outstanding shares of common stock.
35

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Expenses recognized under agreements with OFS Advisor and OFS Services and distributions paid to affiliates for the three and six months ended June 30, 2022 and 2021, are presented below:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Base management fees$2,056 $1,876 $4,076 $3,710 
Incentive fees:
Income Incentive Fee— 809 — 809 
Capital Gains Fee(2,988)— (1,916)— 
Administration fee expense423 439 874 1,007 
Distributions paid to affiliates876 668 1,721 1,276 
For the three and six months ended June 30, 2022, the negative Capital Gains Fee is due to the reversal of previously accrued Capital Gains Fees from the reduction in net unrealized appreciation on the investment portfolio during the three and six months ended June 30, 2022.
Note 4. Investments
As of June 30, 2022, the Company had loans to 66 portfolio companies, of which 98% were senior secured loans and 2% were subordinated loans, at fair value, as well as equity investments in five of these portfolio companies. The Company also held equity investments in 12 portfolio companies in which it did not hold a debt investment and 23 investments in Structured Finance Notes. At June 30, 2022, the Company’s investments consisted of the following:
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Senior secured debt investments$369,001 72.7 %188.4 %$348,676 63.7 %178.2 %
Subordinated debt investments13,890 2.7 7.1 7,303 1.3 3.7 
Preferred equity9,501 1.9 4.9 5,951 1.1 3.0 
Common equity, warrants and other(1)
12,750 2.5 6.5 95,869 17.5 49.0 
  Total Portfolio Company Investments405,142 79.8 206.9 457,799 83.6 233.9 
Structured Finance Notes102,342 20.2 52.3 89,878 16.4 45.9 
Total investments$507,484 100.0 %259.2 %$547,677 100.0 %279.8 %
(1) Includes the Company’s investment in Pfanstiehl Holdings, Inc. See “Note 4 — Portfolio Concentration for additional information.
Geographic composition is determined by the location of the corporate headquarters of the portfolio company. All international investments are denominated in US dollars. As of June 30, 2022 and December 31, 2021, the Company's investment portfolio was domiciled as follows:
June 30, 2022December 31, 2021
Amortized CostFair ValueAmortized CostFair Value
United States$402,281 $455,162 $378,823 $428,321 
Canada11,361 11,137 12,038 12,077 
Cayman Islands1
93,842 81,378 66,451 66,701 
Total investments$507,484 $547,677 $457,312 $507,099 
(1) Investments domiciled in the Cayman Islands represent certain Structured Finance Note securities held by the Company. These investments generally represent beneficial interests in underlying portfolios of debt investments in companies domiciled in the United States.
36

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)

As of June 30, 2022, the industry composition of the Company’s investment portfolio was as follows:
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Administrative and Support and Waste Management and Remediation Services
All Other Business Support Services$2,755 0.5 %1.4 %$2,755 0.5 %1.4 %
Convention and Trade Show Organizers160 — 0.1 101 — 0.1 
Hazardous Waste Treatment and Disposal1,775 0.3 0.9 1,663 0.3 0.8 
Landscaping Services4,620 0.9 2.4 4,498 0.8 2.3 
Security Systems Services (except Locksmiths)4,827 1.0 2.5 4,795 0.9 2.5 
Temporary Help Services8,893 1.8 4.5 8,861 1.6 4.5 
Arts, Entertainment, and Recreation
Other Amusement and Recreation Industries16,295 3.2 8.3 16,206 3.0 8.3 
Construction
Electrical Contractors and Other Wiring Installation Contractors18,468 3.6 9.4 10,383 1.9 5.3 
New Single-Family Housing Construction (except For-Sale Builders)1,815 0.4 0.9 1,611 0.3 0.8 
Plumbing, Heating, and Air-Conditioning Contractors2,550 0.5 1.3 2,584 0.5 1.3 
Water and Sewer Line and Related Structures Construction2,395 0.5 1.2 2,250 0.4 1.1 
Education Services
Colleges, Universities, and Professional Schools— — — 7,192 1.3 3.7 
Professional and Management Development Training1,595 0.3 0.8 1,050 0.2 0.5 
Sports and Recreation Instruction3,014 0.6 1.5 3,001 0.5 1.5 
Health Care and Social Assistance
Child Day Care Services6,355 1.3 3.2 6,034 1.1 3.1 
Home Health Care Services4,172 0.8 2.1 4,208 0.8 2.2 
Medical Laboratories17 — — 24 — — 
Offices of Physicians, Mental Health Specialists13,350 2.6 6.8 13,356 2.4 6.8 
Other Ambulatory Health Care Services20,093 4.0 10.3 19,850 3.6 10.1 
Outpatient Mental Health and Substance Abuse Centers7,543 1.5 3.9 7,815 1.4 4.0 
Services for the Elderly and Persons with Disabilities19,152 3.8 9.8 18,672 3.4 9.5 
Information
All Other Publishers2,278 0.4 1.2 2,088 0.4 1.1 
All Other Telecommunications3,380 0.7 1.7 2,938 0.5 1.5 
Cable and Other Subscription Programming3,782 0.7 1.9 3,393 0.6 1.7 
Data Processing, Hosting, and Related Services4,095 0.8 2.1 3,556 0.6 1.8 
Directory and Mailing List Publishers2,835 0.6 1.4 2,832 0.5 1.4 
37

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Internet Publishing and Broadcasting and Web Search Portals$3,179 0.6 %1.6 %$3,053 0.6 %1.6 %
Motion Picture and Video Production3,913 0.8 2.0 3,741 0.7 1.9 
Software Publishers23,132 4.5 11.8 15,584 2.8 8.0 
Television Broadcasting2,192 0.4 1.1 726 0.1 0.4 
Wired Telecommunications Carriers2,093 0.4 1.1 1,936 0.4 1.0 
Management of Companies and Enterprises
Offices of Other Holding Companies7,360 1.5 3.8 6,988 1.3 3.6 
Manufacturing
Bare Printed Circuit Board Manufacturing1,986 0.4 1.0 1,761 0.3 0.9 
Commercial Printing (except Screen and Books)3,411 0.7 1.7 3,207 0.6 1.6 
Current-Carrying Wiring Device Manufacturing3,314 0.7 1.7 3,471 0.6 1.8 
Other Aircraft Parts and Auxiliary Equipment Manufacturing500 0.1 0.3 — — — 
Fluid Power Pump and Motor Manufacturing1,938 0.4 1.0 1,881 0.3 1.0 
Ice Cream and Frozen Dessert Manufacturing1,639 0.3 0.8 1,593 0.3 0.8 
Motorcycle, Bicycle, and Parts Manufacturing16,251 3.2 8.3 16,301 3.0 8.3 
Other Industrial Machinery Manufacturing13,964 2.8 7.1 13,356 2.4 6.8 
Pharmaceutical Preparation Manufacturing217 — 0.1 83,153 15.1 42.5 
Other Services (except Public Administration)
Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance572 0.1 0.3 1,347 0.2 0.7 
Communication Equipment Repair and Maintenance1,745 0.3 0.9 1,718 0.3 0.9 
Other Automotive Mechanical and Electrical Repair and Maintenance1,080 0.2 0.6 1,080 0.2 0.6 
Professional, Scientific, and Technical Services
Administrative Management and General Management Consulting Services22,719 4.4 11.6 22,247 4.1 11.4 
Advertising Agencies2,264 0.4 1.2 2,119 0.4 1.1 
All Other Professional, Scientific, and Technical Services2,862 0.6 1.5 2,846 0.5 1.5 
Management Consulting Services408 0.1 0.2 384 0.1 0.2 
Other Computer Related Services14,990 3.0 7.7 15,260 2.8 7.8 
Public Administration
Other Justice, Public Order, and Safety Activities703 0.1 0.4 29 — — 
Real Estate and Rental and Leasing
Nonresidential Property Managers3,951 0.8 2.0 3,940 0.7 2.0 
Office Machinery and Equipment Rental and Leasing5,953 1.2 3.0 4,621 0.8 2.4 
38

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Retail Trade
Automotive Parts and Accessories Stores$2,675 0.5 %1.4 %$2,488 0.5 %1.3 %
Cosmetics, Beauty Supplies, and Perfume Stores1,462 0.3 0.7 1,384 0.3 0.7 
Electronics and Appliance Stores8,116 1.6 4.1 7,716 1.4 3.9 
Electronic Shopping and Mail-Order Houses6,830 1.3 3.5 6,635 1.2 3.4 
Shoe store9,923 2.0 5.1 7,142 1.3 3.6 
Sporting Goods Stores974 0.2 0.5 895 0.2 0.5 
Supermarkets and Other Grocery (except Convenience) Stores7,867 1.6 4.0 7,867 1.4 4.0 
All Other General Merchandise Stores499 0.1 0.3 1,119 0.2 0.6 
Transportation and Warehousing
Freight Transportation Arrangement977 0.2 0.5 950 0.2 0.5 
Transportation and Warehousing5,034 1.0 2.6 5,034 0.9 2.6 
Wholesale Trade
Business to Business Electronic Markets2,866 0.6 1.5 2,548 0.5 1.3 
Computer and Computer Peripheral Equipment and Software Merchant Wholesalers11,165 2.2 5.7 10,205 1.9 5.2 
Drugs and Druggists' Sundries Merchant Wholesalers5,379 1.1 2.7 4,859 0.9 2.5 
Industrial Machinery and Equipment Merchant Wholesalers9,071 1.8 4.6 9,035 1.6 4.6 
Motor Vehicle Parts (Used) Merchant Wholesalers22,935 4.5 11.7 23,217 4.2 11.9 
Other Miscellaneous Nondurable Goods Merchant Wholesalers2,656 0.5 1.4 2,486 0.5 1.3 
Sporting and Recreational Goods and Supplies Merchant Wholesalers8,163 1.6 4.2 161 — 0.1 
    Total Portfolio Company Investments$405,142 79.9 %207.0 %$457,799 83.4 %233.9 %
Structured Finance Notes102,342 20.1 52.3 89,878 16.6 45.9 
Total investments$507,484 100.0 %259.3 %$547,677 100.0 %279.8 %
As of December 31, 2021, the Company had loans to 58 portfolio companies, of which 95% were senior secured loans and 5% were subordinated loans, at fair value, as well as equity investments in five of these portfolio companies. The Company also held an equity investment in 12 portfolio companies in which it did not hold a debt investment, as well as 17 investments in Structured Finance Notes. At December 31, 2021, investments consisted of the following:
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Senior secured debt investments$336,132 73.3 %165.0 %$326,704 64.9 %160.4 %
Subordinated debt investments22,071 4.8 10.8 17,943 3.5 8.8 
Preferred equity9,552 2.1 4.7 3,765 0.7 1.8 
Common equity, warrants and other14,606 3.2 7.2 83,486 16.5 41.0 
  Total debt and equity investments$382,361 83.4 %187.7 %$431,898 85.6 %212.0 %
Structured Finance Notes74,951 16.6 36.8 75,201 14.4 36.9 
Total$457,312 100.0 %224.5 %$507,099 100.0 %248.9 %

39

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
As of December 31, 2021, the industry compositions of the Company’s debt and equity investments were as follows:
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Administrative and Support and Waste Management and Remediation Services
Convention and Trade Show Organizers$214 — %0.1 %$12 — %— %
Hazardous Waste Treatment and Disposal1,833 0.4 0.9 1,837 0.4 0.9 
Landscaping Services4,630 1.0 2.3 4,590 0.9 2.3 
Security Systems Services (except Locksmiths)4,827 1.1 2.4 4,887 1.0 2.4 
Arts, Entertainment, and Recreation
Other Amusement and Recreation Industries16,287 3.6 8.0 16,396 3.2 8.0 
Construction
Electrical Contractors and Other Wiring Installation Contractors18,132 4.0 8.9 11,632 2.3 5.7 
New Single-Family Housing Construction (except For-Sale Builders)1,823 0.4 0.9 1,794 0.4 0.9 
Plumbing, Heating, and Air-Conditioning Contractors5,344 1.2 2.6 5,378 1.1 2.6 
Water and Sewer Line and Related Structures Construction627 0.1 0.3 628 0.1 0.3 
Education Services
Colleges, Universities, and Professional Schools— — — 7,408 1.5 3.6 
Professional and Management Development Training1,595 0.3 0.8 1,095 0.2 0.5 
Sports and Recreation Instruction3,011 0.7 1.5 3,011 0.6 1.5 
Health Care and Social Assistance
Child Day Care Services6,336 1.4 3.1 5,916 1.2 2.9 
Home Health Care Services4,182 0.9 2.1 4,250 0.8 2.1 
Medical Laboratories92 — — 25 — — 
Offices of Physicians, Mental Health Specialists13,402 2.9 6.6 13,491 2.7 6.6 
Other Ambulatory Health Care Services20,331 4.4 10.0 20,331 4.0 10.0 
Outpatient Mental Health and Substance Abuse Centers4,770 1.0 2.3 5,231 1.0 2.6 
Services for the Elderly and Persons with Disabilities6,416 1.4 3.1 6,416 1.3 3.1 
Information
All Other Publishers2,288 0.5 1.1 2,303 0.5 1.1 
All Other Telecommunications3,429 0.7 1.7 3,323 0.7 1.6 
Cable and Other Subscription Programming3,801 0.8 1.9 3,810 0.8 1.9 
Data Processing, Hosting, and Related Services4,112 0.9 2.0 4,255 0.8 2.1 
Directory and Mailing List Publishers2,004 0.4 1.0 2,085 0.4 1.0 
Internet Publishing and Broadcasting and Web Search Portals3,249 0.7 1.6 3,299 0.7 1.6 
Motion Picture and Video Production3,929 0.9 1.9 3,970 0.8 1.9 
Software Publishers24,948 5.5 12.2 17,929 3.5 8.8 
Television Broadcasting1,957 0.4 1.0 918 0.2 0.5 
Wired Telecommunications Carriers4,388 1.0 2.2 4,405 0.9 2.2 
40

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Management of Companies and Enterprises
Offices of Other Holding Companies$5,336 1.2 %2.6 %$5,336 1.1 %2.6 %
Manufacturing
Bare Printed Circuit Board Manufacturing1,985 0.4 1.0 1,977 0.4 1.0 
Commercial Printing (except Screen and Books)3,427 0.7 1.7 3,436 0.7 1.7 
Current-Carrying Wiring Device Manufacturing2,653 0.6 1.3 2,954 0.6 1.4 
Motorcycle, Bicycle, and Parts Manufacturing15,166 3.3 7.4 15,166 3.0 7.4 
Metal Can Manufacturing2,143 0.5 1.1 2,167 0.4 1.1 
Other Aircraft Parts and Auxiliary Equipment Manufacturing500 0.1 0.2 80 — — 
Other Industrial Machinery Manufacturing12,121 2.7 5.9 12,176 2.4 6.0 
Pharmaceutical Preparation Manufacturing217 — 0.1 65,740 13.0 32.3 
Small Electrical Appliance Manufacturing4,997 1.1 2.5 4,997 1.0 2.5 
Travel Trailer and Camper Manufacturing11,264 2.5 5.5 12,948 2.6 6.4 
Other Services (except Public Administration)
Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance572 0.1 0.3 988 0.2 0.5 
Professional, Scientific, and Technical Services
Administrative Management and General Management Consulting Services22,990 5.0 11.3 22,634 4.5 11.1 
All Other Professional, Scientific, and Technical Services2,872 0.6 1.4 2,865 0.6 1.4 
Management Consulting Services2,251 0.5 1.1 2,264 0.4 1.1 
Other Accounting Services19,631 4.3 9.6 19,927 3.9 9.8 
Other Computer Related Services15,017 3.3 7.4 15,260 3.0 7.5 
Public Administration
Other Justice, Public Order, and Safety Activities703 0.2 0.3 29 — — 
Real Estate and Rental and Leasing
Nonresidential Property Managers2,972 0.6 1.5 2,972 0.6 1.5 
Office Machinery and Equipment Rental and Leasing5,952 1.3 2.9 2,774 0.5 1.4 
Retail Trade
Automotive Parts and Accessories Stores2,688 0.6 1.3 2,704 0.5 1.3 
Cosmetics, Beauty Supplies, and Perfume Stores1,533 0.3 0.8 1,531 0.3 0.8 
Electronic Shopping and Mail-Order Houses6,913 1.5 3.4 6,870 1.4 3.4 
Shoe Store9,893 2.2 4.9 9,342 1.8 4.6 
Sporting Goods Stores1,958 0.4 1.0 1,972 0.4 1.0 
All Other General Merchandise Stores499 0.1 0.2 1,698 0.3 0.8 
Transportation and Warehousing
Freight Transportation Arrangement1,960 0.4 1.0 1,970 0.4 1.0 
Scheduled Passenger Air Transportation360 0.1 0.2 377 0.1 0.2 
41

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Percentage of TotalPercentage of Total
Amortized CostAmortized CostNet AssetsFair ValueFair ValueNet Assets
Wholesale Trade
Business to Business Electronic Markets$2,875 0.6 %1.4 %$2,838 0.6 %1.4 %
Computer and Computer Peripheral Equipment and Software Merchant Wholesalers7,173 1.6 3.5 6,903 1.4 3.4 
Drugs and Druggists' Sundries Merchant Wholesalers5,529 1.2 2.7 5,550 1.1 2.7 
Industrial Machinery and Equipment Merchant Wholesalers9,071 2.0 4.5 9,073 1.8 4.5 
Motor Vehicle Parts (Used) Merchant Wholesalers23,005 5.0 11.3 23,052 4.5 11.3 
Sporting and Recreational Goods and Supplies Merchant Wholesalers8,179 1.8 3.9 699 0.1 0.2 
Total debt and equity investments$382,361 83.4 %187.7 %$431,898 85.6 %212.0 %
Structured Finance Notes74,951 16.6 36.8 75,201 14.4 36.9 
Total investments$457,312 100.0 %224.5 %$507,099 100.0 %248.9 %
Non-Accrual Loans: Management reviews all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal, cash interest, or PIK interest will be collected, for placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest is credited to income and is reversed. Additionally, Net Loan Fees are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal, interest and when, in the judgment of management, the investments are estimated to be fully collectible as to all principal and interest. The aggregate amortized cost and fair value of loans on non-accrual status with respect to all interest and Net Loan Fee amortization was $34,666 and $17,827, respectively, at June 30, 2022, and $19,054 and $7,726 respectively, at December 31, 2021.
Portfolio Concentration: The Company’s common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounts for 15.2% and 42.5% of its total portfolio at fair value and its total net assets, respectively, as of June 30, 2022. Due to continued strong operating performance, the fair value of the Company’s investment in the common equity of Pfanstiehl Holdings, Inc. has increased by $17,413, to $83,153, during the six months ended June 30, 2022.

Note 5. Fair Value of Financial Instruments
The Company’s investments are carried at fair value as determined by the Board. These fair values are determined in accordance with a documented valuation policy and a consistently applied valuation process.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values are determined with models or other valuation techniques, valuation inputs, and assumptions that market participants would use in pricing the subject asset or liability. Valuation inputs are organized in a hierarchy that gives the highest priority to prices for identical assets or liabilities quoted in active markets (Level 1) and the lowest priority to fair values based on unobservable inputs (Level 3). The three levels of inputs in the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include: (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical or similar assets or liabilities in markets that are not active; (iii) inputs other than quoted prices that are observable for the asset or liability; and (iv) inputs that are derived principally from or corroborated by observable market data. 
42

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Level 3: Unobservable inputs for the asset or liability, and situations where there is little, if any, market activity for the asset or liability at the measurement date.
The inputs into the determination of fair value are based upon the best information under the circumstances and may require significant judgment or estimation by management. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The Company generally categorizes its investment portfolio into Level 3, and to a lesser extent Level 2, of the hierarchy.
The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the measurement date. Senior securities with a fair value of $8,246 and $1,611 were transferred from Level 2 to Level 3 during the three and six months ended June 30, 2022, respectively. Senior securities with a fair value of $6,562 and $895 were transferred from Level 3 to Level 2 during the three and six months ended June 30, 2021, respectively. Senior securities with a fair value of $5,736 were transferred from Level 2 to Level 3 during the three months ended June 30, 2021. No senior securities were transferred from Level 2 to Level 3 during the six months ended June 30, 2021. Transfers between levels during the reporting periods were due to availability of reliable Indicative Prices in those periods.
Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the values that would have been used had a ready market or observable inputs existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantly less than the value at which such investment had previously been recorded. The Company’s investments are subject to market risk as a result of economic and political developments, including impacts from the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, rising interest and inflation rates and related market volatility. Market risk is directly impacted by the volatility and liquidity in the markets in which certain investments are traded and can affect the fair value of our investments.
The following tables present the Company's investment portfolio measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021:
SecurityLevel 1Level 2Level 3Fair Value at June 30, 2022
Debt investments$— $50,308 $305,671 $355,979 
Equity investments— — 101,820 101,820 
Structured Finance Notes— — 89,878 89,878 
$— $50,308 $497,369 $547,677 
SecurityLevel 1Level 2Level 3Fair Value at December 31, 2021
Debt investments$— $65,591 $279,056 $344,647 
Equity investments— — 87,251 87,251 
Structured Finance Notes— — 75,201 75,201 
$— $65,591 $441,508 $507,099 
43

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
The following tables provide quantitative information about valuation techniques and the Company’s significant inputs to the Company’s Level 3 fair value measurements as of June 30, 2022 and December 31, 2021. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The table below provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements.
Fair Value at June 30, 2022Valuation techniqueUnobservable inputsRange
(Weighted average)
Debt investments:
Senior secured$252,220 Discounted cash flow Discount rates9.05% - 16.98% (11.19%)
Senior secured10,383 Market approach EBITDA multiples7.02x - 7.02x (7.02x)
Senior secured7,303 Market approachRevenue multiples0.70x - 0.70x (0.70x)
Senior secured28,462 Market approachTransaction Price
Subordinated7,142 Market approachEBITDA multiples4.75x - 4.75x (4.75x)
Subordinated161 Market approachRevenue multiples0.24x - 0.24x (0.24x)
Structured Finance Notes
Subordinated notes(1)
45,675 Discounted cash flowDiscount rates20.00% - 36.00% (24.45%)
Constant default rate2.00% - 2.00% (2.00%)
Recovery rate65.00% - 65.00% (65.00%)
Subordinated notes378 Market approach
Net asset value liquidation(2)
Subordinated notes8,694 Market approachTransaction Price
Mezzanine debt19,798 Discounted cash flowDiscount margin8.15% - 9.20% (8.42%)
Constant default rate2.00% - 2.00% (2.00%)
Recovery rate65.00% - 65.00% (65.00%)
Mezzanine debt6,833 Market approachTransaction Price
Loan Accumulation Facility8,500 Market approachTransaction Price
Equity investments:
Preferred equity4,503 Market approachEBITDA multiples7.28x - 7.28x (7.28x)
Preferred equity1,448 Market approachRevenue multiples0.24x - 3.00x (0.97x)
Common equity, warrants and other95,869 Market approachEBITDA multiples4.13x - 11.50x (8.62x)
$497,369 
(1) 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.
(2) Net asset value liquidation represents the fair value, or estimated expected residual value, of the subordinated note that has been optionally redeemed.
44

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Fair Value at December 31, 2021Valuation techniqueUnobservable inputsRange
(Weighted average)
Debt investments:
Senior secured$178,382 Discounted cash flowDiscount rates6.47% - 12.32% (9.25%)
Senior secured11,632 Market approachEBITDA multiples7.09x - 7.09x (7.09x)
Senior secured7,027 Market approachRevenue multiples0.74x - 0.74x (0.74x)
Senior secured64,072 Market approachTransaction Price
Subordinated17,244 Discounted cash flowDiscount rates15.90% - 17.49% (16.65%)
Subordinated699 Market approachRevenue multiples0.28x - 0.28x (0.28x)
Structured Finance Notes:
 Subordinated notes(1)
63,922 Discounted cash flowDiscount rates8.00% - 16.00% (12.39%)
Constant default rate(2)
0.00% - 2.00% (1.77%)
Constant default rate(3)
2.00% - 2.00% (2.00%)
Recovery rate60.00% - 60.00% (60.00%)
Mezzanine debt2,779 Discounted cash flowDiscount margin7.10% - 8.95% (7.91%)
Constant default rate(2)
2.00% - 3.00% (2.36%)
Constant default rate(3)
2.00% - 3.00% (2.36%)
Recovery rate60.00% - 60.00% (60.00%)
Loan accumulation facility8,500 Market approachTransaction Price
Equity investments:
Preferred equity2,748 Market approachEBITDA multiples7.80x - 7.80x (7.80x)
Preferred equity1,017 Market approachRevenue multiples0.15x - 3.00x (0.91x)
Common equity, warrants and other83,478 Market approachEBITDA multiples4.50x - 12.00x (8.10x)
Common equity, warrants and otherMarket approachRevenue multiples0.15x - 3.00x (0.15x)
$441,508 
(1) 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.
(2)    Constant default rates for the six months ending June 30, 2022.
(3)    Constant default rates for the period between June 30, 2022 and the assumed optional redemptions of the instruments.
Averages in the preceding two tables were weighted by the fair value of the related instruments.
Changes in market credit spreads or events impacting the credit quality of the underlying portfolio company (both of which could impact the discount rate), as well as changes in EBITDA and/or EBITDA multiples, among other things, could have a significant impact on fair values, with the fair value of a particular debt investment susceptible to change in inverse relation to the changes in the discount rate. Changes in EBITDA and/or EBITDA multiples, as well as changes in the discount rate, could have a significant impact on fair values, with the fair value of an equity investment susceptible to change in tandem with the changes in EBITDA and/or EBITDA multiples, and in inverse relation to changes in the discount rate. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
45

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
The following tables present changes in investments measured at fair value using Level 3 inputs for the six months ended June 30, 2022 and June 30, 2021:
Six Months Ended June 30, 2022
Senior
Secured Debt
Investments
Subordinated
Debt
Investments
Preferred EquityCommon Equity, Warrants and OtherStructured Finance NotesTotal
Level 3 assets, December 31, 2021$261,113 $17,943 $3,765 $83,486 $75,201 $441,508 
Net realized loss on investments(51)— (51)(6)— (108)
Net unrealized appreciation (depreciation) on investments(5,626)(2,459)2,237 14,240 (12,716)(4,324)
Amortization of Net Loan Fees612 — — 124 742 
Accretion of interest income on Structured Finance Notes— — — — 4,785 4,785 
Capitalized PIK interest and dividends258 58 — — — 316 
Amendment fees(112)— — — — (112)
Purchase and origination of portfolio investments72,397 — — 1,290 43,198 116,885 
Proceeds from principal payments on portfolio investments(30,926)(8,245)— — (9,500)(48,671)
Sale and redemption of portfolio investments(908)— — (3,141)— (4,049)
Proceeds from distributions received from portfolio investments— — — — (11,214)(11,214)
Transfers in to Level 31,611 — — — — 1,611 
Level 3 assets, June 30, 2022$298,368 $7,303 $5,951 $95,869 $89,878 $497,369 
46

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Six Months Ended June 30, 2021
Senior
Secured Debt
Investments
Subordinated
Debt
Investments
Preferred EquityCommon Equity, Warrants and OtherStructured Finance NotesTotal
Level 3 assets, December 31, 2020$284,078 $15,067 $11,543 $52,984 $56,425 $420,097 
Net realized loss on investments(321)(7,548)(3,093)— — (10,962)
Net unrealized appreciation on investments3,672 9,605 3,734 15,653 148 32,812 
Amortization of Net Loan Fees1,061 43 — — 46 1,150 
Accretion of interest income on Structured Finance Notes— — — — 4,670 4,670 
Capitalized PIK interest and dividends679 222 105 — — 1,006 
Amendment fees(97)— — — — (97)
Purchase and origination of portfolio investments53,718 — — — 21,912 75,630 
Proceeds from principal payments on portfolio investments(81,523)(91)— — (8,600)(90,214)
Sale and redemption of portfolio investments(8,863)(91)— — — (8,954)
Proceeds from distributions received from portfolio investments— — — — (6,356)(6,356)
Transfers out of Level 3(895)— — — — (895)
Level 3 assets, June 30, 2021$251,509 $17,207 $12,289 $68,637 $68,245 $417,887 
The net unrealized appreciation (depreciation) reported in the Company’s consolidated statements of operations for the six months ended June 30, 2022 and 2021, attributable to the Company’s Level 3 assets still held at those respective period ends was as follows:
Six Months Ended June 30,
20222021
Senior secured debt investments$(5,490)$2,796 
Subordinated debt investments(2,458)2,071 
Preferred equity2,186 737 
Common equity, warrants and other15,846 15,653 
Structured Finance Notes(12,668)160 
Net unrealized appreciation (depreciation) on investments held$(2,584)$21,417 
47

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Other Financial Assets and Liabilities
The Company provides 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 financial instruments. The PWB Credit Facility and BNP Facility are variable rate instruments and fair value is estimated to approximate carrying value.
The following table sets forth carrying values and fair values of the Company’s debt as of June 30, 2022 and December 31, 2021:
As of June 30, 2022As of December 31, 2021
DescriptionCarrying ValueFair ValueCarrying ValueFair Value
PWB Credit Facility$— $— $— $— 
BNP Facility134,100 134,100 100,000 100,000 
Unsecured Notes Due February 2026122,142 110,843 121,774 123,130 
Unsecured Notes Due October 202853,703 52,536 53,672 56,430 
SBA-guaranteed debentures
50,601 50,642 69,365 73,011 
Total debt$360,546 $348,121 $344,811 $352,571 
The following tables present the fair value measurements of the Company's debt and indicate the fair value hierarchy of the significant unobservable inputs utilized by the Company to determine such fair values as of June 30, 2022 and December 31, 2021:
June 30, 2022
DescriptionLevel 1Level 2
Level 3 (1)
Total
PWB Credit Facility$— $— $— $— 
BNP Facility— — 134,100 134,100 
Unsecured Notes Due February 2026— — 110,843 110,843 
Unsecured Notes Due October 2028
52,536 — — 52,536 
SBA-guaranteed debentures
— — 50,642 50,642 
Total debt, at fair value$52,536 $— $295,585 $348,121 
December 31, 2021
DescriptionLevel 1Level 2
Level 3 (1)
Total
PWB Credit Facility$— $— $— $— 
BNP Facility— — 100,000 100,000 
Unsecured Notes Due February 2026— — 123,130 123,130 
Unsecured Notes Due October 2028
56,430 — — 56,430 
SBA-guaranteed debentures
— — 73,011 73,011 
Total debt, at fair value$56,430 $— $296,141 $352,571 
(1) For Level 3 measurements, fair value is estimated by discounting remaining payments at current market rates for similar instruments at the measurement date and considering such factors as the legal maturity date.

48

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Note 6. Commitments and Contingencies
As of June 30, 2022, the Company has outstanding commitments to fund investments totaling $37,261 under various undrawn revolvers and other credit facilities.
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 June 30, 2022.
Additionally, the Company is subject to periodic inspection by regulators to assess compliance with applicable BDC regulations and SBIC I LP is subject to periodic inspections by the SBA.
Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide for general indemnification. 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 yet occurred. The Company believes the risk of any material obligation under these indemnifications to be low.
Note 7. Borrowings
SBA Debentures: The SBA debentures issued by SBIC I LP and other SBA regulations generally restrict assets held by SBIC I LP. On a stand-alone basis, SBIC I LP held $175,942 and $195,502 in assets at June 30, 2022 and December 31, 2021, respectively, which accounted for approximately 31% and 34% of the Company’s total consolidated assets, respectively. These assets cannot be pledged under any debt obligation of the Company.
On February 28, 2022, SBIC I LP redeemed $19,000 of SBA debentures that were contractually due March 1, 2025 and September 1, 2025. As of June 30, 2022, SBIC I LP had outstanding debentures totaling $50,920, which bear a fixed interest rate of 2.87% and mature on March 1, 2025.
For the three and six months ended June 30, 2022 and 2021, the components of interest expense, cash paid for interest, effective interest rates and average outstanding balances for the SBA debentures were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stated interest expense$364 $703 $815 $1,472 
Amortization of debt issuance costs48 58 92 122 
   Total interest and debt financing costs$412 $761 $907 $1,594 
Cash paid for interest expense$— $— $1,002 $1,553 
Effective interest rate3.23 %3.19 %3.17 %3.33 %
Average outstanding balance$50,920 $95,505 $57,113 $95,721 
BNP Facility: On June 20, 2019, OFSCC-FS entered into the BNP Facility, which provides for borrowings in an aggregate principal amount up to $150,000. On June 24, 2022, OFSCC-FS amended the BNP facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027; (iii) convert the benchmark interest rate from LIBOR to SOFR; (iv) increase the applicable margin by 0.40% on all classes of loans; and (v) increase the applicable margin floor from 1.925% to 2.65%. OFSCC-FS also pays a non-usage fee depending on the size of the unused portion of the BNP Facility. Fees and legal costs incurred in connection with the BNP Facility are amortized over the life of the facility.
The BNP Facility is collateralized by all the assets held by OFSCC-FS. OFSCC-FS and the Company have each made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.
As of June 30, 2022 and December 31, 2021, OFSCC-FS had outstanding debt of $134,100 and $100,000, respectively. As of June 30, 2022, the unused commitment under the BNP Facility was $15,900.
49

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
For the three and six months ended June 30, 2022 and 2021, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the BNP Facility were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stated interest expense$1,005 $385 $1,621 $780 
Amortization of debt issuance costs69 57 136 112 
   Total interest and debt financing costs$1,074 $442 $1,757 $892 
Cash paid for interest expense$801 $360 $1,386 $757 
Effective interest rate3.21 %4.76 %2.92 %5.22 %
Average outstanding balance$133,876 $37,099 $120,438 $34,158 
PWB Credit Facility: On March 7, 2018, the Company entered into the PWB Credit Facility. On February 17, 2021, the Company amended the PWB Credit Facility to among other things: (i) increase the maximum amount available from $20,000 to $25,000; (ii) decrease the interest rate floor from 5.25% per annum to 5.00% per annum; (iii) modify certain financial performance covenants; and (iv) extend the maturity date from February 28, 2021 to February 28, 2023. On April 22, 2022, the Company amended the PWB Credit Facility to: (i) increase the maximum amount available under the PWB Credit Facility from $25,000 to $35,000; and (ii) extend the maturity date of the PWB Credit Facility from February 28, 2023 to February 28, 2024. On November 15, 2021, the Company amended the BLA to decrease the interest rate floor from 5.0% to 4.0%, effective as of November 1, 2021. Fees and legal costs incurred in connection with the PWB Credit Facility are amortized over the life of the facility.
The maximum availability of the PWB Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base as specified in the BLA. The PWB Credit Facility is guaranteed by OFSCC-MB and secured by all of our current and future assets, excluding assets held by SBIC I LP, OFSCC-FS, and the Company’s partnership interests in SBIC I LP and SBIC I GP. The Company has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.
As of June 30, 2022 and December 31, 2021, the Company had $-0- and $-0-, respectively, of outstanding debt under the PWB Credit Facility. As of June 30, 2022, the unused commitment under the PWB Credit Facility was $35,000.
For the three and six months ended June 30, 2022 and 2021, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the PWB Credit Facility were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stated interest expense(1)
$29 $12 $47 $52 
Cash paid for interest expense$28 $16 $46 $46 
Effective interest rate(2)
n/mn/mn/mn/m
Average outstanding balance$250 $— $377 $1,118 
(1) Stated interest expense includes unused fees.
(2) Not meaningful due to a considerable amount of unused fees in stated interest expense.
Unsecured NotesAs of June 30, 2022 and December 31, 2021, the Company had the following Unsecured Notes outstanding:
Unsecured Notes Due February 2026: On February 10, 2021 and March 18, 2021, the Company issued $125,000 in aggregate principal of unsecured notes. The Unsecured Notes Due February 2026 bear interest at a rate of 4.75% per year payable semi-annually and mature on February 10, 2026. The Company may redeem the Unsecured Notes Due February 2026 in whole or in part at any time, or from time to time, at its option at par plus a “make-whole” premium, if applicable.
Unsecured Notes Due October 2028: On October 28, 2021 and November 1, 2021, the Company issued $55,000 in aggregate principal of unsecured notes. The Unsecured Notes Due October 2028 bear interest at a rate of 4.95% per year payable semi-annually and mature on October 31, 2028. The Company may redeem the Unsecured Notes Due October 2028 in whole or in part at any time, or from time to time, at its option on or after October 31, 2023.
The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all current and future unsecured indebtedness of the Company. Because the Unsecured Notes are not secured by any of the Company's assets, they are
50

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which the Company subsequently grants a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the PWB Credit Facility.
The indenture governing the Unsecured Notes contains certain covenants, including: (i) prohibiting additional borrowings, including through the issuance of additional debt securities, unless the Company's asset coverage, as defined in the 1940 Act, after giving effect to any exemptive relief granted to the Company by the SEC, equals at least 150% after such borrowings; and (ii) prohibiting (a) the declaration of any cash dividend or distribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its treatment as a RIC under Subchapter M of the Code), or (b) the purchase of any capital stock unless the Company’s asset coverage, as defined in the 1940 Act, is at least 150% at the time of such capital transaction and after deducting the amount of such transaction.
For the three and six months ended June 30, 2022 and 2021, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the Unsecured Notes were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stated interest expense$2,165 $2,699 $4,330 $5,874 
Amortization of debt issuance costs261 327 523 654 
   Total interest and debt financing costs$2,426 $3,026 $4,853 $6,528 
Cash paid for interest expense$681 $1,195 $4,353 $4,910 
Effective interest rate5.39 %5.92 %5.39 %6.13 %
Average outstanding balance$180,000 $204,325 $180,000 $213,009 
The following table shows the scheduled maturities of the principal balances of the Company’s outstanding borrowings as of June 30, 2022:
 Payments due by period
TotalLess than
year
1-3 years4-5 yearsAfter 5 years
PWB Credit Facility$— $— $— $— $— 
Unsecured Notes180,000 — — 125,000 55,000 
SBA Debentures50,920 — 50,920 — — 
BNP Facility134,100 — — 134,100 — 
Total$365,020 $— $50,920 $259,100 $55,000 
For the three and six months ended June 30, 2022 and 2021, the average dollar borrowings and weighted average effective interest rate on the Company’s outstanding borrowings were as follows:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Average dollar borrowings$365,046 $336,929 $357,928 $344,005 
Weighted average effective interest rate4.32 %5.05 %4.23 %5.31 %
51

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Note 8. Financial Highlights
The following is a schedule of financial highlights for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended
June 30,
2022202120222021
Per share operating performance:
Net asset value per share at beginning of period$15.52 $11.96 $15.18 $11.85 
Net investment income(4)
0.47 0.24 0.69 0.43 
Net realized loss on investments, net of taxes(4)
(0.01)(0.81)— (0.80)
Net unrealized appreciation (depreciation) on investments, net of taxes(4)
(1.12)2.24 (0.71)2.52 
Loss on extinguishment of debt(4)
— — (0.01)(0.17)
  Total income (loss) from operations(0.66)1.67 (0.03)1.98 
Distributions(0.29)(0.22)(0.57)(0.42)
Issuance of common stock (8)
— 0.01 (0.01)0.01 
Net asset value per share at end of period$14.57 $13.42 $14.57 $13.42 
Per share market value, end of period$9.92 $9.96 $9.92 $9.96 
Total return based on market value(1)(7)
(21.5)%15.9 %(4.3)%45.6 %
Total return based on net asset value(2)(7)
(3.4)%14.7 %0.9 %18.4 %
Shares outstanding at end of period13,429,777 13,415,235 13,429,777 13,415,235 
Weighted average shares outstanding13,425,477 13,411,998 13,423,970 13,410,524 
Ratio/Supplemental Data (dollar amounts in thousands)
Average net asset value(3)
$202,049 $170,232 $202,614 $166,473 
Net asset value at end of period$195,712 $179,993 $195,712 $179,993 
Net investment income$6,248 $3,235 $9,253 $5,785 
Ratio of total expenses to average net assets(5)
8.3 %19.2 %12.0 %19.4 %
Ratio of total expenses and loss on extinguishment of debt to average net assets(5)
8.3 %19.2 %12.0 %20.7 %
Ratio of net investment income to average net assets(5)
12.4 %7.6 %9.1 %7.0 %
Ratio of loss on extinguishment of debt to average net assets(7)
— %— %0.1 %1.4 %
Portfolio turnover (6)
8.9 %12.7 %14.5 %25.3 %
(1)Calculated as ending market value less beginning market value, adjusted for distributions reinvested at prices based on the Company’s dividend reinvestment plan for the respective distributions.
(2)Calculated as ending net asset value less beginning net asset value, adjusted for distributions reinvested at the Company’s dividend reinvestment plan for the respective distributions.
(3)Based on the average of the net asset value at the beginning and end of the indicated period and if applicable the preceding calendar quarters.
(4)Calculated on the average share method.
(5)Annualized.
(6)Portfolio turnover rate is calculated using the lesser of period-to-date sales, Structured Finance Note distributions and principal payments or period-to-date purchases over the average of the invested assets at fair value.
(7)Not annualized.
(8)Common stock issued through DRIP.


52

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Note 9. Capital Transactions
Distributions: The Company intends to distribute to stockholders, on a quarterly basis, substantially all of its net investment income. In addition, although the Company intends to distribute at least annually net realized capital gains, net of taxes if any, out of assets legally available for such distribution, the Company may also retain such capital gains for investment through a deemed distribution.
The Company may be limited in its ability to make distributions due to the BDC asset coverage requirements of the 1940 Act. The Company’s ability to make distributions may be affected by SBIC I LP’s distributions to the Company, which are governed by SBA regulations and may require the prior approval of the SBA. In addition, distributions from OFSCC-FS to the Company are restricted by the terms and conditions of the BNP Facility. Net assets of SBIC I LP were $124,765, and consolidated cash at June 30, 2022 includes $7,460 held by SBIC I LP, of which $3,474 was available for distribution to the Parent. Net Assets of OFSCC-FS were $73,442, and consolidated cash at June 30, 2022 includes $2,906 held by OFSCC-FS, of which $-0- was available for distribution to the Parent.
The following table summarizes distributions declared and paid for the six months ended June 30, 2022 and 2021:
Date DeclaredRecord DatePayment DateAmount
Per Share
Cash
Distribution
DRIP Shares
Issued
DRIP Shares
Value
Six Months Ended June 30, 2021
March 2, 2021March 24, 2021March 31, 2021$0.20 $2,655 3,103 $27 
May 11, 2021June 23, 2021June 30, 20210.22 2,918 3,273 33 
$0.42 $5,573 6,376 $60 
Six Months Ended June 30, 2022
March 1, 2022March 24, 2022March 31, 2022$0.28 $3,719 3,016 $39 
May 3, 2022June 23, 2022June 30, 20220.29 3,850 4,348 43 
$0.57 $7,569 7,364 $82 
Distributions in excess of the Company’s current and accumulated ICTI would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of the Company’s distributions is made annually as of the end of its fiscal year based upon its estimated ICTI for the full year and distributions paid for the full year. Each year, a statement on Form 1099-DIV identifying the tax character of distributions is mailed to the Company’s stockholders.
Stock Repurchase Program:
The Company maintains a Stock Repurchase Program under which the Company may acquire up to $10.0 million of its outstanding common stock. On May 3, 2022, the Board extended the Stock Repurchase Program for an additional two-year period ending May 22, 2024, or until the approved dollar amount has been used to repurchase shares.
The following table summarizes shares of common stock repurchased under the Stock Repurchase Program during the six months ended June 30, 2022 and 2021, respectively.
Period
Total Number
of Shares Purchased
Cost of Shares PurchasedAverage Price Paid Per Share
Six Months Ended June 30, 2021
January 1, 2021 through March 31, 2021700 $$6.70 
April 1, 2021 through June 30, 2021— $— $— 
Six Months Ended June 30, 2022
January 1, 2022 through March 31, 2022— $— $— 
April 1, 2022 through June 30, 2022— $— $— 
53

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Note 10. Consolidated Schedule of Investments In and Advances To Affiliates
Six Month Period Ended June 30, 2022
Name of Portfolio CompanyInvestment Type (1)Net Realized Gain (Loss)Net change in unrealized appreciation/(depreciation)Interest & PIK InterestDividendsFeesTotal Income (2) December 31, 2021, Fair ValueGross
Additions (3)
Gross
Reductions (4)
June 30, 2022, Fair Value (5)
Control Investment
MTE Holding Corp.
Subordinated Loan$— $— $141 $— $$147 $8,195 $35 $(8,230)$— 
Common Equity278 (1,684)— 45 — 45 4,753 — (4,753)— 
278 (1,684)141 45 192 12,948 35 (12,983)— 
Total Control Investment
278 (1,684)141 45 192 12,948 35 (12,983)— 
Affiliate Investments
Contract Datascan Holdings, Inc.Preferred Equity (6)— 1,739 — — — — 2,748 1,739 — 4,487 
Common Equity (6)— 109 — — — — 25 109 — 134 
— 1,848 — — — — 2,773 1,848 — 4,621 
DRS Imaging Services, LLCCommon Equity (6)— (20)— — — — 1,289 — (20)1,269 
Master Cutlery, LLCSubordinated Loan (6)— (522)— — — — 699 — (538)161 
Preferred Equity (6)— — — — — — — — — — 
Common Equity (6)— — — — — — — — — — 
— (522)— — — — 699 — (538)161 
Pfanstiehl Holdings, IncCommon Equity— 17,413 — — — — 65,740 17,413 — 83,153 
TalentSmart Holdings, LLCCommon Equity (6)— (45)— — — — 1,095 (45)— 1,050 
TRS Services, Inc.Preferred Equity— 359 — — 988 359 — 1,347 
Common Equity (6)— — — — — — — — — 
— 359 — — 988 359 — 1,347 
Total Affiliate Investments— 19,033 — — 72,584 19,575 (558)91,601 
Total Control and Affiliate Investments$278 $17,349 $141 $50 $$197 $85,532 $19,610 $(13,541)$91,601 
54

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
(1)Principal balance, interest rate and maturity of debt investments, and ownership detail for equity investments are presented in the consolidated schedule of investments. The Company's investments are generally classified as “restricted securities” as such term is defined under Regulation S-X Rule 6-03(f) or Securities Act Rule 144.
(2)Represents the total amount of interest, fees or dividends included in income for the six months ended June 30, 2022, during which an investment was included in the Control Investment or Affiliate Investment categories.
(3)Gross additions include increases in cost basis of investments resulting from a new portfolio investment, PIK interest, fees and dividends; accretion of OID, and net increases in unrealized appreciation or decreases in net depreciation.
(4)Gross reductions include decreases in the cost basis of investments resulting from principal repayments and sales, if any, and net decreases in net unrealized appreciation or net increases in net depreciation.
(5)Fair value was determined using significant unobservable inputs. See Note 5 for further details.
(6)Non-income producing.
55

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data)
Note 11. Subsequent Events
On August 2, 2022, the Board declared a distribution of $0.29 per share for the third quarter of 2022, payable on September 30, 2022 to stockholders of record as of September 23, 2022.
56



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. For additional overview information on the Company, see “Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Key performance metrics are presented below:
June 30, 2022March 31, 2022
Net asset value per common share$14.57 $15.52 
Three Months Ended
June 30, 2022March 31, 2022
Net investment income per common share$0.47 $0.22 
Net increase (decrease) in net assets resulting from operations per common share(0.66)0.62 
Distributions paid per common share0.29 0.28 
Adjusted NII Per Common Share(1) — Non-GAAP
Net investment income per common share$0.47 $0.22 
Capital gain incentive fee accrual per common share(0.23)0.08 
Adjusted NII per common share — Non-GAAP$0.24 $0.30 
(1) Adjusted NII is a financial measure calculated and presented on a basis other than in accordance with GAAP. For additional information regarding Adjusted NII, see “Results of Operations—Non-GAAP Financial Measure—Adjusted Net Investment Income”.
Our NAV per common share decreased 6.1% from $15.52 at March 31, 2022 to $14.57 at June 30, 2022, primarily due to net losses on our investment portfolio of $15.1 million, or $1.12 per common share. For the quarter ended June 30, 2022, net losses were primarily related to unrealized depreciation on our Structured Finance Notes and broadly syndicated loan investments due to widening of liquid credit market spreads.
For the quarter ended June 30, 2022, net investment income increased $0.25 per share to $0.47 per share primarily due to a $3.0 million, or $0.23 per share, reversal of previously accrued Capital Gains Fee. The reversal of previously accrued Capital Gains Fee was due to aggregate net unrealized depreciation recognized during the quarter ended June 30, 2022 due to widening of liquid credit market spreads. Total interest income increased $0.5 million compared to the prior quarter, primarily related to an increase in interest income on our Structured Finance Notes, accelerations of Net Loan Fees from loan prepayments, rising interest rates and higher average invested asset balances. For the quarter ended June 30, 2022, dividend and fee income decreased $1.0 million compared to the prior quarter, primarily due to a decrease in non-recurring cash dividends and syndication fees.
For the quarter ended June 30, 2022, our weighted-average debt interest costs increased to 4.3% compared to 4.2% for the quarter ended March 31, 2022, primarily due to an increase in the cost of debt on our BNP Facility resulting from LIBOR rate increases. As of June 30, 2022, approximately 63% of our outstanding debt was fixed rate and 100% of our outstanding debt matures in 2025 and beyond.
On August 2, 2022, the Board declared a distribution of $0.29 per share for the third quarter of 2022, payable on September 30, 2022 to stockholders of record as of September 23, 2022.
As of June 30, 2022 and March 31, 2022, floating rate loans at fair value, excluding Structured Finance Notes, comprised 93% of our debt portfolio. Structured Finance Notes generally do not carry a stated rate of interest, but the loan portfolios underlying these investments are generally variable rate debt.
During the quarter ended June 30, 2022, our Structured Finance Note and broadly syndicated loan investments experienced net losses of $9.3 million and $7.0 million, respectively, largely related to widening of liquid credit market spreads. Our directly originated investments experienced a net gain of $1.1 million primarily due to a $7.8 million increase in the fair value of our common equity in Pfanstiehl Holdings, Inc. as a result of positive financial operating results. Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 15.2% of our portfolio at fair value, and
57


42.5% of our consolidated net assets as of June 30, 2022. During the quarter ended June 30, 2022, our subordinated loan in Eblens Holdings, Inc. and our second lien senior secured loan in Envocore Holdings, LLC, were placed on non-accrual status. The Envocore Holdings, LLC second lien senior secured loan is a PIK loan where we stopped accruing our PIK coupon due to a decline in its fair value; however, that portfolio company remains current on another debt tranche that requires cash interest payments. As of June 30, 2022, our loan portfolio had four non-accrual loans with an aggregate fair value of $17.8 million, or 3.3% of our total investments at fair value, compared to two non-accrual loans with an aggregate fair value of $7.8 million, or 1.4% of our total investments at fair value, at March 31, 2022.
As of June 30, 2022, we had unfunded commitments of $37.3 million to 17 portfolio companies. During the quarter ended June 30, 2022, we purchased Structured Finance Notes for a cost of $21.1 million and funded $31.3 million in new and existing Portfolio Company Investments.
At June 30, 2022, our asset coverage ratio of 162% exceeded the minimum asset coverage requirement of 150% under the 1940 Act, and we remained in compliance with all applicable covenants under our outstanding debt facilities. As of June 30, 2022, we had an unused commitment of $35.0 million under our PWB Credit Facility, as well as an unused commitment of $15.9 million under our BNP Facility, each of which are subject to a borrowing base and other covenants. Based on our portfolio's fair value and our equity capital at June 30, 2022, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements.
On April 22, 2022, we amended the PWB Credit Facility to, among other things, increase the maximum amount available under the PWB Credit Facility from $25.0 million to $35.0 million. On June 24, 2022, we amended the BNP Facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; and (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and expect to continue to selectively deploy capital in new investment opportunities in this challenging environment.
Our financial condition, including the fair value of our portfolio investments, and results of operations may be materially impacted after June 30, 2022 by circumstances and events that are not yet known. To the extent our portfolio investments are adversely impacted by the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, rising interest rates, inflationary pressures, or by other factors, we may experience a material adverse impact on our future net investment income, the underlying value of our investments, our financial condition and the financial condition of our portfolio investments.
We are also subject to financial risks, including changes in market interest rates. As of June 30, 2022, approximately $331.0 million (aggregate fair value), or 93%, of our debt investments bore interest at variable rates, of which 83% are LIBOR-based. We have prepared and planned for the transition away from LIBOR by incorporating alternate reference rates to be used in our credit agreements and making other preparations, and believe the impact of the transition will be minimal. However, it is not possible to predict the effect of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. Additionally, on March 16, 2022, May 4, 2022, June 15, 2022 and July 27, 2022, the U.S. Federal Reserve approved interest rate increases and signaled that additional increases may be likely to combat inflation.
Critical Accounting Policies and Significant Estimates
Our critical accounting policies and estimates are those relating to revenue recognition and fair value estimates. Management has discussed the development and selection of each critical accounting policy and estimate with the Audit Committee of the Board. For descriptions of our revenue recognition and fair value policies, see “Item 8. Financial Statements - Notes to Financial Statements - Note 2” and “Management's Discussion and Analysis - Critical Accounting Policies and Significant Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Fair value estimates. In December 2020, the SEC issued a final rule adopting Rule 2a-5 under the 1940 Act to establish requirements for determining fair value in good faith for purposes of the 1940 Act. We are evaluating the impact of adopting Rule 2a-5 on the consolidated financial statements and intend to comply with the new rule’s mandatory requirements on or before the compliance date in September 2022.
58


The following table illustrates the impact of our fair value measures if we selected the low or high end of the range of values for all investments at June 30, 2022 (dollar amounts in thousands):
Investment Type
Fair Value at June 30, 2022Range of Fair Value
Low-endHigh-end
Debt investments:   
Senior secured
$348,676 $344,259 $353,293 
Subordinated
7,303 5,015 9,663 
Structured Finance Notes:
Subordinated notes
54,747 52,392 57,099 
Mezzanine debt
26,631 26,371 26,887 
Loan accumulation facilities8,500 8,500 8,500 
Equity investments:
Preferred equity
5,951 5,392 6,452 
Common equity, warrants and other
95,869 89,990 101,772 
$547,677 $531,919 $563,666 
Related Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment Advisory Agreement we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cash but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well as an incentive fee based on our investment performance. See “Item 1–Financial Statements–Note 3”.
The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative services necessary to conduct our operations. See “Item 1–Financial Statements–Note 3”.
A license agreement with OFSAM, the parent company of OFS Advisor, under which OFSAM has agreed to grant us a non-exclusive, royalty-free license to use the name “OFS.” Under this agreement, we have a right to use the “OFS” name for so long as OFS Advisor or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “OFS” name. This license agreement will remain in effect for so long as the Investment Advisory Agreement with OFS Advisor is in effect.
OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to other entities, including other funds affiliated with OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser to CLO funds and other assets, including HPCI and OCCI. Additionally, OFS Advisor provides sub-advisory services to CMFT Securities Investments, LLC, a wholly owned subsidiary of CIM Real Estate Finance Trust, Inc., a corporation that qualifies as a real estate investment trust. Additionally, OFS Advisor serves as sub-adviser to CIM Real Assets & Credit Fund, an externally managed registered investment company that operates as an interval fund that invests primarily in a combination of real estate, credit and related investments. 
Effective January 1, 2022, OFS Advisor agreed to reduce its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (excluding cash) at the end of the two most recently completed calendar quarters. OFS Advisor’s base management fee reduction is renewable on an annual basis and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets. OFS Advisor most recently renewed the agreement for the calendar year 2022 on February 4, 2022.
The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On August 4, 2020, we received the Order, which superseded a previous order we received on October 12, 2016, and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds. We are generally permitted to co-invest with Affiliated Funds if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our
59


stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
In addition, we may file an application for an amendment to our existing Order to permit us to continue to co-invest in our existing portfolio companies with certain affiliates that are private funds even if such other funds had not previously invested in such existing portfolio company, subject to certain conditions. However, if filed, there is no guarantee that such application will be granted.
Conflicts may arise when we make an investment in conjunction with an investment being made by an Affiliated Account, or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company’s capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Potential conflicts arise when addressing, among other things, questions as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced. For a discussion of the risks associated with conflicts of interest, see “Item 1. Business — Conflicts of Interest”, “Item 1A. Risk Factors — Risks Related to OFS Advisor and its Affiliates —We have potential conflicts of interest related to the purchases and sales that OFS Advisor makes on our behalf and/or on behalf of Affiliated Accounts” and “Item 1A. Risk Factors — Regulations — Conflicts of Interest - Conflicts Related to Portfolio Investments” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Portfolio Composition and Investment Activity
Portfolio Composition
As of June 30, 2022, the fair value of our debt investment portfolio totaled $356.0 million in 66 portfolio companies, of which 98% and 2% were senior secured loans and subordinated loans, respectively. As of June 30, 2022, we had equity investments in 17 portfolio companies with a fair value of approximately $101.8 million. We also have 23 investments in Structured Finance Notes with a fair value of $89.9 million. We had unfunded commitments of $37.3 million to 17 portfolio companies at June 30, 2022. Set forth in the tables and charts below is selected information with respect to our portfolio as of June 30, 2022 and December 31, 2021.
The following table presents our investment portfolio by each wholly owned legal entity within the consolidated group as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):
June 30, 2022December 31, 2021
Amortized CostFair ValueAmortized CostFair Value
OFS Capital Corporation (Parent)$197,195 $173,722 $157,190 $150,254 
SBIC I LP94,533 167,825 125,584 183,524 
OFSCC-FS212,374 202,975 171,101 170,132 
OFSCC-MB3,382 3,155 3,437 3,189 
Total investments
$507,484 $547,677 $457,312 $507,099 
60


The following table presents our ten largest debt and equity investments by portfolio company based on fair value as of June 30, 2022 (dollar amounts in thousands):
Amortized CostFair Value% of Total Portfolio, at Fair Value
Pfanstiehl Holdings, Inc.$217 $83,153 15.2 %
All Star Auto Lights, Inc.22,935 23,217 4.2 %
Milrose Consultants, LLC22,719 22,247 4.1 %
Kreg LLC20,093 19,850 3.6 %
Tolemar Acquisition, Inc.16,251 16,301 3.0 %
The Escape Game, LLC16,295 16,206 3.0 %
Inergex Holdings, LLC14,990 15,260 2.8 %
SSJA Bariatric Management, LLC13,350 13,356 2.4 %
Boca Home Care Holdings, Inc.10,857 10,566 1.9 %
Envocore Holding, LLC (F/K/A LRI Holding, LLC)18,468 10,383 1.9 %
  Total $156,175 $230,539 42.1 %
As of June 30, 2022 and December 31, 2021, approximately 4.1% and 11.5% of our total portfolio at fair value and net assets, respectively, were comprised of Structured Finance Notes managed by a single adviser.
Portfolio Yields
The following table presents weighted-average yields metrics for our portfolio as of June 30, 2022 and March 31, 2022:
For the Three Months Ended
June 30, 2022March 31, 2022
Weighted-average performing current yield(1):
Debt investments7.4 %7.5 %
Structured Finance Notes13.1 %14.2 %
Interest-bearing investments8.6 %8.8 %
Weighted-average performing income yield(2):
Debt investments7.9 %7.7 %
Structured Finance Notes13.5 %14.3 %
Interest-bearing investments9.1 %9.0 %
Weighted-average realized yield:
Interest-bearing investments(3)
8.6 %8.6 %
Total portfolio(4)
8.2 %8.2 %
(1)    Current yield is calculated as (a) the actual amount earned on performing investments, including interest and prepayment fees but excluding amortization of Net Loan Fees, divided by (b) the weighted-average of total performing investments amortized cost.
(2)    Income yield is calculated as (a) the actual amount earned on performing investments, including interest and prepayment fees and amortization of Net Loan Fees, divided by (b) the weighted-average of total performing investment amortized cost.
(3)    Realized yield is computed as (a) the actual amount earned on interest-bearing investments, including interest, prepayment fees and Net Loan Fees, divided by (b) the weighted-average of total interest-bearing investments amortized cost, in each case, including debt investments on non-accrual status and non-income producing Structured Finance Notes.
(4)    Realized yield is computed as (a) the actual amount earned on all investments including interest, dividends and prepayment fees, amortization of Net Loan Fees, and dividends received divided by (b) the weighted-average of total investments amortized cost or cost.
61


For the quarter ended June 30, 2022, the weighted average realized yield remained stable compared to the prior quarter, primarily due to LIBOR rate increases, offset by two loans being placed on non-accrual status during the quarter.
Weighted-average yields of our investments are not the same as a return on investment for our stockholders, but rather the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted average yields will remain at their current levels.
Portfolio Company Investments
The following table summarizes the composition of our Portfolio Company Investments as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):
June 30, 2022December 31, 2021
Amortized CostFair ValueAmortized CostFair Value
Senior secured debt investments$369,001 $348,676 $336,132 $326,704 
Subordinated debt investments13,890 7,303 22,071 17,943 
Preferred equity9,501 5,951 9,552 3,765 
Common equity, warrants and other (1)
12,750 95,869 14,606 83,486 
  Total Portfolio Company Investments
$405,142 $457,799 $382,361 $431,898 
Number of portfolio companies78 78 70 70 
(1)    As of June 30, 2022, other investments represent equity participation right investments with an aggregate cost and fair value of $4.7 million and $7.2 million, respectively. As of December 31, 2021, other investments represent equity participation right investments with an aggregate cost and fair value of $4.7 million and $7.4 million, respectively.
At June 30, 2022, 98% and 64% of our loan portfolio and total portfolio, respectively, consisted of senior secured loans, based on fair value. We believe the seniority of our debt investments in the borrowers’ capital structures may provide greater downside protection against adverse economic changes, including those caused by the impacts of the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, rising interest and inflation rates and related market volatility.
As of June 30, 2022, the three largest industries of our Portfolio Company Investments by fair value, were (1) Manufacturing (27.2%), (2) Health Care and Social Assistance (15.3%) and (3) Professional, Scientific, and Technical Services(9.4%), totaling approximately 51.9% of our Portfolio Company Investment portfolio. For a full summary of our investment portfolio by industry, see “Item 1–Financial Statements–Note 4.”
As of June 30, 2022, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 15.2% and 42.5% of our total portfolio at fair value and our total net assets, respectively. Due to increased financial operating results, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc. has increased by $17.4 million, to $83.2 million, during the six months ended June 30, 2022. The value of this investment is substantially comprised of unrealized appreciation of $82.9 million. A deterioration in the operating performance of the company or other factors underlying the valuation of this investment could have a material impact on our NAV.
62


Structured Finance Notes
The following table summarizes the composition of our Structured Finance Notes as of June 30, 2022, and December 31, 2021 (in thousands):
June 30, 2022December 31, 2021
Amortized CostFair ValueAmortized CostFair Value
Subordinated notes$65,855 $54,747 $63,791 $63,922 
Mezzanine debt27,987 26,631 2,660 2,779 
Loan accumulation facilities8,500 8,500 8,500 8,500 
Total Structured Finance Notes$102,342 $89,878 $74,951 $75,201 
Investment Activity
The following is a summary of our investment activity for the three and six months ended June 30, 2022 (dollar amounts in millions):
 Three Months Ended
June 30, 2022
Six Months Ended June 30, 2022
Investments in new Portfolio Companies$26.9 $59.8 
Investments in existing Portfolio Companies4.4 19.6 
Investments in Structured Finance Notes21.1 43.2 
Total investment purchases and originations$52.4 $122.6 
Proceeds from principal payments and equity distributions$34.9 $54.5 
Proceeds from investments sold or redeemed9.1 12.2 
Proceeds from distributions received from Structured Finance Notes5.5 11.2 
Total proceeds from principal payments, equity distributions and investments sold$49.5 $77.9 
During the six months ended June 30, 2022, notable investments in new portfolio companies, included 24 Seven Holdco, LLC ($8.9 million senior secured loan), Atlantis Holding, LLC ($8.1 million senior secured loan), Tony's Finer Foods Enterprises, LLC ($7.9 million senior secured loan) and Boca Home Care Holdings, Inc. ($9.6 million senior secured loan).
During the six months ended June 30, 2022, notable principal payments included SourceHOV Tax, Inc. ($19.8 million senior secured loan).
The following is a summary of our investment activity for the three and six months ended June 30, 2021 (dollar amounts in millions):
 Three Months Ended
June 30, 2021
Six Months Ended
June 30, 2021
Investments in new Portfolio Companies$26.5 $62.8 
Investments in existing Portfolio Companies18.0 44.2 
Investments in Structured Finance Notes15.7 21.9 
Total investment purchases and originations$60.2 $128.9 
Proceeds from principal payments and equity distributions$52.2 $100.8 
Proceeds from investments sold or redeemed9.7 10.3 
Proceeds from distributions received from Structured Finance Notes3.7 6.4 
Total proceeds from principal payments, equity distributions and investments sold$65.6 $117.5 
Notable investments in new portfolio companies during the six months ended June 30, 2021, included KNS Acquisition Corp. ($5.0 million senior secured loan), Electrical Components International, Inc. ($5.6 million senior secured loan) and TruGreen Limited Partnership ($4.7 million senior secured loan).
63


Risk Monitoring
We categorize investments in the debt securities of portfolio companies into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see “Item 1. Business–Portfolio Review/Risk Monitoring” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 4, 2022. The following table shows the classification of our debt securities of portfolio companies, excluding Structured Finance Notes, by credit risk rating as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):
Debt Investments, at Fair Value
Risk CategoryJune 30, 2022December 31, 2021
1 (Low Risk)$— — %$— — %
2 (Below Average Risk)
— — — — 
3 (Average)330,264 92.9 324,370 94.2 
4 (Special Mention)18,251 5.1 12,550 3.6 
5 (Substandard)7,303 2.1 7,027 2.0 
6 (Doubtful)161 — 699 0.2 
7 (Loss)— — — — 
$355,979 100.1 %$344,646 100.0 %
As of June 30, 2022, our risk ratings remained stable compared to December 31, 2021. During the six months ended June 30, 2022, a debt investment with an amortized cost and fair value of $9.2 million and $7.1 million, respectively, had a risk rating downgrade from risk category 3 to risk category 4.
Non-Accrual Loans
Management reviews all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal, cash interest, or PIK interest will be collected, for placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest is credited to income and is reversed. Additionally, Net Loan Fees are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal, interest and when, in the judgment of management, the investments are estimated to be fully collectible as to all principal and interest. During the quarter ended June 30, 2022, two loans with an aggregate amortized cost and fair value of $15.8 million and $10.4 million, respectively, were placed on non-accrual status. The aggregate amortized cost and fair value of loans on non-accrual status with respect to all interest and Net Loan Fee amortization was $34.7 million and $17.8 million, respectively, at June 30, 2022, and $19.1 million and $7.7 million, respectively, at December 31, 2021.
Results of Operations
Our key financial measures are described in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations–Results of Operations–Key Financial Measures” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 4, 2022. The following is a discussion of the key financial measures that management employs in reviewing the performance of our operations.
We do not believe that our historical operating performance is necessarily indicative of our future results of operations. We are primarily focused on debt investments in middle-market and larger companies in the United States and, to a lesser extent, equity investments, including warrants and other minority equity securities, and Structured Finance Notes, which differs to some degree from our historical investment concentration, in that we now also focus on the debt of larger U.S. companies and Structured Finance Notes. Moreover, as a BDC and a RIC, we also are subject to certain constraints on our operations, including, but not limited to, limitations imposed by the 1940 Act and the Code. In addition, SBIC I LP is subject to regulation and oversight by the SBA. For the reasons described above, the results of operations described below may not necessarily be indicative of the results we expect to report in future periods.
Net increase (decrease) in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, annual comparisons of net increase (decrease) in net assets resulting from operations may not be meaningful.
The following analysis compares our quarterly results of operations to the preceding quarter, as well as our year-to-date results of operations to the corresponding period in the prior year. We believe a comparison of our current quarterly results
64


to the preceding quarter is more meaningful and transparent than a comparison to the corresponding prior-year quarter as our results of operations are not influenced by seasonal factors the latter comparison is designed to elicit and highlight.
Comparison of the three months ended June 30, 2022 and March 31, 2022 and comparison of the six months ended June 30, 2022 and 2021
Consolidated operating results for the three months ended June 30, 2022 and March 31, 2022 and the six months ended June 30, 2022 and 2021 are as follows (in thousands):
Three Months EndedSix Months Ended June 30,
June 30, 2022March 31, 202220222021
Investment income
Interest income:
Cash interest income$7,283 $7,013 $14,296 $13,809 
PIK interest income49 278 327 837 
Net Loan Fee amortization
509 267 777 1,466 
Accretion of interest income on Structured Finance Notes2,503 2,282 4,785 4,670 
Other interest income
12 
Total interest income10,345 9,842 20,188 20,794 
Dividend income:
Preferred equity PIK dividends— — — 106 
Cash dividends758 763 136 
Total dividend income758 763 242 
Fee income:
Syndication fees— 257 257 656 
Prepayment and other fees
82 89 170 215 
Total fee income82 346 427 871 
Total investment income10,432 10,946 21,378 21,907 
Total expenses4,184 7,941 12,125 16,122 
Net investment income6,248 3,005 9,253 5,785 
Net gain (loss) on investments(15,072)5,500 (9,572)23,129 
Loss on extinguishment of debt— (144)(144)(2,299)
Net increase (decrease) in net assets resulting from operations$(8,824)$8,361 $(463)$26,615 
Interest income by debt investment type for the three months ended June 30, 2022 and March 31, 2022 and six months ended June 30, 2022 and 2021, is summarized below (in thousands):
Three Months EndedSix Months Ended June 30,
June 30, 2022March 31, 202220222021
Interest income:
Senior secured debt investments
$7,021 $6,416 $13,438 $14,818 
Subordinated debt investments
— 444 444 1,306 
Structured Finance Notes
3,324 2,982 6,306 4,670 
Total interest income10,345 9,842 20,188 20,794 
  Less Net Loan Fees accelerations(221)(40)(261)(893)
Recurring interest income$10,124 $9,802 $19,927 $19,900 
Investment Income
For the quarter ended June 30, 2022, total investment income of $10.4 million decreased by $0.5 million compared to the quarter ended March 31, 2022, primarily due to a decrease of $1.0 million in dividend and fee income, offset by an increase of $0.5 million in interest income.
65


Interest income increased $0.5 million during the three months ended June 30, 2022 compared to the prior quarter primarily due to an increase in our portfolio’s weighted-average performing income yield to 9.1% for the quarter ended June 30, 2022 from 9.0% in the prior quarter, primarily due to increases in LIBOR and SOFR rates.
Syndication fees, prepayment fees and the acceleration of Net Loan Fees are considered non-recurring and generally result from periodic transactions rather than from holding portfolio investments. Syndication fees, which are recognized when OFS Advisor sources, structures, and arranges the lending group, and for which we are additionally compensated, decreased to $-0- for the quarter ended June 30, 2022 from $0.3 million in the prior quarter.
For the six months ended June 30, 2022, total investment income of $21.4 million decreased by $0.5 million compared to the corresponding period in the prior year, primarily due to a decrease of interest and fee income, offset by an increase in dividend income.
Expenses
Operating expenses for the three months ended June 30, 2022 and March 31, 2022 and six months ended June 30, 2022 and 2021, are presented below (in thousands):
Three Months EndedSix Months Ended June 30,
June 30, 2022March 31, 202220222021
Interest expense$3,943 $3,624 $7,567 $9,066 
Management fee2,056 2,020 4,076 3,710 
Income Incentive Fee— — — 809 
Capital Gains Fee(2,988)1,072 (1,916)— 
Professional fees352 407 759 876 
Administration fee423 451 874 1,007 
Other expenses398 367 765 654 
Total expenses$4,184 $7,941 $12,125 $16,122 
Comparison of the three months ended June 30, 2022 and March 31, 2022
Interest expense for the quarter ended June 30, 2022 increased $0.3 million compared to the prior quarter primarily due to the increase in the weighted average balance on our BNP Facility from $106.9 million to $133.9 million.
Management fee expense for the quarter ended June 30, 2022 remained stable compared to the prior quarter.
The incentive fees earned by OFS Advisor for the quarter ended June 30, 2022 decreased $4.1 million compared to the prior quarter, primarily due to a decrease of $3.0 million in the accrued Capital Gains Fee. As of March 31, 2022 and December 31, 2021, we had accrued a Capital Gains Fee of $3.0 million and $1.9 million, respectively. During the three months ended June 30, 2022, a full reversal of the previously accrued $3.0 million Capital Gains Fee was recognized as a result of the reduction in net unrealized appreciation on the investment portfolio. As of June 30, 2022, there is no accrued Capital Gains Fee included in the amounts payable to investment adviser and affiliates as listed on the consolidated statements of assets and liabilities.
For the quarter ended June 30, 2022, professional fees, administration fees and other expenses remained stable compared to the prior quarter.
Comparison of the six months ended June 30, 2022 and 2021
Interest expense for the six months ended June 30, 2022 decreased $1.5 million compared to the corresponding period in the prior year, primarily due to the decrease in the weighted average effective interest rate on our total outstanding debt from 5.31% to 4.23% during the six months ended June 30, 2021.
Management fee expense for the six months ended June 30, 2022 increased $0.4 million compared to the corresponding period in the prior year, primarily due to an increase in the average portfolio fair value to $507.1 million compared to $464.1 million for the six months ended June 30, 2021.
The incentive fees earned by OFS Advisor for the six months ended June 30, 2022 decreased $2.7 million compared to the corresponding period in the prior year, primarily due to pre-incentive fee net investment income not exceeding the performance hurdle for incentives during the quarter ended March 31, 2022 and June 30, 2022, as well as the full reversal of a previously accrued Capital Gains Fee of $1.9 million.
For the six months ended June 30, 2022, professional fees, administration fees and other expenses remained stable compared to the corresponding period in the prior year.
66


Net realized and unrealized gain (loss) on investments
Net gain (loss), inclusive of realized and unrealized gains (losses), by investment type for the three months ended June 30, 2022 and March 31, 2022 and six months ended June 30, 2022 and 2021, were as follows (in thousands):
Three Months EndedSix Months Ended June 30,
June 30, 2022March 31, 202220222021
Senior secured debt$(9,945)$(1,198)$(11,141)$4,796 
Subordinated debt(2,034)(424)(2,458)2,071 
Preferred equity(244)2,391 2,186 640 
Common equity, warrants and other6,380 8,269 14,610 15,744 
Structured Finance Notes(9,266)(3,449)(12,715)147 
Income tax expense on net realized investment gains— (48)(48)— 
Deferred tax benefit (expense)35 (41)(6)(269)
Total net gain (loss) on investments$(15,074)$5,500 $(9,572)$23,129 
Net gain (loss) on investments for the three months ended June 30, 2022 and March 31, 2022
Three months ended June 30, 2022
Our portfolio experienced net losses of $15.1 million in the second quarter of 2022, primarily as a result of unrealized depreciation of $9.3 million and $6.7 million on our Structured Finance Notes and broadly syndicated loan investments, respectively, attributable to widening of liquid credit market spreads. These losses were partially offset by net gains, primarily consisting of unrealized appreciation on our common equity investments that were primarily attributable to an increase in fair value of $7.8 million on our equity investment in Pfanstiehl Holdings, Inc.
Three months ended March 31, 2022
Our portfolio experienced net gains of $5.5 million in the first quarter of 2022, principally due to a $10.0 million, or 3.1%, increase in the fair values of our directly originated debt and equity investments. During the first quarter of 2022, we experienced unrealized losses of $1.0 million and $3.4 million on our broadly syndicated loans and Structured Finance Notes primarily, respectively, primarily due to widening of liquid credit market spreads.
Net gains on our common equity investments were primarily attributable to the $9.6 million improvement in Pfanstiehl Holdings, Inc.
Net gain (loss) on investments for the six months ended June 30, 2022 and June 30, 2021
Six months ended June 30, 2022
During the six months ended June 30, 2022, our portfolio experienced net losses of $13.1 million and $12.7 million on our debt investments and Structured Finance Notes, respectively, primarily due to widening of liquid credit market spreads. These net losses were partially offset by a net gain of $17.4 million on our common equity investment in Pfanstiehl Holdings, Inc.
Six months ended June 30, 2021
Our portfolio experienced net gains of $23.1 million during the six months ended June 30, 2021, principally due to a $22.6 million net gain on our directly originated debt and equity investments. During the six months ended June 30, 2021, our common equity investment in Pfanstiehl Holdings, Inc. and our subordinated debt investment in Eblens Holdings, Inc. had unrealized appreciation of $13.0 million and $4.0 million, respectively.
Loss on Extinguishment of Debt
Six months ended June 30, 2022
During the six months ended June 30, 2022, we redeemed $19.0 million of SBA debentures and, as a result, we recognized losses on extinguishment of debt of $0.1 million related to the charge-off of unamortized deferred borrowing costs on the redeemed debentures.
Six months ended June 30, 2021
During the six months ended June 30, 2021, we redeemed $9.8 million of SBA debentures and $98.5 million of unsecured notes, and, as a result, we recognized losses on extinguishment of debt of $2.3 million related to the charge-off of deferred borrowing costs on these instruments.
67


Non-GAAP Financial Measure – Adjusted Net Investment Income
On a supplemental basis, we disclose adjusted net investment income (“Adjusted NII”) (including on a per share basis), which is a financial measure calculated and presented on basis other than in accordance with GAAP. Adjusted NII represents net investment income, excluding the capital gains incentive fee, in periods in which such expense occurs. GAAP requires recognition of a capital gains incentive fee in our financial statements when aggregate net realized and unrealized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the reporting date is positive. Such fees are subject to further conditions specified in the Investment Advisory Agreement, principally related to the realization of such net gains, before OFS Advisor is entitled to payment, and such recognized fees are subject to the risk of reversal should unrealized gains diminish to become losses. Management believes that Adjusted NII is a useful indicator of operations exclusive of any net capital gains incentive fee, as net investment income does not include the net gains, realized or unrealized, associated with the capital gains incentive fee.
Management believes Adjusted NII facilitates analysis of our results of operations and provides greater transparency into the determination of incentive fees. Adjusted NII is not meant as a substitute for net investment income determined in accordance with GAAP and should be considered in the context of the entirety of our reported results of operations, financial position and cash flows determined in accordance with GAAP.
The following table provides a reconciliation from net investment income (the most comparable GAAP measure) to Adjusted NII for the three months ended June 30, 2022 and March 31, 2022 and six months ended June 30, 2022 and June 30, 2021, respectively (dollar amounts in thousands, except per share data):
Three Months EndedSix Months Ended June 30,
June 30, 2022March 31, 202220222021
(000's)Per Share(000's)Per Share(000's)Per Share(000's)Per Share
Net investment income
$6,248 $0.47 $3,005 $0.22 $9,253 $0.69 $5,785 $0.43 
Capital Gains Fee
(2,988)(0.23)1,072 0.08 (1,916)(0.15)— — 
Adjusted NII
$3,260 $0.24 $4,077 $0.30 $7,337 $0.54 $5,785 $0.43 
For the quarter ended June 30, 2022, there was a reversal of previously accrued Capital Gains Fees of $3.0 million due to a $14.9 million reduction in net unrealized appreciation on the investment portfolio.
For the quarter ended March 31, 2022, the Capital Gains Fee of $1.1 million was primarily due to net unrealized appreciation of $55.0 million on the investment portfolio, partially offset by cumulative net realized losses of $40.1 million.
Although these non-GAAP financial measures are intended to enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.
Liquidity and Capital Resources
At June 30, 2022, we held cash of $14.8 million, which includes $7.5 million held by SBIC I LP, our wholly owned SBIC, and $2.9 million held by OFSCC-FS. Our use of cash held by SBIC I LP may be restricted by SBA regulation, including limitations on the amount of cash SBIC I LP can distribute to the Parent. Any such distributions to the Parent from SBIC I LP are generally restricted under SBA regulations to a statutory measure of undistributed accumulated earnings (“READ”) or regulatory capital of SBIC I LP. During the six months ended June 30, 2022, the Parent received READ and return of capital distributions from SBIC I LP of $10.0 million and $9.5 million, respectively. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility. During the six months ended June 30, 2022, the Parent received $4.6 million in cash distributions from OFSCC-FS. As of June 30, 2022, cash available to be distributed from SBIC I LP and OFSCC-FS were $3.5 million and $-0-, respectively.
At June 30, 2022, we had an unused commitment of $35.0 million under our PWB Credit Facility, as well as an unused commitment of $15.9 million under our BNP Facility, both subject to a borrowing base requirements and other covenants. Based on fair values and equity capital at June 30, 2022, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements. On April 22, 2022, we amended the PWB Credit Facility to, among other things, increase the maximum amount available from $25.0 million to $35.0 million. On June 24, 2022, we amended the BNP Facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; and (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027.
The Parent may make unsecured loans to SBIC I LP, the aggregate which cannot exceed $35 million at any given time, and no interest may be charged on the unpaid principal balance. There were no intercompany loans between the Parent and SBIC I LP as of June 30, 2022.
68


Sources and Uses of Cash
We generate operating cash flows from net investment income and the net liquidation of portfolio investments, and use cash in our operations in the net purchase of portfolio investments and payment of expenses. Significant variations may exist between net investment income and cash from net investment income, primarily due to the recognition of non-cash investment income, including certain Net Loan Fee amortization, PIK interest and PIK dividends, which generally will not be fully realized in cash until we exit the investment, as well as accreted interest income on Structured Finance Notes, which may not coincide with cash distributions from these investments. As discussed in “Item 1.–Financial Statements–Note 3,” we pay OFS Advisor a quarterly incentive fee with respect to our pre-incentive fee net investment income, which may include investment income that we have not received in cash. In addition, we must distribute substantially all of our taxable income, which approximates, but will not always equal, the cash we generate from net investment income to maintain our RIC tax treatment. We also obtain cash to fund investments or general corporate activities from the issuance of securities and our revolving line of credit. These principal sources and uses of cash and liquidity are presented below (in thousands):
 Six Months Ended June 30,
 20222021
Cash from net investment income(1)
$4,752 $5,925 
Net (purchases and originations)/repayments and sales of portfolio investments(1)
(39,465)(8,099)
Net cash used in operating activities(34,713)(2,174)
Distributions paid to stockholders(2)
(7,569)(5,573)
Net borrowings (payments) under lines of credit34,100 (8,000)
Repayment of SBA debentures(19,000)(9,765)
Proceeds from unsecured notes offering, net of discounts— 121,791 
Redemption of unsecured notes— (98,525)
Other financing activities(1,022)(303)
Net cash provided by (used in) financing activities6,509 (375)
Decrease in cash$(28,204)$(2,549)
(1)    Net purchases and originations/repayments and sales of portfolio investments includes purchase and origination of portfolio investments, proceeds from principal payments on portfolio investments, proceeds from sale or redemption of portfolio investments, changes in receivable for investments sold, payable from investments purchased as reported in our statements of cash flows, as well as the excess of proceeds from distributions received from Structured Finance Notes over accretion of interest income on Structured Finance Notes. Cash from net investment income includes all other cash flows from operating activities reported in our statements of cash flows. Certain amounts in the prior year have been reclassified to conform with the current year presentation.
(2)    The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our ICTI for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full year.
Cash from net investment income
Cash from net investment income decreased $1.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
Net (purchases and originations)/repayments and sales of portfolio investments
During the six months ended June 30, 2022, net purchases and originations of portfolio investments of $39.5 million were primarily due to $127.5 million of cash we used to purchase portfolio investments, offset by $88.0 million of cash we received from amortized cost repayments, sales on our portfolio investments and the net proceeds from distributions received from Structured Finance Notes and accretion of interest income on Structured Finance Notes. During the six months ended June 30, 2021, net purchases and originations of portfolio investments of $8.1 million were primarily due to $120.9 million of cash we used to purchase portfolio investments, offset by $112.8 million of cash we received from amortized cost repayments, sales on our portfolio investments and the net proceeds from distributions received from Structured Finance Notes and accretion of interest income on Structured Finance Notes. See “—Portfolio Composition and Investment Activity–Investment Activity.”
Borrowings
SBA Debentures
SBIC I LP’s SBIC license allowed it to obtain leverage by issuing SBA-guaranteed debentures, subject to issuance of a capital commitment by the SBA and customary procedures. These debentures are non-recourse to us, and bear interest payable
69


semi-annually, and each debenture has a maturity date that is ten years following issuance. The interest rate was fixed at the first pooling date after issuance, which was March and September of each year, at a market-driven spread over U.S. Treasury Notes with ten-year maturities. As of June 30, 2022 and December 31, 2021, SBIC I LP had outstanding debentures of $50.9 million and $69.9 million, respectively.
On a stand-alone basis, SBIC I LP held $175.9 million and $195.5 million in total assets at June 30, 2022 and December 31, 2021, respectively, which accounted for approximately 31% and 34% of the Company’s total consolidated assets, respectively.
    As part of our plans to focus on first lien senior secured loans to larger borrowers, which we believe will improve our overall risk profile, SBIC I LP intends, over time, to pay its outstanding SBA debentures prior to their scheduled maturity dates. Under a plan approved by the SBA, we will only make follow-on investments in current portfolio companies held by SBIC I LP. We believe that investing in more senior loans to larger borrowers is consistent with our view of the private loan market and will reduce our overall leverage on a consolidated basis. During the six months ended June 30, 2022, SBIC I LP redeemed $19.0 million of SBA debentures that were contractually due March 1, 2025 and September 1, 2025. During the six months ended June 30, 2022, we recognized a loss on extinguishment of debt of $0.1 million related to the charge-off of unamortized deferred borrowing costs on the redeemed debentures.
SBIC I LP is periodically examined and audited by the SBA’s staff to determine its compliance with SBA regulations. If SBIC I LP fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit SBIC I LP’s use of debentures, declare outstanding debentures immediately due and payable, and/or limit SBIC I LP from making distributions.
    We have received exemptive relief from the SEC effective November 26, 2013, which permits us to exclude SBA guaranteed debentures from the definition of senior securities in the statutory 150% asset coverage ratio under the 1940 Act.
PWB Credit Facility
We are party to a BLA with Pacific Western Bank, as lender, to provide us with a senior secured revolving credit facility, or the PWB Credit Facility, which is available for general corporate purposes including investment funding. The maximum availability of the PWB Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which excludes subordinated loan investments (as defined in the BLA) and as otherwise specified in the BLA. The PWB Credit Facility is guaranteed by OFSCC-MB, Inc. and secured by all of our current and future assets, excluding assets held by SBIC I LP, OFSCC-FS and the Company’s partnership interests in SBIC I LP and OFS SBIC I, GP.
On April 22, 2022, we amended the BLA to: (i) increase the maximum amount available under the PWB Credit Facility from $25.0 million to $35.0 million; and (ii) extend the maturity date of the PWB Credit Facility from February 28, 2023 to February 28, 2024.
    As of June 30, 2022, we had $-0- outstanding and an unused commitment of $35.0 million under the PWB Credit Facility, subject to a borrowing base and other covenants.
The BLA contains customary terms and conditions, including, without limitation, affirmative and negative covenants, such as information reporting requirements, a minimum tangible net asset value, a minimum quarterly net investment income after incentive fees, a debt/worth ratio and a net loss restriction. The BLA also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change in investment advisor, and the occurrence of a material adverse change in our financial condition. As of June 30, 2022, we were in compliance with the applicable covenants under the PWB Credit Facility.
Unsecured Notes
    The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness. Because the Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the PWB Credit Facility. As of June 30, 2022, we had $180.0 million in Unsecured Notes.
    In order to, among other things, reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase the Unsecured Notes for cash in open market purchases and/or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity, prospects for future access to capital, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.
70


BNP Facility
     On June 20, 2019, OFSCC-FS entered into the BNP Facility, as amended, which provides for borrowings in an aggregate principal amount up to $150.0 million, of which $134.1 million was drawn as of June 30, 2022. Borrowings under the BNP Facility bear interest based on SOFR for the relevant interest period, plus an applicable spread (subject to an effective floor of 2.65%). The effective interest rate on the BNP Facility was 4.67% at June 30, 2022. The BNP Facility will mature on the earlier of June 20, 2027 or upon certain other events defined in the credit agreement which may result in accelerated maturity. Borrowings under the BNP Facility are secured by substantially all of the assets held by OFSCC-FS. The unused commitment under the BNP Facility was $15.9 million as of June 30, 2022. As of June 30, 2022, we were in compliance with the applicable covenants under the BNP Facility.
    On a stand-alone basis, OFSCC-FS held approximately $208.0 million and $185.1 million in total assets at June 30, 2022 and December 31, 2021, respectively, which accounted for approximately 37% and 33% of our total consolidated assets, respectively.
On June 24, 2022, we amended the BNP Facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027; (iii) convert the benchmark interest rate from LIBOR to SOFR; (iv) increase the top two Moody’s Industry concentrations from 15% to 17.5% and 20%; (v) increase the applicable margin by 0.40% on all classes of loans; and (vi) increase the applicable margin floor from 1.925% to 2.65%.
Other Liquidity Matters 
We expect to fund the growth of our investment portfolio utilizing our current borrowings, follow-on equity offerings, and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act. We cannot assure stockholders that our plans to raise capital will be successful. In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments or make additional investments in our portfolio companies. The illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States. Conversely, we may invest up to 30% of our portfolio in opportunistic investments not otherwise eligible under BDC regulations. Specifically, as part of this 30% basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similar investment funds, as well as in debt or equity of middle-market portfolio companies located outside of the United States and debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the 1940 Act. We have, and may continue to, make opportunistic investments in Structured Finance Notes and other non-qualifying assets, consistent with our investment strategy. As of June 30, 2022, approximately 80% of our investments were qualifying assets.
BDCs generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities to total senior securities. We received an exemptive order from the SEC to permit us to exclude the debt of SBIC I LP guaranteed by the SBA from the definition of Senior Securities in the statutory asset coverage ratio under the 1940 Act, which limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate the need to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.
On May 3, 2018, our Board, including a required majority (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our minimum required asset coverage ratio decreased from 200% to 150%, effective May 3, 2019.
    On May 22, 2018, the Board authorized the Stock Repurchase Program under which we could acquire up to $10.0 million of our outstanding common stock through the two-year period ending May 22, 2020. On May 4, 2020 and May 3, 2022, the Board extended the Stock Repurchase Program for additional two-year periods. Under the extended Stock Repurchase Program, we are authorized to repurchase shares in open-market transactions, including through block purchases, depending on prevailing market conditions and other factors. We expect the Stock Repurchase Program to be in place through May 22, 2024, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets
71


certain restrictions on the method, timing, price and volume of stock repurchases. The Stock Repurchase Program may be extended, modified or discontinued at any time for any reason. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We retire all shares of common stock that we purchased in connection with the Stock Repurchase Program. No shares of common stock were repurchased during the six months ended June 30, 2022. As of June 30, 2022, the approximate dollar value of shares remaining that may be purchased under the program was $9.99 million.
    As of June 30, 2022, the aggregate amount outstanding of the senior securities issued by us was $365.0 million, for which our asset coverage was 162%. The Small Business Administration debentures are not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC effective November 26, 2013. The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.
    As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if the Board determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale. On July 13, 2022, our stockholders approved a proposal to authorize us, with approval of our Board, to sell or otherwise issue shares of our common stock (during a twelve-month period) at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations (including that the cumulative number of shares sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale). We have not sold any shares below net asset value pursuant to the proposal approved by our stockholders.
Contractual Obligations and Off-Balance Sheet Arrangements
At June 30, 2022, we had $14.8 million of cash and cash equivalents, as well as $35.0 million and $15.9 million of unfunded commitments under our PWB Credit Facility and BNP Facility, respectively, to meet our short-term contractual obligations. At June 30, 2022, we had $37.3 million in outstanding commitments to fund portfolio investments under various undrawn revolvers and other credit facilities. Long-term contractual obligations, such as our BNP Facility that matures in 2027 and has $134.1 million outstanding at June 30, 2022, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $203.0 million at June 30, 2022. We cannot, however, be certain that this source of funds will be available and upon terms acceptable to us in sufficient amounts in the future.
At June 30, 2022, we have $50.9 million of outstanding SBA debentures that mature in 2025, which we may repay prior to their maturity dates by using proceeds from investment repayments. The SBIC I LP investment portfolio had a fair value of $167.8 million at June 30, 2022.
    As of June 30, 2022, we continue to believe our long-dated financing, with 100% of our total outstanding debt, contractually maturing in 2025 and beyond, affords us operational flexibility.
We have entered into contracts with third parties under which we have material future commitments—the Investment Advisory Agreement, pursuant to which OFS Advisor has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which OFS Services has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations.
We may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. There is no guarantee that these amounts will be funded to the borrowing party now or in the future. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and will meet these unfunded commitments by using our cash on hand or utilizing our available borrowings under the PWB Credit Facility and BNP Facility. In addition, we generally hold broadly syndicated loans in larger portfolio companies that can be sold over a relatively short period to generate cash.
Distributions
We are taxed as a RIC under the Code. In order to maintain our tax treatment as a RIC, we are required to distribute annually to our stockholders at least 90% of our ICTI, as defined by the Code. Additionally, to avoid a 4% excise tax on undistributed earnings we are required to distribute each calendar year the sum of: (i) 98% of our ordinary income for such calendar year; (ii) 98.2% of our net capital gains for the one-year period ending October 31 of that calendar year; and (iii) any income recognized, but not distributed, in preceding years and on which we paid no federal income tax. Maintenance of our RIC status requires adherence to certain source of income and asset diversification requirements. Generally, a RIC is entitled to deduct dividends it pays to its stockholders from its income to determine “taxable income.” Taxable income includes our taxable interest, dividend and fee income, and taxable net capital gains. Taxable income generally differs from net income for
72


financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized. In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow received as consideration from the sale of investments, are collected in cash. Taxable income includes non-cash income, such as changes in accrued and reinvested interest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees. Cash collections of income resulting from contractual PIK interest and dividends or the amortization of discounts and fees generally occur upon the repayment of the loans or debt securities that include such items. Non-cash taxable income is reduced by non-cash expenses, such as realized losses and depreciation, and amortization expense.
Our Board maintains a variable dividend policy with the objective of distributing four quarterly distributions in an amount not less than 90-100% of our taxable quarterly income or potential annual income for a particular year. In addition, at the end of the year, we may also pay an additional special dividend, or fifth dividend, such that we may distribute approximately all of our annual taxable income in the year it was earned, while maintaining the option to spill over our excess taxable income to a following year. Each year, a statement on Form 1099-DIV identifying the source of the distribution is mailed to the Company’s stockholders. Generally, a RIC is entitled to deduct dividends it pays to its stockholders from its income to determine “taxable income.” Taxable income includes our taxable interest, dividend and fee income, and taxable net capital gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized. In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow received as consideration from the sale of investments, are collected in cash. Taxable income includes non-cash income, such as changes in accrued and reinvested interest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees. Cash collections of income resulting from contractual PIK interest and dividends or the amortization of discounts and fees generally occur upon the repayment of the loans or debt securities that include such items. Non-cash taxable income is reduced by non-cash expenses, such as realized losses and depreciation, and amortization expense.
Recent Developments    
On August 2, 2022, our Board declared a distribution of $0.29 per share for the third quarter of 2022, payable on September 30, 2022 to stockholders of record as of September 23, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio. The economic effects of the ongoing conflict between Russia and Ukraine and the COVID-19 pandemic have introduced significant volatility in the financial markets and global supply chain disruptions, and the effects of this volatility and these disruptions have impacted and could continue to impact our market risks. For additional information concerning risks and their potential impact on our business and our operating results, seePart I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on March 4, 2022.
Investment Valuation Risk
Because there is not a readily available market value for most of the investments in our portfolio, we value a significant portion of our portfolio investments at fair value as determined in good faith by our Board based, in part, on independent third-party valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, some investments may be subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than its current fair value. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Estimates” as well as Notes 2 and 5 to our consolidated financial statements for the six months ended June 30, 2022 for more information relating to our investment valuation.
Interest Rate Risk
Changes in interest rates, including any further interest rate increases approved by the U.S. Federal Reserve, and rising inflation rates may affect both our cost of funding and the valuation of our investment portfolio. As of June 30, 2022, 93% of
73


our debt investments, at fair value, bore interest at floating interest rates. Historically, the interest rates on our debt investments bearing floating interest rates have been based on a floating LIBOR, but will transition away from LIBOR to SOFR, and typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis. At June 30, 2022, we held variable-rate loans with an aggregate principal amount of $345.3 million that bore interest at a variable rate indexed to LIBOR or SOFR, and reset monthly, quarterly, or semi-annually. As of June 30, 2022, 3-month LIBOR was 2.29%, and we had variable-rate loans with an aggregate principal amount of $42.8 million subject to reference rate floor provisions of 1.00%.
Our outstanding SBA debentures and Unsecured Notes bear interest at fixed rates. As of June 30, 2022, our PWB Credit Facility and BNP Facility have floating interest rate provisions based on the Prime Rate and SOFR, respectively, with effective interest rates of 5.29% and 4.67%, respectively.
Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. As of June 30, 2022, 3-month LIBOR was 2.29% and certain loan contracts have not reset to the current market rate. Assuming that the interim and unaudited consolidated balance sheet as of June 30, 2022 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following tables show the annualized impact of hypothetical changes in interest rate indices (in thousands).
Basis point increaseInterest incomeInterest expenseNet change
25$2,516 $(252)$2,264 
503,454 (587)2,867 
754,391 (923)3,468 
1005,329 (1,258)4,071 
1256,267 (1,593)4,674 
Basis point decreaseInterest incomeInterest expenseNet change
25$(378)$418 $40 
50(979)754 (225)
75(1,868)1,089 (779)
100(2,410)1,424 (986)
125(2,920)1,759 (1161)
Inflation and Supply Chain Risk
Economic activity has continued to accelerate across sectors and regions. Nevertheless, due to global supply chain issues, geopolitical events, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in the U.S. and globally. Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response. Persistent inflationary pressures could affect our portfolio companies’ profit margins.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the foregoing evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
74


Changes in Internal Control over Financial Reporting 
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

75


PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We, OFS Advisor and OFS Services, are not currently subject to any material pending legal proceedings threatened against us as of June 30, 2022. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Investing in our common stock may be speculative and involves a high degree of risk. In addition to the other information contained in this Quarterly Report on Form 10-Q, including our financial statements, and the related notes, schedules and exhibits, you should carefully consider the risk factors described in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on March 4, 2022, and in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the “First Quarter 10-Q”), filed on May 6, 2022, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K and the First Quarter 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 4, 2022 and the First Quarter 10-Q. The risks previously disclosed in our Annual Report on Form 10-K and the First Quarter 10-Q should be read together with the other information disclosed elsewhere in this Quarterly Report on Form 10-Q and the First Quarter 10-Q and our other reports filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three month period ended June 30, 2022, we issued 4,348 shares of common stock to stockholders in connection with our DRIP. These issuances were not subject to the registration requirements of the Securities Act. The aggregate value of the shares of our common stock issued under our distribution reinvestment plan was approximately $43,127.
Issuer Purchases of Equity Securities
On May 22, 2018, the Board authorized the Company to initiate the Stock Repurchase Program under which the Company could acquire up to $10.0 million of its outstanding common stock through the two-year period ending May 22, 2020.
On May 4, 2020 and May 3, 2022, the Board extended the Stock Repurchase Program for additional two-year periods. Under the extended Stock Repurchase Program, the Company is authorized to repurchase shares in open-market transactions, including through block purchases, depending on prevailing market conditions and other factors. The Company expects the Stock Repurchase Program to be in place through May 22, 2024, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate the Company to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases. The Stock Repurchase Program may be extended, modified or discontinued at any time for any reason. The Company retires all shares of common stock that it purchases in connection with the Stock Repurchase Program.
During the three months ended June 30, 2022, no shares of common stock were repurchased on the open market under the Stock Repurchase Program. The following table provides information regarding the Stock Repurchase Program (amount in thousands except shares and per share amounts):
Period
Total Number
of Shares Purchased
Cost of Shares PurchasedAverage Price Paid Per ShareMaximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Stock Repurchase Program
May 22, 2018 through December 31, 2018300 $$10.29 $9,997 
January 1, 2019 through December 31, 2019— — — 9,997 
January 1, 2020 through December 31, 2020— — — 9,997 
January 1, 2021 through December 31, 2021700 6.70 9,992 
January 1, 2022 through March 31, 2022— — — 9,992 
April 1, 2022 through June 30, 2022— — — 9,992 
76


Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
77


Item 6. Exhibits
Listed below are the exhibits that are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):
Incorporated by Reference
Exhibit
Number
 DescriptionForm and SEC File No.Filing Date with SECFiled with this 10-Q
3.1Form N-2/A
(333-166363)
March 18, 2011
3.2Form 10-KMarch 26, 2013
3.3Form N-2/A
(333-166363)
March 18, 2011
10.1Form 8-KApril 25, 2022
10.2Form 8-KApril 25, 2022
10.3Form 8-KJune 27, 2022
31.1 *
31.2 *
32.1 
32.2 
*Filed herewith
Furnished herewith

78


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: August 5, 2022OFS CAPITAL CORPORATION
   
 By:/s/ Bilal Rashid
 Name:Bilal Rashid
 Title:Chief Executive Officer
   
 By:/s/ Jeffrey A. Cerny
 Name:Jeffrey A. Cerny
 Title:Chief Financial Officer

79