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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


			ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


			¨			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)


Delaware		46-1339639
State or Other Jurisdiction of		I.R.S. Employer Identification No.
Incorporation or Organization

10 S. Wacker Drive, Suite 2500, Chicago, Illinois		60606
Address of Principal Executive Offices		Zip 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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	OFS	The Nasdaq Global Select Market
4.95% Notes due 2028	OFSSH	The 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 filer	☒	Smaller 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 May 2, 2022 was 13,425,429.

OFS CAPITAL CORPORATION

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Assets and Liabilities as of March 31, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2022 (unaudited) and 2021 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the Three Months Ended March 31, 2022 (unaudited) and 2021 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 (unaudited) and 2021 (unaudited)	6
	Consolidated Schedules of Investments as of March 31, 2022 (unaudited) and December 31, 2021	7
	Notes to Consolidated Financial Statements (unaudited)	31
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	72

PART II. OTHER INFORMATION		73
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
SIGNATURES		76

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:


Term			Explanation or Definition
1940 Act			Investment Company Act of 1940, as amended
Administration Agreement			Administration Agreement between the Company and OFS Services dated November 7, 2012
Affiliated Account			An 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
ASC			Accounting Standards Codification, as issued by the FASB
ASU			Accounting Standards Updates, as issued by the FASB
BDC			Business Development Company under the 1940 Act
BLA			Business Loan Agreement, as amended, with Pacific Western Bank, as lender, which provides the Company with a senior secured revolving credit facility
BNP Facility			A secured revolving credit facility that provides for borrowings in an aggregate principal amount up to $150,000,000 issued pursuant to a Revolving Credit and Security Agreement 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
Board			The Company's board of directors
CLO			Collateralized loan obligation
Code			Internal Revenue Code of 1986, as amended
Company			OFS Capital Corporation and its consolidated subsidiaries
DRIP			Distribution reinvestment plan
EBITDA			Earnings before interest, taxes, depreciation and amortization
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
GAAP			Accounting principles generally accepted in the United States
HPCI			Hancock Park Corporate Income, Inc., a Maryland corporation and non-traded BDC for whom OFS Advisor serves as investment adviser
ICTI			Investment company taxable income, which is generally net ordinary income plus net short-term capital gains in excess of net long-term capital losses
Indicative Prices			Market quotations, prices from pricing services or bids from brokers or dealers
Investment Advisory Agreement			Investment Advisory and Management Agreement between the Company and OFS Advisor dated November 7, 2012
LIBOR			London Interbank Offered Rate
NAV			Net 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 Fees			The 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
OCCI			OFS Credit Company, Inc., a Delaware corporation and a non-diversified, closed-end management investment company for whom OFS Advisor serves as investment adviser
OFS Advisor			OFS Capital Management, LLC, a wholly owned subsidiary of OFSAM and registered investment advisor under the Investment Advisers Act of 1940, as amended
OFS Services			OFS Capital Services, LLC, a wholly owned subsidiary of OFSAM and affiliate of OFS Advisor
OFSAM			Orchard First Source Asset Management, LLC, a full-service provider of capital and leveraged finance solutions to U.S. corporations
OFSCC-FS			OFSCC-FS, LLC, an indirect wholly owned subsidiary of the Company


Term			Explanation or Definition
OFSCC-FS Assets			Assets held by the Company through OFSCC-FS
OFSCC-MB			OFSCC-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
OID			Original issue discount
Order			An 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
Parent			OFS Capital Corporation
PIK			Payment-in-kind, non-cash interest or dividends payable as an addition to the loan or equity security producing the income
Portfolio Company Investment			A debt or equity investment in a portfolio company. Portfolio Company Investments exclude Structured Finance Notes
Prime Rate			United States Prime interest rate
PWB Credit Facility			Senior secured revolving credit facility between the Company and Pacific Western Bank, as lender
RIC			Regulated investment company under the Code
SBA			United States Small Business Administration
SBIC			A fund licensed under the SBA Small Business Investment Company Program
SBIC Acquisition			The Company's acquisition of the remaining ownership interests in SBIC I LP and OFS SBIC I GP, LLC on December 4, 2013
SBIC Act			Small Business Investment Act of 1958, as amended
SBIC I LP			OFS SBIC I, LP, a wholly owned SBIC subsidiary of the Company
SBIC I GP			OFS SBIC I GP, LLC
SEC			United States Securities and Exchange Commission
Securities Act			Securities Act of 1933, as amended
SOFR			Secured Overnight Financing Rate
Stock Repurchase Program			The open market stock repurchase program for shares of the Company’s common stock under Rule 10b-18 of the Exchange Act
Structured Finance Notes			CLO mezzanine debt, CLO subordinated debt and CLO loan accumulation facility positions
Transaction Price			The price in an arm's length transaction involving the same security
Unsecured Notes			The Unsecured Notes Due September 2023, the Unsecured Notes Due April 2025, the Unsecured Notes Due October 2025, the Unsecured Notes Due October 2026, 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 2025			The 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 2026			The 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 2028			The Company’s $55.0 million aggregate principal amount of 4.95% notes due October 31, 2028
Unsecured Notes Due September 2023			The 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 lower-yielding, 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 the impact of the coronavirus (“COVID-19”) pandemic;

•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 one or more alternative reference rate(s); the related potential disputes between market participants regarding the interpretation and enforceability of provisions related to the economic floors in our LIBOR-based investments (or lack thereof), which may result in a loss or degradation of floor protection;

•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;

•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including with respect to changes from the impact of the COVID-19 pandemic; the economic impact of the pandemic; the effect 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;

•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 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.

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)


	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments (amortized cost of $484,150 and $428,398 respectively)	$	472,538	$	421,567
Affiliate investments (amortized cost of $17,651 and $17,650, respectively)	84,376		72,584
Control investment (amortized cost of $0 and $11,264, respectively)	—		12,948
Total investments at fair value (amortized cost of $501,801 and $457,312, respectively)	556,914		507,099
Cash	10,473		43,048
Interest receivable	2,092		1,475
Receivable for investments sold	—		14,893
Prepaid expenses and other assets	2,256		2,533
Total assets	$	571,735	$	569,048

Liabilities
Revolving lines of credit	$	114,650	$	100,000
SBA debentures (net of deferred debt issuance costs of $367 and $555, respectively)	50,553		69,365
Unsecured notes (net of deferred debt issuance costs of $4,414 and $4,554 respectively)	175,586		175,446
Interest payable	1,657		3,685
Payable to adviser and affiliates (Note 3)	5,904		6,217
Payable for investments purchased	13,037		8,788
Accrued professional fees	489		452
Other liabilities	1,473		1,351
Total liabilities	363,349		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 March 31, 2022 and December 31, 2021, respectively	$	—	$	—
Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 13,425,429 and 13,422,413 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	134		134
Paid-in capital in excess of par	185,152		185,113
Total distributable earnings	23,100		18,497
Total net assets	208,386		203,744

Total liabilities and net assets	$	571,735	$	569,048

Number of shares outstanding	13,425,429		13,422,413
Net asset value per share	$	15.52	$	15.18

See Notes to Consolidated Financial Statements.

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended March 31,
		2022		2021
Investment income
Interest income:
Non-control/non-affiliate investments		$	9,647	$	8,845
Affiliate investments		—		928
Control investment		141		367
Total interest income		9,788		10,140





Dividend income:
Non-control/non-affiliate investments		713		—
Affiliate investments		—		47
Control investment		45		—
Total dividend income		758		47
Fee income:
Non-control/non-affiliate investments		394		267
Affiliate investments		—		37
Control investment		6		—
Total fee income		400		304
Total investment income		10,946		10,491
Expenses
Interest expense		3,624		4,825
Management fee		2,020		1,834

Capital Gains Fee		1,072		—
Professional fees		407		387
Administration fee		451		568
Other expenses		367		327
Total expenses		7,941		7,941
Net investment income		3,005		2,550

Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on non-control/non-affiliate investments		(13)		91

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		(4,784)		1,584
Net unrealized appreciation on affiliate investments		11,792		1,926
Net unrealized appreciation (depreciation) on control investment		(1,684)		388
Deferred tax expense on investments net unrealized appreciation		(41)		(66)
Net gain on investments		5,500		3,923
Loss on extinguishment of debt		(144)		(2,299)
Net increase in net assets resulting from operations		$	8,361	$	4,174

Net investment income per common share – basic and diluted		$	0.22	$	0.19
Net increase in net assets resulting from operations per common share – basic and diluted		$	0.62	$	0.31
Distributions declared per common share		$	0.28	$	0.20
Basic and diluted weighted average shares outstanding		13,422,447		13,409,033

See Notes to Consolidated Financial Statements.

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

(Dollar amounts in thousands)


	Preferred Stock			Common Stock			Paid-in capital in excess of par		Total distributable earnings (losses)		Total net assets
	Number of shares	Par value		Number of shares	Par 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	—	—		—	—		—		2,550		2,550
Net realized gain on investments, net of taxes	—	—		—	—		—		91		91
Loss on extinguishment of debt	—	—		—	—		—		(2,299)		(2,299)
Net unrealized appreciation on investments, net of taxes	—	—		—	—		—		3,832		3,832

Distributions to stockholders:
Common stock issued from reinvestment of stockholder distributions	—	—		3,103	—		27		—		27
Dividends declared	—	—		—	—		—		(2,682)		(2,682)
Common stock repurchased under stock repurchase program	—	—		(700)	—		(5)		—		(5)
Net increase for the three month period ended March 31, 2021	—	—		2,403	—		22		1,492		1,514
Balances at March 31, 2021	—	$	—	13,411,962	$	134	$	187,146	$	(26,810)	$	160,470















Balances at December 31, 2021	—	$	—	13,422,413	$	134	$	185,113	$	18,497	$	203,744
Net increase in net assets resulting from operations:
Net investment income	—	—		—	—		—		3,005		3,005
Net realized gain on investments, net of taxes	—	—		—	—		—		217		217
Loss on extinguishment of debt	—	—		—	—		—		(144)		(144)
Net unrealized appreciation on investments, net of taxes	—	—		—	—		—		5,283		5,283

Distributions to stockholders:
Common stock issued from reinvestment of stockholder distributions	—	—		3,016	—		39		—		39
Dividends declared	—	—		—	—		—		(3,758)		(3,758)

Net increase for the three month period ended March 31, 2022	—	—		3,016	—		39		4,603		4,642
Balances at March 31, 2022	—	$	—	13,425,429	$	134	$	185,152	$	23,100	$	208,386

See Notes to Consolidated Financial Statements.

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net increase in net assets resulting from operations	$	8,361	$	4,174
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized gain on investments	(265)		(91)
Income tax expense on net realized investment gains	48		—
Loss on extinguishment of debt	144		2,299
Net unrealized appreciation on investments, net of taxes	(5,283)		(3,832)
Amortization of Net Loan Fees	(284)		(401)
Amendment fees collected	90		97
Payment-in-kind interest and dividend income	(270)		(487)
Accretion of interest income on Structured Finance Notes	(2,282)		(2,278)
Amortization of debt issuance costs	375		446
Amortization of intangible asset	103		54
Purchase and origination of portfolio investments	(70,164)		(68,498)
Proceeds from principal payments on portfolio investments	19,606		48,609
Proceeds from sale or redemption of portfolio investments	3,143		566
Proceeds from distributions received from Structured Finance Notes	5,743		2,621
Changes in operating assets and liabilities:
Interest receivable	(617)		779
Interest payable	(2,028)		(1,316)
Payable to adviser and affiliates	(313)		(454)
Receivable for investment sold	14,893		(474)
Payable for investments purchased	4,249		24,516
Other assets and liabilities	367		(507)
Net cash provided by (used in) operating activities	(24,384)		5,823

Cash flows from financing activities
Distributions paid to stockholders	(3,719)		(2,655)
Borrowings under revolving lines of credit	14,650		12,900
Repayments under revolving lines of credit	—		(25,400)
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	(122)		(231)
Repurchases of common stock under Stock Repurchase Program	—		(5)
Net cash used in financing activities	(8,191)		(1,890)
Net increase (decrease) in cash	(32,575)		3,933
Cash at beginning of period	43,048		37,708
Cash at end of period	$	10,473	$	41,641

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	5,277	$	5,695
Reinvestment of distributions to stockholders	39		27

See Notes to Consolidated Financial Statements.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair 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 Loan		7.00%	(L +6.00%)	1/28/2022	11/16/2027	$	8,978	$	8,912	$	8,912	4.3	%

AAdvantage Loyalty IP Ltd. and American Airlines, Inc. (14) (15) (22)	Scheduled Passenger Air Transportation
Senior Secured Loan		5.50%	(L +4.75%)	3/10/2021	4/20/2028	364		360		369		0.2

Aegion Corporation (15) (22)	Water and Sewer Line and Related Structures Construction
Senior Secured Loan		5.50%	(L +4.75%)	4/1/2021	5/17/2028	2,432		2,400		2,392		1.1

Allen Media, LLC (14) (15)	Cable and Other Subscription Programming
Senior Secured Loan		5.73%	(SOFR +5.50%)	3/2/2021	2/10/2027	3,797		3,791		3,773		1.8

All Star Auto Lights, Inc. (4) (15)	Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan		7.50%	(L +6.50%)	12/19/2019	8/20/2025	23,276		22,970		23,187		11.1

Astro One Acquisition Corporation	Other Miscellaneous Nondurable Goods Merchant Wholesalers
Senior Secured Loan		9.51%	(L +8.50%)	1/31/2022	9/14/2029	3,000		2,644		2,644		1.3

Atlantis Holding, LLC (15)	Electronics and Appliance Stores
Senior Secured Loan		7.55%	(L +7.25%)	3/29/2022	3/29/2029	8,421		8,108		8,108		3.9

Autokiniton US Holdings, Inc. (14) (15)	Automotive Parts and Accessories Stores
Senior Secured Loan		5.00%	(L +4.50%)	3/26/2021	4/6/2028	2,696		2,688		2,665		1.3

Avison Young (15) (22)	Nonresidential Property Managers
Senior Secured Loan		6.05%	(L +5.75%)	11/25/2021	1/31/2026	3,977		3,960		3,977		1.9

Bass Pro Group, LLC (14) (15)	Sporting Goods Stores
Senior Secured Loan		4.50%	(L +3.75%)	2/26/2021	3/6/2028	1,963		1,953		1,958		0.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Baymark Health Services, Inc. (15)	Outpatient Mental Health & Sub. Abuse Centers
Senior Secured Loan		9.50%	(L +8.50%)	6/10/2021	6/11/2028	$	4,962	$	4,896	$	5,012	2.4	%
Senior Secured Loan (Delayed Draw) (5)		9.50%	(L +8.50%)	6/10/2021	6/11/2028	2,760		2,640		2,845		1.4
						7,722		7,536		7,857		3.8
Boca Home Care Holdings, Inc. (20)	Services for the Elderly and Persons with Disabilities
Senior Secured Loan (Delayed Draw) (5) (15)		7.50%	(SOFR +6.50%)	2/25/2022	2/25/2027	1,290		1,192		1,192		0.6
Senior Secured Loan (Revolver) (5)		n/m (18)	(SOFR +6.50%)	2/25/2022	2/25/2027	—		(13)		(13)		—
Common Equity (1,290 Class A units) (10) (13)				2/25/2022		—		1,290		1,290		0.6
						1,290		2,469		2,469		1.2
Constellis Holdings, LLC (10)	Other Justice, Public Order, and Safety Activities
Common Equity (20,628 common shares)				3/27/2020				703		29		—

Convergint Technologies Holdings, LLC	Security Systems Services (except Locksmiths)
Senior Secured Loan		7.50%	(L +6.75%)	9/28/2018	3/30/2029	4,838		4,827		4,887		2.3

Corel Inc. (14) (15)	Software Publishers
Senior Secured Loan		5.51%	(L +5.00%)	3/2/2021	7/2/2026	2,242		2,236		2,242		1.1

Creation Technologies (15) (22)	Bare Printed Circuit Board Manufacturing
Senior Secured Loan		6.00%	(L +5.50%)	9/24/2021	10/5/2028	2,000		1,985		1,979		0.9

Dessert Holdings	Ice Cream and Frozen Dessert Manufacturing
Senior Secured Loan (15)		5.01%	(Prime +4.00%)	2/2/2022	6/10/2028	963		958		958		0.5
Senior Secured Loan		8.26%	(Prime +7.25%)	2/2/2022	6/8/2029	1,667		1,638		1,638		0.8
						2,630		2,596		2,596		1.3
DHX Media Ltd. (14) (15) (22)	Motion Picture and Video Production
Senior Secured Loan		5.00%	(L +4.25%)	3/19/2021	3/18/2028	3,964		3,921		3,940		1.9

Diamond Sports Group, LLC (14) (15)	Television Broadcasting
Senior Secured Loan		9.00%	(SOFR +8.00%)	3/9/2022	5/25/2026	254		247		259		0.1
Senior Secured Loan		3.44%	(SOFR +3.25%)	11/19/2019	8/24/2026	1,950		1,950		676		0.3
						2,204		2,197		935		0.4

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Directv Financing, LLC (14) (15)	Wired Telecommunications Carriers
Senior Secured Loan		5.75%	(L +5.00%)	7/22/2021	8/2/2027	$	4,294	$	4,287	$	4,295	2.1	%

East West Manufacturing (15)	Fluid Power Pump and Motor Manufacturing
Senior Secured Loan		6.50%	(L +5.75%)	2/11/2022	12/22/2028	1,964		1,945		1,945		0.9
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +2.88%)	2/11/2022	12/22/2028	—		(3)		(3)		—
						1,964		1,942		1,942		0.9
Eblens Holdings, Inc. (20)	Shoe Store
Subordinated Loan (11)		12.00% cash / 1.00% PIK	N/A	7/13/2017	1/13/2023	9,230		9,210		8,917		4.3
Common Equity (71,250 Class A units) (10)				7/13/2017				713		240		0.1
						9,230		9,923		9,157		4.4
Electrical Components International, Inc.	Current-Carrying Wiring Device Manufacturing
Senior Secured Loan		8.95%	(L +8.50%)	4/8/2021	6/26/2026	3,679		3,293		3,569		1.7

EnergySolutions, LLC (14) (15)	Hazardous Waste Treatment and Disposal
Senior Secured Loan		4.76%	(L +3.75%)	7/8/2021	5/9/2025	1,832		1,828		1,800		0.9

Envocore Holding, LLC (F/K/A LRI Holding, LLC) (4) (19)	Electrical Contractors and Other Wiring Installation Contractors
Senior Secured Loan		7.50%	N/A	12/31/2021	12/31/2025	6,408		6,409		6,408		3.1
Senior Secured Loan		10.00% PIK	N/A	12/31/2021	12/31/2026	6,584		6,585		4,555		2.2
Senior Secured Loan (Revolver) (5)		n/m (18)	N/A	11/29/2021	12/31/2025	—		—		—		—
Equity Participation Rights (23)				12/31/2021		—		4,722		—		—

						12,992		17,716		10,963		5.3
Excelin Home Health, LLC (4)	Home Health Care Services
Senior Secured Loan		11.50%	(L +9.50%)	10/25/2018	9/30/2025	4,250		4,187		4,036		1.9

GGC Aerospace Topco L.P.	Other Aircraft Parts and Auxiliary Equipment Manufacturing
Common Equity (368,852 Class A units) (10)				12/29/2017				450		—		—
Common Equity (40,984 Class B units) (10)				12/29/2017				50		—		—
								500		—		—

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Honor HN Buyer Inc	Services for the Elderly and Persons with Disabilities
Senior Secured Loan (15)		7.01%	(L +6.00%)	10/15/2021	10/15/2027	$	6,582	$	6,460	$	6,443	3.1	%
Senior Secured Loan (Delayed Draw) (5) (15)		7.01%	(L +6.00%)	10/15/2021	10/15/2027	1,424		1,372		1,337		0.6
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.00%)	10/15/2021	10/15/2027	—		(14)		(16)		—
						8,006		7,818		7,764		3.7
Idera	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan		7.50%	(L +6.75%)	1/27/2022	3/2/2029	4,000		4,000		4,000		1.9

Inergex Holdings, LLC	Other Computer Related Services
Senior Secured Loan (11)		8.00% cash / 1.0% PIK	(L +8.00%)	10/1/2018	10/1/2024	15,260		14,972		15,260		7.3
Senior Secured Loan (Revolver) (5)		8.00%	(L +7.00%)	10/1/2018	10/1/2024	469		457		469		0.2
						15,729		15,429		15,729		7.5
Intouch Midco Inc. (15) (22)	All Other Professional, Scientific, and Technical Services
Senior Secured Loan		5.21%	(L +4.75%)	12/20/2019	8/24/2025	2,901		2,867		2,866		1.4

Ivanti Software, Inc. (14) (15)	Software Publishers
Senior Secured Loan		5.00%	(L +4.25%)	3/26/2021	12/1/2027	2,985		2,996		2,950		1.4

JP Intermediate B, LLC (15)	Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan		6.50%	(L +5.50%)	1/14/2021	11/15/2025	5,644		5,454		5,362		2.6

Karman Buyer Corp (14) (15)	Advertising Agencies
Senior Secured Loan		5.25%	(L +4.50%)	3/2/2022	10/28/2027	2,302		2,268		2,285		1.1

KNS Acquisition Corp. (14) (15)	Electronic Shopping and Mail-Order Houses
Senior Secured Loan		7.26%	(L +6.25%)	4/16/2021	4/21/2027	6,913		6,872		6,773		3.3

Kreg LLC	Other Ambulatory Health Care Services
Senior Secured Loan (15)		7.26%	(L +6.25%)	12/20/2021	12/20/2026	20,372		20,228		20,153		9.7
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.25%)	12/20/2021	12/20/2026	—		(16)		(24)		—
						20,372		20,212		20,129		9.7

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
LogMeIn, Inc. (14) (15)	Data Processing, Hosting, and Related Services
Senior Secured Loan		5.22%	(L +4.75%)	3/26/2021	8/31/2027	$	2,969	$	2,967	$	2,922	1.4	%

Magenta Buyer LLC (14) (15)	Software Publishers
Senior Secured Loan		5.75%	(L +5.00%)	7/28/2021	7/27/2028	4,850		4,837		4,821		2.3

McGraw Hill Global Education Holdings, LLC (14) (15)	All Other Publishers
Senior Secured Loan		5.55%	(L +4.75%)	4/1/2021	7/28/2028	2,304		2,283		2,284		1.1

Milrose Consultants, LLC (4)	Administrative Management and General Management Consulting Services
Senior Secured Loan (15)		7.51%	(L +6.50%)	7/16/2019	7/16/2025	22,307		22,308		21,980		10.5
Senior Secured Loan (Revolver)		7.51%	(L +6.50%)	7/16/2019	7/16/2025	476		468		452		0.2
						22,783		22,776		22,432		10.7
Molded Devices, Inc.	Other Industrial Machinery Manufacturing
Senior Secured Loan (15)		7.00%	(L +6.00%)	11/1/2021	11/1/2026	8,049		7,975		7,929		3.8
Senior Secured Loan (Delayed Draw) (5) (15)		n/m (18)	(Prime +6.00%)	11/1/2021	11/1/2026	—		(7)		(22)		—
Senior Secured Loan (Revolver) (5)		7.00%	(Prime +6.00%)	11/1/2021	11/1/2026	340		331		326		0.2
						8,389		8,299		8,233		4.0
Odyssey Logistics and Technology Corporation (14) (15)	Freight Transportation Arrangement
Senior Secured Loan		5.00%	(L +4.00%)	4/5/2021	10/12/2024	1,979		1,957		1,945		0.9

One GI LLC	Offices of Other Holding Companies
Senior Secured Loan (Delayed Draw) (15)		7.75%	(L +6.75%)	12/13/2021	12/22/2025	7,564		7,423		7,383		3.5
Senior Secured Loan (Delayed Draw) (5) (15)		n/m (18)	(L +6.75%)	12/13/2021	12/13/2023	—		(34)		(95)		—
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.75%)	12/13/2021	12/22/2025	—		(27)		(35)		—
						7,564		7,362		7,253		3.5
Parfums Holding Company, Inc. (14) (15)	Cosmetics, Beauty Supplies, and Perfume Stores
Senior Secured Loan		4.46%	(L +4.00%)	6/25/2019	6/30/2024	1,534		1,533		1,520		0.7

Peraton Inc. (14) (15)	Management Consulting Services
Senior Secured Loan		4.50%	(L +3.75%)	4/2/2021	2/1/2028	818		819		814		0.4

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets

Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC) (6) (10)	Software Publishers
Senior Secured Loan		4.00%	N/A	3/13/2018	3/12/2023	$	16,728	$	14,192	$	7,322	3.5	%

PM Acquisition LLC (20)	All Other General Merchandise Stores
Common Equity (499 units) (10) (13)				9/30/2017				499		1,212		0.6

Professional Pipe Holdings, LLC	Plumbing, Heating, and Air-Conditioning Contractors
Senior Secured Loan		9.75% cash / 1.50% PIK	(L +10.25%)	3/23/2018	3/24/2025	3,494		3,480		3,555		1.7

Resource Label Group, LLC (14) (15)	Commercial Printing (except Screen and Books)
Senior Secured Loan		5.00%	(L +4.25%)	7/2/2021	7/7/2028	3,429		3,419		3,407		1.6

RPLF Holdings, LLC (10) (13)	Software Publishers
Common Equity (345,339 Class A units)				1/17/2018				492		868		0.4

RSA Security (15)	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan (14)		5.50%	(L +4.75%)	4/16/2021	4/27/2028	2,790		2,775		2,735		1.3
Senior Secured Loan		8.50%	(L +7.75%)	4/16/2021	4/27/2029	4,450		4,393		4,265		2.0
						7,240		7,168		7,000		3.3
RumbleOn, Inc. (15) (22)	Other Industrial Machinery Manufacturing
Senior Secured Loan		9.25%	(L +8.25%)	8/31/2021	8/31/2026	4,179		3,966		3,977		1.9
Senior Secured Loan (Delayed Draw) (5)		9.25%	(L +8.25%)	8/31/2021	2/23/2023	1,264		1,250		1,177		0.6
Warrants (warrants to purchase up to $600,000 in common stock)				8/31/2021	2/28/2023 (12)			200		163		0.1
						5,443		5,416		5,317		2.6
Sentry Centers Holdings, LLC (10) (13)	Convention and Trade Show Organizers
Preferred Equity (2,248 Series A units)				9/4/2020				51		—		—
Preferred Equity (1,603 Series B units)				9/4/2020				160		112		0.1
Common Equity (269 units)				9/4/2020				3		—		—
								214		112		0.1

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Signal Parent, Inc. (14) (15)	New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan		4.25%	(L +3.50%)	3/25/2021	4/3/2028	$	1,836	$	1,819	$	1,654	0.8	%

SourceHOV Tax, Inc. (4)	Other Accounting Services
Senior Secured Loan		7.50%	(L +6.50%)	3/16/2020	3/17/2025	19,740		19,608		19,740		9.5
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.50%)	5/17/2021	3/17/2025	—		(14)		—		—
						19,740		19,594		19,740		9.5
Southern Technical Institute, LLC (4) (23)	Colleges, Universities, and Professional Schools
Equity appreciation rights				6/27/2018				—		7,989		3.8

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.,) (15)	Child Day Care Services
Senior Secured Loan		9.26%	(L +8.25%)	7/26/2018	7/30/2026	6,399		6,346		5,953		2.9

SSJA Bariatric Management LLC (15)	Offices of Physicians, Mental Health Specialists
Senior Secured Loan		6.01%	(L +5.00%)	8/26/2019	8/26/2024	9,750		9,703		9,750		4.7
Senior Secured Loan		6.01%	(L +5.00%)	12/31/2020	8/26/2024	1,053		1,046		1,053		0.5
Senior Secured Loan		6.01%	(L +5.00%)	12/8/2021	8/26/2024	2,653		2,630		2,653		1.3
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +5.00%)	8/26/2019	8/26/2024	—		(3)		—		—
						13,456		13,376		13,456		6.5
SS Acquisition, LLC (15)	Sports and Recreation Instruction
Senior Secured Loan (8)		7.88%	(L +6.88%)	12/30/2021	12/30/2026	3,042		3,013		2,995		1.4
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +6.88%)	12/30/2021	12/30/2026	—		—		(28)		—
						3,042		3,013		2,967		1.4
Staples, Inc. (14) (15) (22)	Business to Business Electronic Markets
Senior Secured Loan		5.32%	(L +5.00%)	6/24/2019	4/16/2026	2,922		2,870		2,768		1.3

STS Operating, Inc.	Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan		9.00%	(L +8.00%)	5/15/2018	4/30/2026	9,073		9,071		9,073		4.4

Teneo Global LLC (14) (15)	Management Consulting Services
Senior Secured Loan		6.25%	(SOFR +5.25%)	9/10/2021	7/11/2025	1,891		1,881		1,875		0.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
The Escape Game, LLC (4)	Other amusement and recreation industries
Senior Secured Loan		8.00%	(L +7.00%)	12/21/2021	12/22/2024	$	16,333	$	16,333	$	16,372	7.9	%
Senior Secured Loan (Revolver) (5)		8.00%	(L +7.00%)	12/21/2021	12/22/2024	933		891		933		0.4
						17,266		17,224		17,305		8.3
Thryv, Inc. (14) (15)	Directory and Mailing List Publishers
Senior Secured Loan		9.50%	(L +8.50%)	2/18/2021	3/1/2026	1,983		1,942		1,991		1.0

Tolemar Acquisition, INC.	Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan (15)		7.00%	(L +6.00%)	10/14/2021	10/14/2026	15,622		15,551		15,807		7.6
Senior Secured Loan (Revolver) (5)		7.45%	(L +6.00%)	10/14/2021	10/14/2026	1,029		1,018		1,029		0.5
						16,651		16,569		16,836		8.1
TruGreen Limited Partnership	Landscaping Services
Senior Secured Loan		9.46%	(L +8.50%)	5/13/2021	11/2/2028	4,500		4,625		4,590		2.2

United Biologics Holdings, LLC (4) (10)	Medical Laboratories
Preferred Equity (151,787 units)				4/16/2013				9		16		—
Warrants (3,976 units)				7/26/2012	4/16/2023 (12)			82		8		—
								91		24		—
West Corporation (14) (15)	All Other Telecommunications
Senior Secured Loan		4.50%	(L +3.50%)	2/26/2021	10/10/2024	871		860		791		0.4
Senior Secured Loan		5.00%	(L +4.00%)	7/29/2021	10/10/2024	2,564		2,514		2,351		1.1
						3,435		3,374		3,142		1.5
Yahoo / Verizon Media (14) (15)	Internet Publishing and Broadcasting and Web Search Portals
Senior Secured Loan		6.25%	(L +5.50%)	7/21/2021	9/1/2027	3,252		3,219		3,242		1.6

Total Debt and Equity Investments						$	387,857	$	390,575	$	382,161	183.5	%

Structured Finance Note Investments
Subordinated Notes and Mezzanine Debt (9) (16) (22)
Apex Credit CLO 2020 Ltd. (7)
Subordinated Notes		10.55%		11/16/2020	10/20/2031	$	11,080	$	9,262	$	9,226	4.4	%

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Apex Credit CLO 2021 Ltd (7)
Subordinated Notes		13.29%		5/28/2021	7/18/2034	$	8,630	$	7,130	$	6,584	3.2	%

Ares L CLO
Mezzanine debt - Class E		5.89%	(L +5.65%)	2/17/2022	1/15/2032	6,000		5,687		5,687		2.7

Barings CLO 2019-I Ltd.
Mezzanine debt - Class E		7.10%	(L +6.86%)	2/23/2022	4/15/2035	8,000		7,885		7,885		3.8

Dryden 53 CLO, Ltd. (7)
Subordinated Notes - Income		20.75%		10/26/2020	1/15/2031	2,700		1,567		1,466		0.7
Subordinated Notes		20.73%		10/26/2020	1/15/2031	2,159		1,254		1,173		0.6
						4,859		2,821		2,639		1.3
Dryden 76 CLO, Ltd. (7)
Subordinated Notes		18.49%		9/27/2019	10/20/2032	2,750		2,090		2,175		1.0

Elevation CLO 2017-7, Ltd. (7) (24)
Subordinated Notes		0.0%		2/6/2019	7/15/2030	8,403		4,224		3,085		1.5

Flatiron CLO 18, Ltd. (7)
Subordinated Notes		18.69%		1/2/2019	4/17/2031	9,680		6,840		6,769		3.2

Madison Park Funding XXIII, Ltd. (7)
Subordinated Notes		23.34%		1/8/2020	7/27/2047	10,000		6,236		6,701		3.2

Madison Park Funding XXIX, Ltd. (7)
Subordinated Notes		15.48%		12/22/2020	10/18/2047	9,500		6,712		6,219		3.0

Monroe Capital MML CLO X, Ltd.
Mezzanine debt - Class E		9.33%	(L +8.85%)	8/7/2020	8/20/2031	1,000		952		990		0.5

Octagon Investment Partners 39, Ltd. (7)
Subordinated Notes		17.83%		1/23/2020	10/20/2030	7,000		4,634		4,135		2.0

Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine debt - Class E		7.55%	(L +7.30%)	1/26/2021	1/20/2034	1,000		975		973		0.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Redding Ridge 4 (7)
Subordinated Notes		14.23%		3/4/2021	4/15/2030	$	1,300	$	1,081	$	1,026	0.5	%

Regatta II Funding
Mezzanine debt - Class DR2		7.19%	(L +6.95%)	6/5/2020	1/15/2029	800		747		791		0.4

THL Credit Wind River 2019‐3 CLO Ltd (7)
Subordinated Notes		13.67%		4/5/2019	4/15/2031	7,000		5,568		4,847		2.3

Trinitas CLO VIII (7)
Subordinated Notes		20.56%		3/4/2021	7/20/2117	5,200		3,082		3,010		1.4

Wellfleet CLO 2018-2 (7)
Subordinated Notes		19.53%		3/4/2021	10/20/2031	1,000		649		635		0.3

Total Subordinated Notes and Mezzanine Debt Investments						$	103,202	$	76,575	$	73,377	35.2	%

Loan Accumulation Facility (17) (22)
Apex Credit CLO 2021-II Ltd
Loan accumulation facility		13.50%		7/14/2021	7/14/2022	$	8,500	$	8,500	$	8,500	4.1	%

Brightwood Capital MM CLO 2022-1, LTD
Loan accumulation facility		13.50%		1/5/2022	12/31/2032	8,500		8,500		8,500		4.1

Total Loan Accumulation Facility Investments						$	17,000	$	17,000	$	17,000	8.2	%

Total Structured Finance Notes						$	120,202	$	93,575	$	90,377	43.4	%

Total Non-control/Non-affiliate Investments						$	508,059	$	484,150	$	472,538	226.9	%
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	$	4,943	2.4	%
Common Equity (11,273 shares)				6/28/2016				104		209		0.1
								5,953		5,152		2.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
DRS Imaging Services, LLC (10) (13) (20)	Data Processing, Hosting, and Related Services
Common Equity (1,135 units)				3/8/2018				$	1,135	$	1,222	0.6	%

Master Cutlery, LLC (4) (10) (20)	Sporting and Recreational Goods and Supplies Merchant Wholesalers
Subordinated Loan (6) (11)		13.00%	N/A	4/17/2015	7/20/2022	7,793		4,696		436		0.2
Preferred Equity (3,723 Series A units), 8% PIK				4/17/2015				3,483		—		—
Common Equity (15,564 units)				4/17/2015				—		—		—
						7,793		8,179		436		0.2
Pfanstiehl Holdings, Inc. (4) (20) (21)	Pharmaceutical Preparation Manufacturing
Common Equity (400 Class A shares)				1/1/2014				217		75,308		36.1

TalentSmart Holdings, LLC (10) (13) (20)	Professional and Management Development Training
Common Equity (1,595,238 Class A shares)				10/11/2019				1,595		1,134		0.5

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% PIK				12/10/2014				—		1,124		0.5
Common Equity (3,000,000 units)				12/10/2014				572		—		—
								572		1,124		0.5

Total Affiliate Investments						$	7,793	$	17,651	$	84,376	40.4	%

Total Investments						$	515,852	$	501,801	$	556,914	267.3	%

(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 March 31, 2022, 96% of the investments that bear interest at a variable rate are indexed to LIBOR (L), and reset monthly, quarterly, or semi-annually. As of March 31, 2022, variable-rate loans with an aggregate principal amount of $189,530 were subject to LIBOR reference rate floor provisions, generally 0.75% or 1.00%. For each variable-rate investment, the Company has provided the spread over the reference rate and current interest rate in effect at March 31, 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.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

March 31, 2022

(Dollar amounts in thousands)

(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 March 31, 2022, 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 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 March 31, 2022:

Portfolio Company

Reported Interest Rate

Interest Rate per Credit Agreement

Additional Interest per Annum

SS Acquisition, LLC

7.88%

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 March 31, 2022:

Portfolio Company

Investment Type

Range of PIK
Option

Range of Cash
Option

Maximum PIK
Rate Allowed

Eblens Holdings, Inc.

Subordinated Loan

0% or 1.00%

13.00% or 12.00%

1.00%

Inergex Holdings, LLC

Senior Loan

0% or 1.00%

9.01% to 8.01%

1.00%

Master Cutlery, LLC

Subordinated Loan

0% 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 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 an estimated yield. Income notes associated with loan accumulation facilities generally pay returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. As of March 31, 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. 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 March 31, 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 March 31, 2022, approximately 81% 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.

(24)As of March 31, 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.

See Notes to Consolidated Financial Statements.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair 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 Loan		5.50%	(L +4.75%)	3/10/2021	4/20/2028	$	364	$	360	$	377	0.2	%

Aegion Corporation (15) (22)	Water and Sewer Line and Related Structures Construction
Senior Secured Loan		5.50%	(L +4.75%)	4/1/2021	5/17/2028	630		627		628		0.3

Allen Media, LLC (14) (15)	Cable and Other Subscription Programming
Senior Secured Loan		5.72%	(L +5.50%)	3/2/2021	2/10/2027	3,807		3,801		3,810		1.8

All Star Auto Lights, Inc. (4) (15)	Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan		8.25%	(L +7.25%)	12/19/2019	8/20/2025	23,335		23,005		23,052		11.3

Autokiniton US Holdings, Inc. (14) (15)	Automotive Parts and Accessories Stores
Senior Secured Loan		5.00%	(L +4.50%)	3/26/2021	4/6/2028	2,696		2,688		2,704		1.3

Avison Young (15)	Nonresidential Property Managers
Senior Secured Loan		5.97%	(L +5.75%)	11/25/2021	1/31/2026	2,987		2,972		2,972		1.5

Ball Metalpack	Metal Can Manufacturing
Senior Secured Loan		9.75%	(L +8.75%)	6/8/2021	7/31/2026	2,167		2,143		2,167		1.1

Bass Pro Group, LLC (14) (15)	Sporting Goods Stores
Senior Secured Loan		4.50%	(L +3.75%)	2/26/2021	3/6/2028	1,967		1,958		1,972		1.0

BayMark Health Services, Inc. (15)	Outpatient Mental Health and Substance Abuse Centers
Senior Secured Loan		9.50%	(L +8.50%)	6/10/2021	6/11/2028	4,962		4,893		5,061		2.5
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +8.50%)	6/10/2021	6/11/2028	—		(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)				3/27/2020				703		29		—

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets

Convergint Technologies Holdings, LLC	Security Systems Services (except Locksmiths)
Senior Secured Loan		7.50%	(L +6.75%)	9/28/2018	3/30/2029	$	4,838	$	4,827	$	4,887	2.4	%

Corel Inc. (14) (15)	Software Publishers
Senior Secured Loan		5.18%	(L +5.00%)	3/2/2021	7/2/2026	2,271		2,265		2,270		1.1

Creation Technologies (15) (22)	Bare Printed Circuit Board Manufacturing
Senior Secured Loan		6.00%	(L +5.50%)	9/24/2021	10/5/2028	2,000		1,985		1,977		1.0

DHX Media Ltd. (14) (15) (22)	Motion Picture and Video Production
Senior Secured Loan		5.00%	(L +4.25%)	3/19/2021	3/18/2028	3,974		3,929		3,970		1.9

Diamond Sports Group, LLC (14) (15)	Television Broadcasting
Senior Secured Loan		3.36%	(L +3.25%)	11/19/2019	8/24/2026	1,955		1,957		918		0.5

DIRECTV Financing, LLC (14) (15)	Wired Telecommunications Carriers
Senior Secured Loan		5.75%	(L +5.00%)	7/22/2021	8/2/2027	4,395		4,388		4,405		2.2

Eblens Holdings, Inc. (20)	Shoe Store
Subordinated Loan (11)		12.00% cash / 1.00% PIK	N/A	7/13/2017	1/13/2023	9,207		9,181		9,049		4.4
Common Equity (71,250 Class A units) (10)				7/13/2017				713		292		0.1
						9,207		9,894		9,341		4.5
Electrical Components International, Inc.	Current-Carrying Wiring Device Manufacturing
Senior Secured Loan		8.60%	(L +8.50%)	4/8/2021	6/26/2026	3,000		2,653		2,954		1.4

EnergySolutions, LLC (14) (15)	Hazardous Waste Treatment and Disposal
Senior Secured Loan		4.75%	(L +3.75%)	7/8/2021	5/9/2025	1,837		1,833		1,837		0.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair 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 Loan		7.50%	N/A	12/31/2021	12/31/2025	$	6,424	$	6,424	$	6,424	3.2	%
Senior Secured Loan		10.00% PIK	N/A	12/31/2021	12/31/2026	6,424		6,424		4,645		2.3
Senior Secured Loan (Revolver) (5)		7.50%	N/A	11/29/2021	12/31/2025	563		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 Loan		11.50%	(L +9.50%)	10/25/2018	9/30/2025	4,250		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)				12/29/2017				450		77		—
Common Equity (40,984 Class B units) (10)				12/29/2017				50		3		—
								500		80		—
Honor HN Buyer Inc (15)	Services for the Elderly and Persons with Disabilities
Senior Secured Loan		7.00%	(L +6.00%)	10/15/2021	10/15/2027	6,598		6,471		6,471		3.2
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +6.00%)	10/15/2021	10/15/2027	—		(40)		(40)		—
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.00%)	10/15/2021	10/15/2027	—		(15)		(15)		—
						6,598		6,416		6,416		3.2
Hunter Fan Company (14) (15)	Small Electrical Appliance Manufacturing
Senior Secured Loan		5.75%	(L +5.00%)	8/10/2021	5/8/2028	4,988		4,997		4,997		2.5

Inergex Holdings, LLC	Other Computer Related Services
Senior Secured Loan		8.00% cash / 1.00% PIK	(L +8.00%)	10/1/2018	10/1/2024	15,260		15,030		15,260		7.5
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +7.00%)	10/1/2018	10/1/2024	—		(13)		—		—
						15,260		15,017		15,260		7.5
Intouch Midco Inc. (15) (22)	All Other Professional, Scientific, and Technical Services
Senior Secured Loan		4.85%	(L +4.75%)	12/20/2019	8/24/2025	2,909		2,872		2,865		1.4

Ivanti Software, Inc. (14) (15)	Software Publishers
Senior Secured Loan		5.00%	(L +4.25%)	3/26/2021	12/1/2027	2,985		2,996		2,993		1.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
JP Intermediate B, LLC (15)	Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan		6.50%	(L +5.50%)	1/14/2021	11/15/2025	$	5,736	$	5,529	$	5,550	2.7	%

KNS Acquisition Corp. (14) (15)	Electronic Shopping and Mail-Order Houses
Senior Secured Loan		7.00%	(L +6.25%)	4/16/2021	4/21/2027	6,956		6,913		6,870		3.4

Kreg LLC (15)	Other Ambulatory Health Care Services
Senior Secured Loan		7.25%	(L +6.25%)	12/20/2021	12/20/2026	20,500		20,347		20,347		10.0
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.25%)	12/20/2021	12/20/2026	—		(17)		(17)		—
						20,500		20,330		20,330		10.0
LogMeIn, Inc. (14) (15)	Data Processing, Hosting, and Related Services
Senior Secured Loan		4.86%	(L +4.75%)	3/26/2021	8/31/2027	2,979		2,977		2,966		1.5

Magenta Buyer LLC (14) (15)	Software Publishers
Senior Secured Loan		5.75%	(L +5.00%)	7/28/2021	7/27/2028	4,850		4,836		4,845		2.4

McGraw Hill Global Education Holdings, LLC (14) (15)	All Other Publishers
Senior Secured Loan		4.85%	(L +4.75%)	4/1/2021	7/28/2028	2,310		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%)	7/16/2019	7/16/2025	22,364		22,364		22,024		10.8
Senior Secured Loan (Revolver)		7.50%	(L +6.50%)	7/16/2019	7/16/2025	634		626		610		0.3
						22,998		22,990		22,634		11.1
Molded Devices, Inc. (15)	Other Industrial Machinery Manufacturing
Senior Secured Loan		8.25%	(Prime + 5.00%)	11/1/2021	11/1/2026	8,069		7,991		7,991		3.9
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(Prime + 5.00%)	11/1/2021	11/1/2026	—		(7)		(7)		—
Senior Secured Loan (Revolver) (5)		n/m (18)	(Prime + 5.00%)	11/1/2021	11/1/2026	—		(9)		(9)		—
						8,069		7,975		7,975		3.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Odyssey Logistics and Technology Corporation (14) (15)	Freight Transportation Arrangement
Senior Secured Loan		5.00%	(L +4.00%)	4/5/2021	10/12/2024	$	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%)	12/13/2021	3/13/2022	5,515		5,403		5,403		2.7
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +6.75%)	12/13/2021	12/13/2023	—		(39)		(39)		—
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.75%)	12/13/2021	12/22/2025	—		(29)		(29)		—
						5,515		5,335		5,335		2.7
Parfums Holding Company, Inc. (14) (15)	Cosmetics, Beauty Supplies, and Perfume Stores
Senior Secured Loan		4.10%	(L +4.00%)	6/25/2019	6/30/2024	1,534		1,533		1,531		0.8

Peraton Inc. (14) (15)	Management Consulting Services
Senior Secured Loan		4.50%	(L +3.75%)	4/2/2021	2/1/2028	835		836		837		0.4

Plnet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC (6) (10)	Software Publishers
Senior Secured Loan		4.00%	N/A	3/13/2018	3/12/2023	16,728		14,358		7,027		3.3

PM Acquisition LLC (20)	All Other General Merchandise Stores
Common Equity (499 units) (10) (13)				9/30/2017				499		1,698		0.8

Professional Pipe Holdings, LLC	Plumbing, Heating, and Air-Conditioning Contractors
Senior Secured Loan		9.75% cash / 1.00% PIK	(L +9.75%)	3/23/2018	3/24/2025	5,367		5,344		5,378		2.6

Resource Label Group, LLC (14) (15)	Commercial Printing (except Screen and Books)
Senior Secured Loan		5.00%	(L +4.25%)	7/2/2021	7/7/2028	694		692		694		0.3
Senior Secured Loan (Delayed Draw)		5.00%	(L +4.25%)	7/2/2021	7/2/2028	2,743		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)				1/17/2018				492		794		0.4

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair 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%)	4/16/2021	4/27/2028	$	2,797	$	2,782	$	2,680	1.3	%
Senior Secured Loan		8.50%	(L +7.75%)	4/16/2021	4/27/2029	4,450		4,392		4,223		2.1
						7,247		7,174		6,903		3.4
RumbleOn, Inc. (15) (22)	Other Industrial Machinery Manufacturing
Senior Secured Loan		9.25%	(L +8.25%)	8/31/2021	8/31/2026	4,190		3,964		4,006		2.0
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +8.25%)	8/31/2021	2/23/2023	—		(18)		(79)		—
Warrants (warrants to purchase up to $600,000 in common stock)				8/31/2021	2/28/2023 (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)				9/4/2020				51		—		—
Preferred Equity (1,603 Series B units)				9/4/2020				160		12		—
Common Equity (269 units)				9/4/2020				3		—		—
								214		12		—
Signal Parent, Inc. (14) (15)	New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan		4.25%	(L +3.50%)	3/25/2021	4/3/2028	1,840		1,823		1,794		0.9

SourceHOV Tax, Inc. (4)	Other Accounting Services
Senior Secured Loan		7.50%	(L +6.50%)	3/16/2020	3/16/2025	19,790		19,648		19,935		9.8
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +6.50%)	5/17/2021	3/17/2025	—		(15)		—		—
						19,790		19,633		19,935		9.8
Southern Technical Institute, LLC (4) (10)(23)	Colleges, Universities, and Professional Schools
Equity Participation Rights				6/27/2018				—		7,408		3.6

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) (15)	Child Day Care Services
Senior Secured Loan		8.47%	(L +8.25%)	7/26/2018	7/30/2026	6,399		6,336		5,916		2.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
SSJA Bariatric Management LLC (15)	Offices of Physicians, Mental Health Specialists
Senior Secured Loan		6.00%	(L +5.00%)	8/26/2019	8/26/2024	$	9,775	$	9,723	$	9,775	4.8	%
Senior Secured Loan		6.00%	(L +5.00%)	12/31/2020	8/26/2024	1,056		1,048		1,056		0.5
Senior Secured Loan		6.00%	(L +5.00%)	12/8/2021	8/26/2024	2,660		2,634		2,660		1.3
Senior Secured Loan (Revolver) (5)		n/m (18)	(L +5.00%)	8/26/2019	8/26/2024	—		(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%)	12/30/2021	12/30/2026	3,042		3,011		3,011		1.5
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	(L +6.88%)	12/30/2021	12/30/2026	—		—		—		—
						3,042		3,011		3,011		1.5
Staples, Inc. (14) (15) (22)	Business to Business Electronic Markets
Senior Secured Loan		5.13%	(L +5.00%)	6/24/2019	4/16/2026	2,930		2,875		2,838		1.4

STS Operating, Inc.	Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan		9.00%	(L +8.00%)	5/15/2018	4/30/2026	9,073		9,071		9,073		4.5

Teneo Global LLC (14) (15)	Management Consulting Services
Senior Secured Loan		6.25%	(L +5.25%)	9/10/2021	7/11/2025	1,421		1,415		1,427		0.7

The Escape Game, LLC (4)	Other amusement and recreation industries
Senior Secured Loan		8.00%	(L +7.00%)	12/21/2021	12/22/2024	16,333		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 Loan		9.50%	(L +8.50%)	2/18/2021	3/1/2026	2,050		2,004		2,085		1.0

Tolemar Acquisition, INC. (15)	Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan		7.00%	(L +6.00%)	10/14/2021	10/14/2026	14,889		14,818		14,818		7.3
Senior Secured Loan (Revolver) (5)		7.00%	(L +6.00%)	10/14/2021	10/14/2026	360		348		348		0.2
						15,249		15,166		15,166		7.5
TruGreen Limited Partnership	Landscaping Services
Senior Secured Loan		9.25%	(L +8.50%)	5/13/2021	11/2/2028	4,500		4,630		4,590		2.3

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
United Biologics Holdings, LLC (4) (10)	Medical Laboratories
Preferred Equity (151,787 units)				4/16/2013				$	9	$	17	—	%
Warrants (29,374 units)				7/26/2012	3/5/2022 (12)			82		8		—
								91		25		—
West Corporation (14) (15)	All Other Telecommunications
Senior Secured Loan		4.50%	(L +3.50%)	2/26/2021	10/10/2024	887		874		838		0.4
Senior Secured Loan		5.00%	(L +4.00%)	7/29/2021	10/10/2024	2,611		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 Loan		6.25%	(L +5.50%)	7/21/2021	9/1/2027	3,294		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 Notes		10.20%		11/16/2020	10/20/2031	$	11,080	$	9,297	$	9,090	4.5	%

Apex Credit CLO 2021 Ltd (7)
Subordinated Notes		14.53%		5/28/2021	7/18/2034	8,630		7,797		7,442		3.7

Dryden 53 CLO, LTD. (7)
Subordinated Notes - Income		23.72%		10/26/2020	1/15/2031	2,700		1,611		1,672		0.8
Subordinated Notes		23.69%		10/26/2020	1/15/2031	2,159		1,289		1,337		0.7
						4,859		2,900		3,009		1.5
Dryden 76 CLO, Ltd. (7)
Subordinated Notes		15.73%		9/27/2019	10/20/2032	2,750		2,119		2,374		1.2

Elevation CLO 2017-7, Ltd. (7)
Subordinated Notes		11.96%		2/6/2019	7/15/2030	10,000		6,137		5,357		2.6

Flatiron CLO 18, Ltd. (7)
Subordinated Notes		19.09%		1/2/2019	4/17/2031	9,680		6,942		7,331		3.6

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Madison Park Funding XXIII, Ltd. (7)
Subordinated Notes		24.21%		1/8/2020	7/27/2047	$	10,000	$	6,370	$	7,211	3.5	%

Madison Park Funding XXIX, Ltd. (7)
Subordinated Notes		15.88%		12/22/2020	10/18/2047	9,500		6,899		7,001		3.4

Monroe Capital MML CLO X, LTD.
Mezzanine debt - Class E		10.92%	(L +8.85%)	8/7/2020	8/20/2031	1,000		949		996		0.5

Octagon Investment Partners 39, Ltd. (7)
Subordinated Notes		17.69%		1/23/2020	10/20/2030	7,000		4,733		4,845		2.4

Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine debt - Class E		8.63%	(L +7.30%)	1/26/2021	1/20/2034	1,000		974		988		0.5

Redding Ridge 4 (7)
Subordinated Notes		18.02		3/4/2021	4/15/2030	1,300		1,104		1,106		0.5

Regatta II Funding
Mezzanine debt - Class DR2		13.42%	(L +6.95%)	6/5/2020	1/15/2029	800		737		795		0.4

THL Credit Wind River 2019‐3 CLO Ltd. (7)
Subordinated Notes		13.09%		4/5/2019	4/15/2031	7,000		5,710		5,231		2.6

Trinitas CLO VIII (7)
Subordinated Notes		21.34%		3/4/2021	7/20/2117	5,200		3,128		3,229		1.6

Wellfleet CLO 2018-2 (7)
Subordinated Notes		19.74%		3/4/2021	10/20/2031	1,000		655		696		0.3

Total Subordinated Notes and Mezzanine Debt Investments						$	90,799	$	66,451	$	66,701	32.8	%

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair Value (3)		Percent of Net Assets
Loan Accumulation Facility (17) (22)
Apex Credit CLO 2021-II Ltd
Loan accumulation facility		13.50%		7/14/2021	7/14/2022	$	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% PIK				8/5/2015				$	5,849	$	2,748	1.3	%
Common Equity (11,273 shares)				6/28/2016				104		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)				3/8/2018				1,135		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/A	4/17/2015	7/20/2022	7,563		4,696		699		0.3
Preferred Equity (3,723 Series A units), 8% PIK				4/17/2015				3,483		—		—
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)				1/1/2014				217		65,740		32.3

TalentSmart Holdings, LLC (20)	Professional and Management Development Training
Common Equity (1,595,238 Class A shares) (10) (13)				10/11/2019				1,595		1,095		0.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)


Portfolio Company (1) Investment Type	Industry	Interest Rate (2)	Spread Above Index (2)	Initial Acquisition Date	Maturity	Principal Amount		Amortized Cost		Fair 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% PIK				12/10/2014				$	—	$	988	0.5	%
Common Equity (3,000,000 units)				12/10/2014				572		—		—
								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%)	11/25/2015	4/30/2022	$	8,195	$	8,195	$	8,195	4.0	%
Common Equity (554 shares)				11/25/2015				3,069		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.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2021

(Dollar amounts in thousands)

Portfolio Company

Reported Interest Rate

Interest Rate per Credit Agreement

Additional Interest per Annum

SS Acquisition, LLC

7.88%

7.50%

0.38%

(10)Non-income producing.

Portfolio Company

Investment Type

Range of PIK
Option

Range of Cash
Option

Maximum PIK
Rate Allowed

Eblens Holdings, Inc.

Subordinated Loan

0% or 1.00%

13.00% or 12.00%

1.00%

Master Cutlery, LLC

Senior Secured Loan

0% 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.

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 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. SBIC I LP intends to repay over time 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 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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Concentration of credit risk: Aside from its debt instruments, including investments in Structured Finance Notes, 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 debt investments, if borrowers completely fail to perform according to the terms of the contracts, and the collateral or other security for those instruments proved to be of no value to the Company, is equal to the sum of the Company's recorded investment in debt instruments and the unfunded loan commitments disclosed in Note 6.

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. This agreement was renewed for the 2022 calendar year 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 “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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

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 December 31, 2021, 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 March 31, 2022 and December 31, 2021, Capital Gains Fees of $2,988 and $1,916, respectively, were deferred 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 March 31, 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.

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 months ended March 31, 2022 and 2021, are presented below:


	Three Months Ended March 31,
		2022		2021
Base management fees		$	2,020	$	1,834
Incentive fees:
Income Incentive Fee		—		—
Capital Gains Fee		1,072		—
Administration fee expense		451		568
Distributions paid to affiliates		846		607

Note 4. Investments

As of March 31, 2022, the Company had loans to 63 portfolio companies, of which 97% were senior secured loans and 3% 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 20 investments in Structured Finance Notes. At March 31, 2022, the Company’s investments consisted of the following:


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Senior secured debt investments	$	371,941	74.2	%	178.4	%	$	361,317	64.7	%	173.4	%
Subordinated debt investments	13,906		2.8		6.7		9,353		1.7		4.5
Preferred equity	9,552		1.9		4.6		6,195		1.1		3.0
Common equity, warrants and other	12,827		2.6		6.2		89,672		16.1		43.0
Total Portfolio Company Investments	408,226		81.5		195.9		466,537		83.6		223.9
Structured Finance Notes	93,575		18.5		44.9		90,377		16.4		43.4
Total investments	$	501,801	100.0	%	240.8	%	$	556,914	100.0	%	267.3	%

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 March 31, 2022 and December 31, 2021, the Company's investment portfolio was domiciled as follows:


	March 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
United States	$	395,242	$	453,512	$	378,823	$	428,321
Canada	21,484		21,525		12,038		12,077
Cayman Islands1	85,075		81,877		66,451		66,701




Total investments	$	501,801	$	556,914	$	457,312	$	507,099

(1) Cayman Island investments 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.

As of March 31, 2022, the industry composition of the Company’s investment portfolio was as follows:


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Administrative and Support and Waste Management and Remediation Services

Convention and Trade Show Organizers	$	214	—	%	0.1	%	$	112	—	%	0.1	%
Hazardous Waste Treatment and Disposal	1,828		0.4		0.9		1,800		0.3		0.9

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Landscaping Services	$	4,625	0.9	%	2.2	%	$	4,590	0.8	%	2.2	%

Security Systems Services (except Locksmiths)	4,827		1.0		2.3		4,887		0.9		2.3
Temporary Help Services	8,912		1.8		4.3		8,912		1.6		4.3

Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries	17,224		3.4		8.3		17,305		3.1		8.3
Construction
Electrical Contractors and Other Wiring Installation Contractors	17,716		3.5		8.5		10,963		2.0		5.3
New Single-Family Housing Construction (except For-Sale Builders)	1,819		0.4		0.9		1,654		0.3		0.8
Plumbing, Heating, and Air-Conditioning Contractors	3,480		0.7		1.7		3,555		0.6		1.7
Water and Sewer Line and Related Structures Construction	2,400		0.5		1.2		2,392		0.4		1.1
Education Services
Colleges, Universities, and Professional Schools	—		—		—		7,989		1.4		3.8
Professional and Management Development Training	1,595		0.3		0.8		1,134		0.2		0.5
Sports and Recreation Instruction	3,013		0.6		1.4		2,967		0.5		1.4





Health Care and Social Assistance

Child Day Care Services	6,346		1.3		3.0		5,953		1.1		2.9



Home Health Care Services	4,187		0.8		2.0		4,036		0.7		1.9
Medical Laboratories	91		—		—		24		—		—
Offices of Physicians, Mental Health Specialists	13,376		2.7		6.4		13,456		2.4		6.5
Other Ambulatory Health Care Services	20,212		4.0		9.7		20,129		3.6		9.7

Outpatient Mental Health and Substance Abuse Centers	7,536		1.5		3.6		7,857		1.4		3.8

Services for the Elderly and Persons with Disabilities	10,287		2.1		4.9		10,233		1.8		4.9
Information
All Other Publishers	2,283		0.5		1.1		2,284		0.4		1.1
All Other Telecommunications	3,374		0.7		1.6		3,142		0.6		1.5
Cable and Other Subscription Programming	3,791		0.8		1.8		3,773		0.7		1.8
Data Processing, Hosting, and Related Services	4,102		0.8		2.0		4,144		0.7		2.0
Directory and Mailing List Publishers	1,942		0.4		0.9		1,991		0.4		1.0
Internet Publishing and Broadcasting and Web Search Portals	3,219		0.6		1.5		3,242		0.6		1.6
Motion Picture and Video Production	3,921		0.8		1.9		3,940		0.7		1.9


Software Publishers	24,753		4.9		11.9		18,203		3.3		8.7
Television Broadcasting	2,197		0.4		1.1		935		0.2		0.4
Wired Telecommunications Carriers	4,287		0.9		2.1		4,295		0.8		2.1

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Management of Companies and Enterprises
Offices of Other Holding Companies	$	7,362	1.5	%	3.5	%	$	7,253	1.3	%	3.5	%
Manufacturing
Bare Printed Circuit Board Manufacturing	1,985		0.4		1.0		1,979		0.4		0.9

Commercial Printing (except Screen and Books)	3,419		0.7		1.6		3,407		0.6		1.6
Current-Carrying Wiring Device Manufacturing	3,293		0.7		1.6		3,569		0.6		1.7

Other Aircraft Parts and Auxiliary Equipment Manufacturing	500		0.1		0.2		—		—		—

Fluid Power Pump and Motor Manufacturing	1,942		0.4		0.9		1,942		0.3		0.9
Ice Cream and Frozen Dessert Manufacturing	2,596		0.5		1.2		2,596		0.5		1.2
Motorcycle, Bicycle, and Parts Manufacturing	16,569		3.3		8.0		16,836		3.0		8.1




Other Industrial Machinery Manufacturing	13,715		2.7		6.6		13,550		2.4		6.5


Pharmaceutical Preparation Manufacturing	217		—		0.1		75,308		13.5		36.1









Other Services (except Public Administration)


Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance	572		0.1		0.3		1,124		0.2		0.5


Professional, Scientific, and Technical Services
Administrative Management and General Management Consulting Services	22,776		4.5		10.9		22,432		4.0		10.8
Advertising Agencies	2,268		0.5		1.1		2,285		0.4		1.1
All Other Professional, Scientific, and Technical Services	2,867		0.6		1.4		2,866		0.5		1.4


Management Consulting Services	2,700		0.5		1.3		2,689		0.5		1.3

Other Accounting Services	19,594		3.9		9.4		19,740		3.5		9.5
Other Computer Related Services	15,429		3.1		7.4		15,729		2.8		7.5




Public Administration
Other Justice, Public Order, and Safety Activities	703		0.1		0.3		29		—		—

Real Estate and Rental and Leasing


Nonresidential Property Managers	3,960		0.8		1.9		3,977		0.7		1.9
Office Machinery and Equipment Rental and Leasing	5,953		1.2		2.9		5,152		0.9		2.5

Retail Trade
Automotive Parts and Accessories Stores	2,688		0.5		1.3		2,665		0.5		1.3
Cosmetics, Beauty Supplies, and Perfume Stores	1,533		0.3		0.7		1,520		0.3		0.7
Electronics and Appliance Stores	8,108		1.6		3.9		8,108		1.5		3.9
Electronic Shopping and Mail-Order Houses	6,872		1.4		3.3		6,773		1.2		3.3
Shoe store	9,923		2.0		4.8		9,157		1.6		4.4
Sporting Goods Stores	1,953		0.4		0.9		1,958		0.4		0.9


All Other General Merchandise Stores	499		0.1		0.2		1,212		0.2		0.6
Transportation and Warehousing

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Freight Transportation Arrangement	$	1,957	0.4	%	0.9	%	$	1,945	0.3	%	0.9	%

Scheduled Passenger Air Transportation	360		0.1		0.2		369		0.1		0.2

Wholesale Trade
Business to Business Electronic Markets	2,870		0.6		1.4		2,768		0.5		1.3
Computer and Computer Peripheral Equipment and Software Merchant Wholesalers	11,168		2.2		5.4		11,000		2.0		5.3

Drugs and Druggists' Sundries Merchant Wholesalers	5,454		1.1		2.6		5,362		1.0		2.6


Industrial Machinery and Equipment Merchant Wholesalers	9,071		1.8		4.4		9,073		1.6		4.4


Motor Vehicle Parts (Used) Merchant Wholesalers	22,970		4.6		11.0		23,187		4.2		11.1

Other Miscellaneous Nondurable Goods Merchant Wholesalers	2,644		0.5		1.3		2,644		0.5		1.3
Sporting and Recreational Goods and Supplies Merchant Wholesalers	8,179		1.6		3.9		436		0.1		0.2

Total Portfolio Company Investments	$	408,226	81.5	%	195.9	%	$	466,537	83.6	%	223.9	%
Structured Finance Notes	93,575		18.5		44.9		90,377		16.4		43.4
Total investments	$	501,801	100.0	%	240.8	%	$	556,914	100.0	%	267.3	%

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 Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Senior secured debt investments	$	336,132	73.3	%	165.0	%	$	326,704	64.9	%	160.4	%
Subordinated debt investments	22,071		4.8		10.8		17,943		3.5		8.8
Preferred equity	9,552		2.1		4.7		3,765		0.7		1.8
Common equity, warrants and other	14,606		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 Notes	74,951		16.6		36.8		75,201		14.4		36.9
Total	$	457,312	100.0	%	224.5	%	$	507,099	100.0	%	248.9	%

As of December 31, 2021, the industry compositions of the Company’s debt and equity investments were as follows:


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Administrative and Support and Waste Management and Remediation Services
Convention and Trade Show Organizers	$	214	—	%	0.1	%	$	12	—	%	—	%
Hazardous Waste Treatment and Disposal	1,833		0.4		0.9		1,837		0.4		0.9
Landscaping Services	4,630		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

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries	$	16,287	3.6	%	8.0	%	$	16,396	3.2	%	8.0	%
Construction
Electrical Contractors and Other Wiring Installation Contractors	18,132		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 Contractors	5,344		1.2		2.6		5,378		1.1		2.6
Water and Sewer Line and Related Structures Construction	627		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 Training	1,595		0.3		0.8		1,095		0.2		0.5
Sports and Recreation Instruction	3,011		0.7		1.5		3,011		0.6		1.5





Health Care and Social Assistance

Child Day Care Services	6,336		1.4		3.1		5,916		1.2		2.9



Home Health Care Services	4,182		0.9		2.1		4,250		0.8		2.1
Medical Laboratories	92		—		—		25		—		—
Offices of Physicians, Mental Health Specialists	13,402		2.9		6.6		13,491		2.7		6.6
Other Ambulatory Health Care Services	20,331		4.4		10.0		20,331		4.0		10.0

Outpatient Mental Health and Substance Abuse Centers	4,770		1.0		2.3		5,231		1.0		2.6

Services for the Elderly and Persons with Disabilities	6,416		1.4		3.1		6,416		1.3		3.1
Information
All Other Publishers	2,288		0.5		1.1		2,303		0.5		1.1
All Other Telecommunications	3,429		0.7		1.7		3,323		0.7		1.6
Cable and Other Subscription Programming	3,801		0.8		1.9		3,810		0.8		1.9
Data Processing, Hosting, and Related Services	4,112		0.9		2.0		4,255		0.8		2.1
Directory and Mailing List Publishers	2,004		0.4		1.0		2,085		0.4		1.0
Internet Publishing and Broadcasting and Web Search Portals	3,249		0.7		1.6		3,299		0.7		1.6
Motion Picture and Video Production	3,929		0.9		1.9		3,970		0.8		1.9


Software Publishers	24,948		5.5		12.2		17,929		3.5		8.8
Television Broadcasting	1,957		0.4		1.0		918		0.2		0.5
Wired Telecommunications Carriers	4,388		1.0		2.2		4,405		0.9		2.2
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 Manufacturing	1,985		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 Manufacturing	2,653		0.6		1.3		2,954		0.6		1.4

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Motorcycle, Bicycle, and Parts Manufacturing	$	15,166	3.3	%	7.4	%	$	15,166	3.0	%	7.4	%
Metal Can Manufacturing	2,143		0.5		1.1		2,167		0.4		1.1

Other Aircraft Parts and Auxiliary Equipment Manufacturing	500		0.1		0.2		80		—		—

Other Industrial Machinery Manufacturing	12,121		2.7		5.9		12,176		2.4		6.0



Pharmaceutical Preparation Manufacturing	217		—		0.1		65,740		13.0		32.3




Small Electrical Appliance Manufacturing	4,997		1.1		2.5		4,997		1.0		2.5

Travel Trailer and Camper Manufacturing	11,264		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 Maintenance	572		0.1		0.3		988		0.2		0.5


Professional, Scientific, and Technical Services
Administrative Management and General Management Consulting Services	22,990		5.0		11.3		22,634		4.5		11.1

All Other Professional, Scientific, and Technical Services	2,872		0.6		1.4		2,865		0.6		1.4


Management Consulting Services	2,251		0.5		1.1		2,264		0.4		1.1

Other Accounting Services	19,631		4.3		9.6		19,927		3.9		9.8
Other Computer Related Services	15,017		3.3		7.4		15,260		3.0		7.5




Public Administration
Other Justice, Public Order, and Safety Activities	703		0.2		0.3		29		—		—

Real Estate and Rental and Leasing


Nonresidential Property Managers	2,972		0.6		1.5		2,972		0.6		1.5
Office Machinery and Equipment Rental and Leasing	5,952		1.3		2.9		2,774		0.5		1.4

Retail Trade
Automotive Parts and Accessories Stores	2,688		0.6		1.3		2,704		0.5		1.3
Cosmetics, Beauty Supplies, and Perfume Stores	1,533		0.3		0.8		1,531		0.3		0.8
Electronic Shopping and Mail-Order Houses	6,913		1.5		3.4		6,870		1.4		3.4
Shoe Store	9,893		2.2		4.9		9,342		1.8		4.6
Sporting Goods Stores	1,958		0.4		1.0		1,972		0.4		1.0


All Other General Merchandise Stores	499		0.1		0.2		1,698		0.3		0.8
Transportation and Warehousing
Freight Transportation Arrangement	1,960		0.4		1.0		1,970		0.4		1.0

Scheduled Passenger Air Transportation	360		0.1		0.2		377		0.1		0.2

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 Wholesalers	7,173		1.6		3.5		6,903		1.4		3.4

Drugs and Druggists' Sundries Merchant Wholesalers	5,529		1.2		2.7		5,550		1.1		2.7

Industrial Machinery and Equipment Merchant Wholesalers	9,071		2.0		4.5		9,073		1.8		4.5

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


			Percentage of Total						Percentage of Total
	Amortized Cost		Amortized Cost		Net Assets		Fair Value		Fair Value		Net Assets
Motor Vehicle Parts (Used) Merchant Wholesalers	$	23,005	5.0	%	11.3	%	$	23,052	4.5	%	11.3	%

Sporting and Recreational Goods and Supplies Merchant Wholesalers	8,179		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 Notes	74,951		16.6		36.8		75,201		14.4		36.9
Total investments	$	457,312	100.0	%	224.5	%	$	507,099	100.0	%	248.9	%

When there is reasonable doubt that principal, cash interest, or PIK interest will be collected, loan investments are placed on non-accrual status, and the Company will generally cease recognizing cash interest, PIK interest and/or Net Loan Fee amortization, as applicable. 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. The aggregate amortized cost and fair value of loans on non-accrual status with respect to all interest and Net Loan Fee amortization was $18,888 and $7,758, respectively, at March 31, 2022, and $19,054 and $7,726 respectively, at December 31, 2021.

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.

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 2 and Level 3 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. A senior security with a fair value of $6,773 was transferred from Level 3 to Level 2 during the three months ended March 31, 2022. Senior securities with a fair value of $899 were transferred from Level 3 to Level 2 during the three months ended March 31, 2021. Transfers from Level 3 to Level 2 during the March 31, 2022 and 2021 reporting periods, were due to availability of reliable Indicative Prices in those periods.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

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, which is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.

The following tables present the Company's investment portfolio measured at fair value on a recurring basis as of March 31, 2022, and December 31, 2021:


Security	Level 1		Level 2		Level 3		Fair Value at March 31, 2022
Debt investments	$	—	$	69,105	$	301,565	$	370,670
Equity investments	—		—		95,867		95,867
Structured Finance Notes	—		—		90,377		90,377
	$	—	$	69,105	$	487,809	$	556,914


Security	Level 1		Level 2		Level 3		Fair 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

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 March 31, 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 March 31, 2022

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

242,154

Discounted cash flow

Discount rates

7.80% - 14.49% (10.03%)

Senior secured

10,963

Market approach

EBITDA multiples

6.80x - 6.80x (6.80x)

Senior secured

7,322

Market approach

Revenue multiples

0.70x - 0.70x (0.70x)

Senior secured

31,773

Market approach

Transaction Price

Subordinated

8,917

Discounted cash flow

Discount rates

19.30% - 19.30% (19.30%)

Subordinated

436

Market approach

Revenue multiples

0.25x - 0.25x (0.25x)

Structured Finance Notes

Subordinated notes(1)

53,966

Discounted cash flow

Discount rates

13.00% - 22.00% (16.19%)

Constant default rate(2)

2.00% - 2.00% (2.00%)

Constant default rate(3)

2.00% - 2.00% (2.00%)

Recovery rate

65.00% - 65.00% (65.00%)

Subordinated notes

3,085

Market approach

Net asset value liquidation(4)

Mezzanine debt

2,754

Discounted cash flow

Discount margin

7.25% - 9.10% (8.11%)

Constant Default Rate(2)

2.00% - 3.00% (2.36%)

Constant Default Rate(3)

2.00% - 3.00% (2.36%)

Recovery rate

65.00% - 65.00% (65.00%)

Mezzanine debt

13,572

Market approach

Transaction Price

Loan Accumulation Facility

17,000

Market approach

Transaction Price

Equity investments:

Preferred equity

4,959

Market approach

EBITDA multiples

7.00x - 7.00x (7.00x)

Preferred equity

1,236

Market approach

Revenue multiples

0.25x - 3.25x (1.66x)

Common equity, warrants and other

87,160

Market approach

EBITDA multiples

5.00x - 12.00x (9.02x)

Common equity, warrants and other

1,222

Market approach

Revenue multiples

0.25x - 1.11x (1.11x)

Common equity, warrants and other

1,290

Market approach

Transaction Price

487,809

(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 September 30, 2022.

(3) Constant default rates for the period between September 30, 2022 and the assumed optional redemptions of the instruments.

(4) Net asset value liquidation represents the fair value, or estimated expected residual value, of the subordinated note that has been optionally redeemed.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Fair Value at December 31, 2021

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

178,382

Discounted cash flow

Discount rates

6.47% - 12.32% (9.25%)

Senior secured

11,632

Market approach

EBITDA multiples

7.09x - 7.09x (7.09x)

Senior secured

7,027

Market approach

Revenue multiples

0.74x - 0.74x (0.74x)

Senior secured

64,072

Market approach

Transaction Price

Subordinated

17,244

Discounted cash flow

Discount rates

15.90% - 17.49% (16.65%)

Subordinated

699

Market approach

Revenue multiples

0.28x - 0.28x (0.28x)

Structured Finance Notes:

Subordinated notes(1)

63,922

Discounted cash flow

Discount rates

8.00% - 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 rate

60.00% - 60.00% (60.00%)

Mezzanine debt

2,779

Discounted cash flow

Discount margin

7.10% - 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 rate

60.00% - 60.00% (60.00%)

Loan accumulation facility

8,500

Market approach

Transaction Price

Equity investments:

Preferred equity

2,748

Market approach

EBITDA multiples

7.80x - 7.80x (7.80x)

Preferred equity

1,017

Market approach

Revenue multiples

0.15x - 3.00x (0.91x)

Common equity, warrants and other

83,478

Market approach

EBITDA multiples

4.50x - 12.00x (8.10x)

Common equity, warrants and other

Market approach

Revenue multiples

0.15x - 3.00x (0.15x)

441,508

(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.

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 three months ended March 31, 2022 and March 31, 2021:


	Three Months Ended March 31, 2022
	Senior Secured Debt Investments		Subordinated Debt Investments		Preferred Equity		Common Equity, Warrants and Other		Structured Finance Notes		Total
Level 3 assets, December 31, 2021	$	261,113	$	17,943	$	3,765	$	83,486	$	75,201	$	441,508

Net realized gains on investments	—		—		—		72		—		72
Net unrealized appreciation (depreciation) on investments	(319)		(424)		2,430		7,965		(3,449)		6,203
Amortization of Net Loan Fees	228		6		—		—		25		259
Accretion of interest income on Structured Finance Notes	—		—		—		—		2,282		2,282
Capitalized PIK interest and dividends	211		58		—		—		—		269
Amendment fees	(90)		—		—		—		—		(90)
Purchase and origination of portfolio investments	43,818		—		—		1,290		22,061		67,169
Proceeds from principal payments on portfolio investments	(5,976)		(8,230)		—		—		—		(14,206)
Sale and redemption of portfolio investments	—		—		—		(3,141)		—		(3,141)
Proceeds from distributions received from portfolio investments	—		—		—		—		(5,743)		(5,743)

Transfers out of Level 3	(6,773)		—		—		—		—		(6,773)
Level 3 assets, March 31, 2022	$	292,212	$	9,353	$	6,195	$	89,672	$	90,377	$	487,809

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended March 31, 2021
	Senior Secured Debt Investments		Subordinated Debt Investments		Preferred Equity		Common Equity, Warrants and Other		Structured Finance Notes		Total
Level 3 assets, December 31, 2020	$	284,078	$	15,067	$	11,543	$	52,984	$	56,425	$	420,097

Net unrealized appreciation (depreciation) on investments	4,726		(1,443)		721		1,282		(543)		4,743
Amortization of Net Loan Fees	524		6		—		—		28		558
Accretion of interest income on Structured Finance Notes	—		—		—		—		2,278		2,278
Capitalized PIK interest and dividends	404		112		47		—		—		563
Amendment fees	(97)		—		—		—		—		(97)
Purchase and origination of portfolio investments	32,569		—		—		—		6,163		38,732
Proceeds from principal payments on portfolio investments	(31,800)		—		—		—		—		(31,800)

Proceeds from distributions received from portfolio investments	—		—		—		—		(2,721)		(2,721)

Transfers out of Level 3	(899)		—		—		—		—		(899)
Level 3 assets, March 31, 2021	$	289,505	$	13,742	$	12,311	$	54,266	$	61,630	$	431,454

The net unrealized appreciation (depreciation) reported in the Company’s consolidated statements of operations for the three months ended March 31, 2022 and 2021, attributable to the Company’s Level 3 assets still held at those respective period ends was as follows:


	Three Months Ended March 31,
	2022		2021
Senior secured debt investments	$	(249)	$	4,078
Subordinated debt investments	(424)		(1,442)
Preferred equity	2,430		721
Common equity, warrants and other	9,649		1,282
Structured Finance Notes	(3,449)		(531)
Net unrealized appreciation on investments held	$	7,957	$	4,108

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 approximately book value.

The following table sets forth carrying values and fair values of the Company’s debt as of March 31, 2022 and December 31, 2021:


	As of March 31, 2022				As of December 31, 2021
Description	Carrying Value		Fair Value		Carrying Value		Fair Value
PWB Credit Facility	$	3,250	$	3,250	$	—	$	—
BNP Facility	111,400		111,400		100,000		100,000
Unsecured Notes Due February 2026	121,934		116,687		121,774		123,130
Unsecured Notes Due October 2028	53,652		54,890		53,672		56,430
SBA-guaranteed debentures	50,553		50,617		69,365		73,011
Total debt	$	340,789	$	336,844	$	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 March 31, 2022 and December 31, 2021:


	March 31, 2022
Description	Level 1		Level 2		Level 3 (1)		Total
PWB Credit Facility	$	—	$	—	$	3,250	$	3,250
BNP Facility	—		—		111,400		111,400
Unsecured Notes Due February 2026	—		—		116,687		116,687
Unsecured Notes Due October 2028	54,890		—		—		54,890
SBA-guaranteed debentures	—		—		50,617		50,617
Total debt, at fair value	$	54,890	$	—	$	281,954	$	336,844


	December 31, 2021
Description	Level 1		Level 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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Note 6. Commitments and Contingencies

The Company has outstanding commitments to fund investments totaling $44,763 and $43,690 under various undrawn revolvers and other credit facilities as of March 31, 2022 and December 31, 2021, respectively.

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 March 31, 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 $188,400 and $195,502 in assets at March 31, 2022 and December 31, 2021, respectively, which accounted for approximately 33% 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 March 31, 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 months ended March 31, 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 March 31,
		2022			2021
Stated interest expense		$	451		$	769
Amortization of debt issuance costs		44			64
Total interest and debt financing costs		$	495		$	833
Cash paid for interest expense		$	1,002		$	1,553
Effective interest rate		3.12		%	3.47		%
Average outstanding balance		$	63,375		$	95,953

BNP Facility: Under the BNP Facility that matures on June 20, 2024, OFSCC-FS has up to $150,000 of available credit, subject to borrowing base requirements, of which $111,400 was drawn as of March 31, 2022. Borrowings under the BNP Facility bear interest of LIBOR plus an applicable spread, which is determined on the basis of industry-recognized portfolio company metrics at the time of funding. The Company also pays a non-usage fee depending on the size of the unused portion of the BNP Facility. The effective interest rate on the BNP Facility was 2.74% at March 31, 2022. The unused commitment under the BNP Facility was $38,600 as of March 31, 2022.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

For the three months ended March 31, 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 March 31,
		2022			2021
Stated interest expense		$	616		$	395
Amortization of debt issuance costs		67			55
Total interest and debt financing costs		$	683		$	450
Cash paid for interest expense		$	585		$	397
Effective interest rate		2.56		%	5.77		%
Average outstanding balance		$	106,850		$	31,183

PWB Credit Facility: As of March 31, 2022, the Company had up to $25,000 of available credit under the PWB Credit Facility, subject to borrowing base requirements, of which $3,250 was drawn. Borrowings under the PWB Credit Facility bear interest at a variable rate of the Prime Rate plus a 0.25% margin, with a 4.00% floor, and includes an unused commitment fee for any unused portion in excess of $15,000, payable monthly in arrears, equal to 0.50% per annum on any unused portion. As of March 31, 2022, the stated interest rate of the PWB Credit Facility was 4.00%. The effective interest rate on the PWB Credit Facility was 5.54% at March 31, 2022. As of March 31, 2022 the unused commitment under the PWB Credit Facility was $21,750.

On April 22, 2022, the Company amended the BLA 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.

For the three months ended March 31, 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 March 31,
		2022			2021
Stated interest expense(1)		$	18		$	40
Amortization of debt issuance costs		—			—
Total interest and debt financing costs		$	18		$	40
Cash paid for interest expense		$	18		$	30
Effective interest rate		14.23		%	7.11		%
Average outstanding balance		$	506		$	2,249

(1) For the three months ended March 31, 2022 and 2021, stated interest expense included unused fees of $13 and $10, respectively.

Unsecured Notes: As of March 31, 2022, the Company had outstanding Unsecured Notes with an aggregate outstanding principal of $180,000. The Unsecured Notes are scheduled to mature between February 2026 and October 2028 and bear fixed interest rates between 4.75% and 4.95%. At March 31, 2022, the weighted average effective interest rate on the Unsecured Notes was 5.37%.

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 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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

For the three months ended March 31, 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 March 31,
		2022			2021
Stated interest expense		$	2,165		$	3,175
Amortization of debt issuance costs		263			327
Total interest and debt financing costs		$	2,428		$	3,502
Cash paid for interest expense		$	3,672		$	3,715
Effective interest rate		5.40		%	6.32		%
Average outstanding balance		$	180,000		$	221,789

The following table shows the scheduled maturities of the principal balances of the Company’s outstanding borrowings as of March 31, 2022:


	Payments due by period
	Total		Less than year		1-3 years		4-5 years		After 5 years
PWB Credit Facility(1)	$	3,250	$	3,250	$	—	$	—	$	—
Unsecured Notes	180,000		—		—		125,000		55,000
SBA Debentures	50,920		—		50,920		—		—
BNP Facility	111,400		—		111,400		—		—
Total	$	345,570	$	3,250	$	162,320	$	125,000	$	55,000

(1)The PWB Credit Facility was amended on April 22, 2022 to among other things, modify the scheduled maturity to February 28, 2024.

For the three months ended March 31, 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 March 31,
		2022			2021
Average dollar borrowings		$	350,731		$	351,174
Weighted average effective interest rate		4.19		%	5.57		%

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 months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
		2022			2021
Per share operating performance:
Net asset value per share at beginning of period		$	15.18		$	11.85
Net investment income(4)		0.22			0.19



Net realized gain on investments, net of taxes		0.02			0.02



Net unrealized appreciation on investments, net of taxes		0.39			0.28
Loss on extinguishment of debt(4)		(0.01)			(0.17)
Total from operations		0.62			0.32
Distributions		(0.28)			(0.20)
Issuance of common stock (8)		—			(0.02)
Net asset value per share at end of period		$	15.52		$	11.95

Per share market value, end of period		$	13.00		$	8.78
Total return based on market value(1)(7)		21.8		%	25.6		%
Total return based on net asset value(2)(7)		4.4		%	3.2		%
Shares outstanding at end of period		13,425,429			13,411,962
Weighted average shares outstanding		13,422,447			13,409,033
Ratio/Supplemental Data (dollar amounts in thousands)
Average net asset value(3)		$	206,065		$	159,713
Net asset value at end of period		$	208,386		$	160,470
Net investment income		$	3,005		$	2,550
Ratio of total expenses to average net assets(5)		15.4		%	19.9		%
Ratio of total expenses and loss on extinguishment of debt to average net assets(5)		15.5		%	25.6		%
Ratio of net investment income to average net assets(5)		5.8		%	6.4		%
Ratio of loss on extinguishment of debt to average net assets(7)		0.1		%	1.4		%
Portfolio turnover (6)		5.4		%	11.4		%

(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.

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,

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

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 $137,636, and consolidated cash at March 31, 2022 includes $5,199 held by SBIC I LP, all of which was available for distribution to the Company. Net Assets of OFSCC-FS were $75,085, and consolidated cash at March 31, 2022 includes $2,269 held by OFSCC-FS, of which $-0- was available for distribution to the Company.

The following table summarizes distributions declared and paid for the three months ended March 31, 2022 and 2021:


Date Declared	Record Date	Payment Date	Amount Per Share		Cash Distribution		DRIP Shares Issued	DRIP Shares Value
Three Months Ended March 31, 2021
March 2, 2021	March 24, 2021	March 31, 2021	$	0.20	$	2,655	3,103	$	27




Three Months Ended March 31, 2022
March 1, 2022	March 24, 2022	March 31, 2022	$	0.28	$	3,719	3,016	$	39

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 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 the Company’s distributions for a 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 three months ended March 31, 2022 and 2021, respectively.


Period	Total Number of Shares Purchased	Cost of Shares Purchased		Average Price Paid Per Share
Three Months Ended March 31, 2021
January 1, 2021 through March 31, 2021	700	$	5	$	6.70



Three Months Ended March 31, 2022
January 1, 2022 through March 31, 2022	—	$	—	$	—

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


		Three Month Period Ended March 31, 2022
Name of Portfolio Company	Investment Type (1)	Net Realized Gain (Loss)		Net change in unrealized appreciation/(depreciation)		Interest & PIK Interest		Dividends		Fees		Total Income (2)		December 31, 2021, Fair Value		Gross Additions (3)		Gross Reductions (4)		March 31, 2022, Fair Value (5)
Control Investment
MTE Holding Corp.	Subordinated Loan	$	—	$	—	$	141	$	—	$	6	$	147	$	8,195	$	35	$	(8,230)	$	—
	Common Equity	278		(1,684)		—		45		—		45		4,753		—		(4,753)		—
		278		(1,684)		141		45		6		192		12,948		35		(12,983)		—

Total Control Investment		278		(1,684)		141		45		6		192		12,948		35		(12,983)		—
Affiliate Investments
Contract Datascan Holdings, Inc.	Preferred Equity	—		2,195		—		—		—		—		2,748		2,195		—		4,943
	Common Equity (6)	—		184		—		—		—		—		25		184		—		209
		—		2,379		—		—		—		—		2,773		2,379		—		5,152

DRS Imaging Services, LLC	Common Equity (6)	—		(67)		—		—		—		—		1,289		—		(67)		1,222


Master Cutlery, LLC	Subordinated Loan (6)	—		(263)		—		—		—		—		699		—		(263)		436
	Preferred Equity (6)	—		—		—		—		—		—		—		—		—		—
	Common Equity (6)	—		—		—		—		—		—		—		—		—		—
		—		(263)		—		—		—		—		699		—		(263)		436

Pfanstiehl Holdings, Inc	Common Equity	—		9,568		—		—		—		—		65,740		9,568		—		75,308


TalentSmart Holdings, LLC	Common Equity (6)	—		39		—		—		—		—		1,095		39		—		1,134


TRS Services, Inc.	Preferred Equity (6)	—		136		—		—		—		—		988		136		—		1,124
	Common Equity (6)	—		—		—		—		—		—		—				—		—
		—		136		—		—		—		—		988		136		—		1,124

Total Affiliate Investments		—		11,792		—		—		—		—		72,584		12,122		(330)		84,376
Total Control and Affiliate Investments		$	278	$	10,108	$	141	$	45	$	6	$	192	$	85,532	$	12,157	$	(13,313)	$	84,376

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 three months ended March 31, 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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Note 11. Subsequent Events

On May 3, 2022, the Board declared a distribution of $0.29 per share for the second quarter of 2022, payable on June 30, 2022 to stockholders of record as of June 23, 2022.

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.

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:


	March 31, 2022		December 31, 2021
Net asset value per common share	$	15.52	$	15.18


	Three Months Ended
	March 31, 2022		December 31, 2021
Net investment income per common share	$	0.22	$	0.33
Net increase in net assets resulting from operations per common share	0.62		1.27
Distributions paid per common share	0.28		0.25

Our NAV per common share increased 2.2% to $15.52 at March 31, 2022 from $15.18 at December 31, 2021, primarily due to net gains on our investment portfolio of $5.5 million, or $0.41 per common share. For the quarter ended March 31, 2022, net gains were primarily related to unrealized appreciation on our equity investments.

For the quarter ended March 31, 2022, net investment income per share decreased $0.11 compared to the prior quarter, primarily due to a $0.20 per share, or $2.6 million, decrease in dividend and fee income, which can vary from quarter to quarter based on investment activity. Interest income also decreased as our portfolio’s weighted-average performing income yield decreased to 9.0% for the quarter ended March 31, 2022 compared to 11.1% for the quarter ended December 31, 2021, primarily due to the redeployment of payoffs into lower-yielding senior secured loans. Net investment income included an accrued Capital Gains Fee expense of $1.1 million, or $0.08 per share, that is deferred and not due to OFS Advisor until the close of the year in which such gains are realized. Incentive fees on unrealized appreciation are subject to reversal should such unrealized appreciation diminish prior to realization. As of March 31, 2022, there was no Capital Gains Fee contractually due and payable under the terms of the Investment Advisory Agreement.

For the quarter ended March 31, 2022, our weighted-average debt interest costs decreased to 4.2% compared to 4.6% for the quarter ended December 31, 2021, primarily due to the redemption of $79.25 million of Unsecured Notes in November 2021 which bore fixed interest rates of 6.25% and 5.95%, respectively, and the issuance of $55.0 million of new Unsecured Notes which bear a fixed interest rate of 4.95%. As of March 31, 2022, approximately 67% of our debt was fixed rate and matures in 2025 and beyond.

On May 3, 2022, the Board declared a distribution of $0.29 per share for the second quarter of 2022, payable on June 30, 2022 to stockholders of record as of June 23, 2022.

As of March 31, 2022 and December 31, 2021, floating rate loans at fair value, excluding Structured Finance Notes, comprised 93% and 92% of our debt portfolio, respectively. 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 three months ended March 31, 2022, our portfolio experienced net gains of $5.5 million, or $0.41 per share, principally due to a $10.0 million, or 3.1%, increase in the fair values of our directly originated debt and equity investments. The net appreciation in our directly originated investments was primarily attributable to a $9.6 million increase in fair value on our common equity in Pfanstiehl Holdings, Inc., as well as a $2.4 million increase on our equity investments in Contract Datascan Holdings, Inc., in each case, as a result of improved operating results. Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 13.5% of our portfolio at fair value, and 36.1% of our consolidated net assets as of March 31, 2022. During the first quarter, we experienced unrealized losses of $1.0 million and $3.4 million on our broadly syndicated loans and Structured Finance Notes, respectively, primarily due to widening of liquid credit market spreads.

As of March 31, 2022, we have unfunded commitments of $44.8 million to 16 portfolio companies. During the three months ended March 31, 2022, we purchased Structured Finance Notes for a cost of $22.1 million and funded $48.1 million in new and existing Portfolio Company Investments.

At March 31, 2022, our asset coverage ratio of 171% exceeded the minimum asset coverage requirements under the 1940 Act, and we remained in compliance with all applicable covenants under our outstanding debt facilities. As of March 31, 2022, we had an unused commitment of $21.8 million under our PWB Credit Facility, as well as an unused commitment of $38.6 million under our BNP Facility, both subject to a borrowing base and other covenants. Based on our portfolio's fair value and our equity capital at March 31, 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 BLA, to among other things, increase the maximum amount available under the PWB Credit Facility from $25.0 million to $35.0 million. 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 March 31, 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 conflict between Russia and Ukraine, 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 March 31, 2022, approximately $349 million (aggregate principal amount) of our debt investments bore interest at variable rates, which are generally LIBOR-based but will transition away from LIBOR to any one of the various alternative reference rates, and many of which are subject to reference-rate floors. We have prepared and planned for the transition away from LIBOR, incorporating alternate reference rates to be used in our credit agreements and making other preparations, and believe the impact on us from 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, as of March 16, 2022, the U.S. Federal Reserve approved an interest rate increase and signaled that additional increases are likely. As of March 31, 2022, the majority of our variable rate debt investments have base rate floors. However, there may be disputes between market participants regarding the interpretation and enforceability of provisions related to the economic floors in our LIBOR-based investments (or lack thereof), which may result in a loss or degradation of floor protection in the case of a transition from LIBOR to any one of the various alternative reference rates.

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 2020, the SEC issued a final rule modifying 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 requirements on or before the compliance date in September 2022.

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 March 31, 2022 (dollar amounts in thousands):


Investment Type	Fair Value at March 31, 2022		Range of Fair Value
			Low-end		High-end
Debt investments:
Senior secured	$	361,317	$	357,902	$	364,709
Subordinated	9,353		8,867		9,839

Structured Finance Notes:
Subordinated notes	57,051		54,822		59,282
Mezzanine debt	16,326		16,286		16,365
Loan accumulation facilities	17,000		17,000		17,000

Equity investments:
Preferred equity	6,195		5,743		6,598
Common equity, warrants and other	89,672		84,316		95,064
	$	556,914	$	544,936	$	568,857

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, 2021 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. This agreement was most recently renewed for the 2022 calendar year 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

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 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 amendment 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 March 31, 2022, the fair value of our debt investment portfolio totaled $370.7 million in 63 portfolio companies, of which 97% and 3% were senior secured loans and subordinated loans, respectively. As of March 31, 2022, we had equity investments in 17 portfolio companies with a fair value of approximately $95.9 million. We also have 20 investments in Structured Finance Notes with a fair value of $90.4 million. We had unfunded commitments of $44.8 million to 16 portfolio companies at March 31, 2022. Set forth in the tables and charts below is selected information with respect to our portfolio as of March 31, 2022 and December 31, 2021.

The following table presents our investment portfolio by each wholly owned legal entity within the consolidated group as of March 31, 2022 and December 31, 2021 (dollar amounts in thousands):


	March 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
OFS Capital Corporation (Parent)	$	184,827	$	174,071	$	157,190	$	150,254
SBIC I LP	114,351		182,546		125,584		183,524
OFSCC-FS	197,897		195,671		171,101		170,132
OFSCC-MB	4,726		4,626		3,437		3,189
Total investments	$	501,801	$	556,914	$	457,312	$	507,099

The following table presents our ten largest debt and equity investments by portfolio company based on fair value as of March 31, 2022 (dollar amounts in thousands):


	Amortized Cost		Fair Value		% of Total Portfolio, at Fair Value
Pfanstiehl Holdings, Inc.	$	217	$	75,308	13.5	%
All Star Auto Lights, Inc.	22,970		23,187		4.2	%
Milrose Consultants, LLC	22,776		22,432		4.0	%
Kreg LLC	20,212		20,129		3.6	%
SourceHOV Tax, Inc.	19,594		19,740		3.5	%
The Escape Game, LLC	17,224		17,305		3.1	%
Tolemar Acquisition, Inc.	16,569		16,836		3.0	%
Inergex Holdings, LLC	15,429		15,729		2.8	%
SSJA Bariatric Management, LLC	13,376		13,456		2.4	%
Envocore Holding, LLC (F/K/A LRI Holding, LLC)	17,716		10,963		2.0	%
Total	$	166,083	$	235,085	42.1	%

Portfolio Yields

The following table presents weighted-average yields metrics for our portfolio as of March 31, 2022 and December 31, 2021:



	For the Three Months Ended
	March 31, 2022		December 31, 2021
Weighted-average performing current yield (1):
Debt investments	7.5	%	9.2	%
Structured Finance Notes	14.2	%	15.5	%
Interest-bearing investments	8.8	%	10.3	%

Weighted-average performing income yield (2):
Debt investments	7.7	%	10.2	%
Structured Finance Notes	14.3	%	15.5	%
Interest-bearing investments	9.0	%	11.1	%

Weighted-average realized yield:
Interest-bearing investments (3)	8.6	%	10.4	%
Total portfolio (4)	8.2	%	9.9	%

(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 in 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.

For the three months ended March 31, 2022, the decrease in the weighted-average portfolio yields compared to the prior quarter were primarily due to a decrease in prepayment fees and related fee accelerations on payoffs.

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 March 31, 2022 and December 31, 2021 (dollar amounts in thousands):


	March 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Senior secured debt investments	$	371,941	$	361,317	$	336,132	$	326,704
Subordinated debt investments	13,906		9,353		22,071		17,943
Preferred equity	9,552		6,195		9,552		3,765
Common equity, warrants and other (1)	12,827		89,672		14,606		83,486
Total Portfolio Company Investments	$	408,226	$	466,537	$	382,361	$	431,898
Number of portfolio companies	75		75		70		70

(1) As of March 31, 2022, other investments represent equity participation right investments with an aggregate cost and fair value of $4.7 million and $8.0 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 March 31, 2022, 97% and 65% 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 COVID-19 pandemic.

As of March 31, 2022, the three largest industries of our Portfolio Company Investments by fair value, were (1) Manufacturing (25.5%), (2) Professional, Scientific, and Technical Services (14.1%) and (3) Health Care and Social Assistance(13.2%), totaling approximately 51.3% 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 March 31, 2022, our common equity in Pfanstiehl Holdings, Inc. based on its fair value of $75.3 million, $75.1 million of which represents an unrealized gain, accounts for 13.5% of our total portfolio at fair value, or 36.1% of total net assets. Since December 31, 2021 and December 31, 2020, Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, has appreciated $9.6 million and $39.1 million, respectively, primarily due to improved operating results, as well as multiple expansion.

Structured Finance Notes

The following table summarizes the composition of our Structured Finance Notes as of March 31, 2022, and December 31, 2021 (in thousands):


	March 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Subordinated notes	$	60,329	$	57,051	$	63,791	$	63,922
Mezzanine debt	16,246		16,326		2,660		2,779
Loan accumulation facilities	17,000		17,000		8,500		8,500
Total Structured Finance Notes	$	93,575	$	90,377	$	74,951	$	75,201

Investment Activity

The following is a summary of our investment activity for the three months ended March 31, 2022 (dollar amounts in millions):


	Three Months Ended March 31, 2022
Investments in new Portfolio Companies		$	33.0
Investments in existing Portfolio Companies		15.1
Investments in Structured Finance Notes		22.1
Total investments		$	70.2

Proceeds from principal payments and equity distributions		$	19.6
Proceeds from investments sold or redeemed		3.1
Total proceeds from principal payments, equity distributions and investments sold		$	22.7

During the three months ended March 31, 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) and Idera ($4.0 million senior secured loan).

During the three months ended March 31, 2022, notable investments in existing portfolio companies, included BayMark Health Services, Inc. ($2.8 million senior secured loan) and One GI LLC ($2.0 million senior secured loans).

The following is a summary of our investment activity for the three months ended March 31, 2021 (dollar amounts in millions):


	Three Months Ended March 31, 2021
Investments in new Portfolio Companies		$	36.2
Investments in existing Portfolio Companies		26.1
Investments in Structured Finance Notes		6.2
Total investments		$	68.5

Proceeds from principal payments and equity distributions		$	48.6
Proceeds from investments sold or redeemed		0.6
Total proceeds from principal payments, equity distributions and investments sold		$	49.2

During the three months ended March 31, 2021, notable investments in new portfolio companies, included Allen Media, LLC ($2.9 million senior secured loan), Confie Seguros Holding II Co. ($2.9 million senior secured loan), Innovacare, Inc. ($3.0 million senior secured loan), Ivanti Software, Inc. ($3.0 million senior secured loan) and JP Intermediate B, LLC ($3.8 million senior secured loan).

During the three months ended March 31, 2021, notable investments in existing portfolio companies, included Convergint Technologies Holdings, LLC ($9.4 million senior secured loan), BayMark Health Services, Inc. ($5.4 million senior secured loan) and Bass Pro Group, LLC ($5.7 million senior secured loan).

Risk Monitoring

We categorize direct 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 March 31, 2022 and December 31, 2021 (dollar amounts in thousands):


	Debt Investments, at Fair Value
Risk Category	March 31, 2022				December 31, 2021
1 (Low Risk)	$	—	—	%	$	—	—	%
2 (Below Average Risk)	—		—		—		—
3 (Average)	351,014		94.7		324,370		94.2
4 (Special Mention)	11,898		3.2		12,550		3.6
5 (Substandard)	7,322		2.0		7,027		2.0
6 (Doubtful)	436		0.1		699		0.2
7 (Loss)	—		—		—		—
	$	370,670	100.0	%	$	344,646	100.0	%

As of March 31, 2022, our risk ratings remained stable compared to December 31, 2021.

Non-Accrual Loans

When there is reasonable doubt that principal, cash interest, or PIK interest will be collected, loan investments are placed on non-accrual status, and the Company will generally cease recognizing cash interest, PIK interest and/or Net Loan Fee amortization, as applicable. 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. No new loans were placed on non-accrual status during the three months ended March 31, 2022. The aggregate amortized cost and fair value of loans on non-accrual status with respect to all interest and Net Loan Fee amortization was $18.9 million and $7.8 million, respectively, at March 31, 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 will also be 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 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 March 31, 2022 and December 31, 2021

Consolidated operating results for the three months ended March 31, 2022 and December 31, 2021 are as follows (in thousands):


	Three Months Ended
	March 31, 2022		December 31, 2021
Investment income
Interest income:
Cash interest income	$	7,013	$	7,739
PIK interest income	278		283
Net Loan Fee amortization	213		913
Accretion of interest income on Structured Finance Notes	2,282		2,547
Other interest income	2		—
Total interest income	9,788		11,482




Dividend income:

Cash dividends	758		1,855
Total dividend income	758		1,855
Fee income:
Syndication fees	257		1,455
Prepayment and other fees	143		475
Total fee income	400		1,930
Total investment income	10,946		15,267
Total expenses	7,941		10,837
Net investment income	3,005		4,430
Net gain on investments	5,500		14,722
Loss on extinguishment of debt	(144)		(2,068)
Net increase in net assets resulting from operations	$	8,361	$	17,084

Interest income by debt investment type for the three months ended March 31, 2022 and December 31, 2021 is summarized below (in thousands):


	Three Months Ended
	March 31, 2022		December 31, 2021
Interest income:
Senior secured debt investments	$	6,362	$	7,965
Subordinated debt investments	444		593
Structured Finance Notes	2,982		2,924
Total interest income	9,788		11,482
Less Net Loan Fees accelerations	(40)		(628)
Recurring interest income	$	9,748	$	10,854

Investment Income

For the three months ended March 31, 2022, total investment income of $10.9 million decreased by $4.3 million compared to the three months ended December 31, 2021, primarily due to a decrease of $2.6 million in dividend and fee income.

Interest income decreased $1.7 million during the three months ended March 31, 2022 compared to the prior quarter primarily due to a decrease in our portfolio’s weighted-average performing income yield to 9.0% for the quarter ended March 31, 2022 compared to 11.1% for the quarter ended December 31, 2021, primarily due to the redeployment of payoffs into lower yielding senior secured loans.

During the three months ended March 31, 2022, we recognized dividend income of $0.8 million, of which $0.7 million related to a distribution from Southern Technical Institute, LLC.

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 $0.3 million for the three months ended March 31, 2022 compared to $1.5 million for the three months ended December 31, 2021. Total fee income for the three months ended March 31, 2022 compared to the prior quarter, decreased from $1.9 million to $0.4 million primarily due to a $1.2 million decrease in syndication fees.

Expenses

Operating expenses for the three months ended March 31, 2022 and December 31, 2021 are presented below (in thousands):


	Three Months Ended
	March 31, 2022		December 31, 2021
Interest expense	$	3,624	$	4,215
Management fee	2,020		2,009
Income Incentive Fee	—		1,543
Capital Gains Fee	1,072		1,814
Professional fees	407		440
Administration fee	451		416
Other expenses	367		400
Total expenses	$	7,941	$	10,837

Interest expense for the three months ended March 31, 2022 decreased $0.6 million compared to the prior quarter primarily due to the issuance of the Unsecured Notes Due October 2028 that bear a fixed interest rate of 4.95% and the redemption of the Unsecured Notes Due October 2026 and Unsecured Notes Due September 2023, that boar interest rates of 5.95% and 6.25%, respectively.

Management fee expense for the three months ended March 31, 2022 remained stable compared to the prior quarter.

The incentive fees earned by OFS Advisor for the three months ended March 31, 2022 decreased $2.3 million compared to the prior quarter, primarily due to pre-incentive fee net investment income not exceeding the performance hurdle for incentives in the three months ended March 31, 2022. For the three months ended March 31, 2022, the Company accrued a Capital Gains Fee of $1.1 million due to an increase in unrealized capital gains, compared to an accrued Capital Gains Fee of $1.8 million in the prior quarter. As of March 31, 2022, a deferred Capital Gains Fee of $2,988 was included in the amounts payable to investment adviser and affiliates as listed on the consolidated statements of assets and liabilities.

For the three months ended March 31, 2022, professional fees, administration fees and other expenses remained stable compared to the prior quarter.

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 March 31, 2022 and December 31, 2021, were as follows (in thousands):


	Three Months Ended
	March 31, 2022		December 31, 2021
Senior secured debt	$	(1,198)	$	5,432
Subordinated debt	(424)		335
Preferred equity	2,391		3,556
Common equity, warrants and other	8,269		6,870
Structured Finance Notes	(3,449)		(658)
Income tax expense on net realized investment gains	(48)		(1,027)
Deferred income tax benefit (expense)	(41)		214
Total net gain on investments	$	5,500	$	14,722

Net gain on investments for the three months ended March 31, 2022 and December 31, 2021

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, respectively, on our broadly syndicated loans and Structured Finance Notes 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.

Three months ended December 31, 2021

During the three months ended December 31, 2021, net gain on investments of $14.7 million was primarily due to unrealized appreciation of $10.1 million on our common equity investment in Pfanstiehl Holdings, Inc. During the three months ended December 31, 2021, we sold our preferred equity investment in TTG Healthcare, LLC and realized a gain of $5.8 million, of which $4.6 million was recognized during the quarter.

Loss on Extinguishment of Debt

Three months ended March 31, 2022

During the three months ended March 31, 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.

Three months ended March 31, 2021

During the three months ended March 31, 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 unamortized deferred borrowing costs on these instruments.

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 March 31, 2022 and December 31, 2021 (dollar amounts in thousands, except per share data):


	Three Months Ended
	March 31, 2022				December 31, 2021
	(000's)		Per Share		(000's)		Per Share
Net investment income	$	3,005	$	0.22	$	4,430	$	0.33
Capital Gains Fee	1,072		0.08		1,814		0.14
Adjusted NII	$	4,077	$	0.30	$	6,244	$	0.47

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 March 31, 2022, we held cash of $10.5 million, which includes $5.2 million held by SBIC I LP, our wholly owned SBIC, and $2.3 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 three months ended March 31, 2022, the Parent received a READ distribution from SBIC I LP of $0.5 million. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility. During the three months ended March 31, 2022, the Parent received $2.3 million in cash distributions from OFSCC-FS. As of March 31, 2022, cash available to be distributed from SBIC I LP and OFSCC-FS were $5.2 million and $-0-, respectively.

At March 31, 2022, we had an unused commitment of $21.8 million under our PWB Credit Facility, as well as an unused commitment of $38.6 million under our BNP Facility, both subject to a borrowing base requirements and other covenants. Based on fair values and equity capital at March 31, 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.

As of May 2, 2022, we had cash on hand of approximately $22.9 million. We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and selectively deploy capital in new investment opportunities in this challenging environment.

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 March 31, 2022.

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):


	Three Months Ended March 31,
	2022		2021
Cash from net investment income(1)	$	428	$	761
Net (purchases and originations)/repayments and sales of portfolio investments(1)	(24,812)		5,062
Net cash provided by (used in) operating activities	(24,384)		5,823

Distributions paid to stockholders(2)	(3,719)		(2,655)
Net (borrowings) payments under lines of credit	14,650		(12,500)
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	(122)		(236)
Net cash used in financing activities	(8,191)		(1,890)
Increase (decrease) in cash	$	(32,575)	$	3,933

(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 form 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 $0.3 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Net (purchases and originations)/repayments and sales of portfolio investments

During the three months ended March 31, 2022, net purchases and originations of portfolio investments of $24.8 million were primarily due to $65.9 million of cash we used to purchase portfolio investments, offset by $41.1 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 three months ended March 31, 2021, net purchases and originations of portfolio investments of $5.1 million were primarily due to $44.0 million of cash we used to purchase portfolio investments, offset by $49.1 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 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 March 31, 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 $188.4 million and $195.5 million in total assets at March 31, 2022 and December 31, 2021, respectively, which accounted for approximately 33% and 34% of the Company’s total consolidated assets, respectively.

As part of our plans to focus on lower-yielding, 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 three months ended March 31, 2022, SBIC I LP redeemed $19.0 million of SBA debentures that were contractually due March 1, 2025 and September 1, 2025. During the three months ended March 31, 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 March 31, 2022, we had $3.3 million outstanding and an unused commitment of $21.8 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 March 31, 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.

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.

BNP Facility

On June 20, 2019, OFSCC-FS entered into the BNP Facility, which provides for borrowings in an aggregate principal amount up to $150.0 million, of which $111.4 million was drawn as of March 31, 2022. Borrowings under the BNP Facility bear interest based on LIBOR for the relevant interest period, plus an applicable spread. The effective interest rate on the BNP Facility was 2.74% at March 31, 2022. The BNP Facility will mature on the earlier of June 20, 2024 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 $38.6 million as of March 31, 2022. As of March 31, 2022, we were in compliance with the applicable covenants under the BNP Facility.

On a stand-alone basis, OFSCC-FS held approximately $199.2 million and $185.1 million in total assets at March 31, 2022 and December 31, 2021, respectively, which accounted for approximately 35% and 33% of our total consolidated assets, respectively.

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 March 31, 2022, approximately 81% 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, which include all of our borrowings and any outstanding preferred stock, of at least 200% (150% if certain requirements are met). 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. This requirement 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 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 three months ended March 31, 2022. As of March 31, 2022, the approximate dollar value of shares remaining that may be purchased under the program was $9.99 million.

As of March 31, 2022, the aggregate amount outstanding of the senior securities issued by us was $345.6 million, for which our asset coverage was 171%. 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 June 15, 2021, 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 March 31, 2022, we had $10.5 million of cash and cash equivalents, as well as $21.8 million and $38.6 million of unfunded commitments under our PWB Credit Facility and BNP Facility, respectively, to meet our short-term contractual obligations. At March 31, 2022, we had $44.8 million in outstanding commitments to fund investments under various undrawn revolvers and other credit facilities. Long-term contractual obligations, such as our BNP Facility that matures in 2024 and has $111.4 million outstanding at March 31, 2022, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $195.7 million at March 31, 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 March 31, 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 has a fair value of $182.5 million at March 31, 2022.

As of March 31, 2022, we continue to believe our long-dated financing, with approximately 67% of our total 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 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 April 22, 2022, we amended the BLA to: (i) increase the maximum amount available under our 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.

On May 3, 2022, our Board declared a distribution of $0.29 per share for the second quarter of 2022, payable on June 30, 2022 to stockholders of record as of June 23, 2022.

On May 3, 2022, our 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.

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, see “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.

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 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 three months ended March 31, 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 March 31, 2022, 93% of our debt investments bore interest at floating interest rates, at fair value. 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 any one the various alternative reference rates, and typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis. Based on par, 90% of our loans that are subject to the floating rates are also subject to a minimum base rate, or floor, that we charge on our loans if the current market rates are below the respective floors. Based on par, the weighted average floor was 0.85%. As of March 31, 2022, 3-month LIBOR was 0.96% and we had debt investments with a aggregate principal of $189.5 million subject to their floor.

Our outstanding SBA debentures and Unsecured Notes bear interest at fixed rates. Our PWB Credit Facility and BNP Facility have floating interest rate provisions based on the Prime Rate and LIBOR, respectively, with effective interest rates of 5.54% and 2.74%, respectively, as of March 31, 2022.

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Assuming that the interim and unaudited consolidated balance sheet as of March 31, 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 increase	Interest income		Interest expense		Net change
25	$	801	$	(240)	$	561
50	1,543		(525)		1,018
75	2,398		(811)		1,587
100	3,280		(1,098)		2,182
125	4,171		(1,385)		2,786


Basis point decrease	Interest income		Interest expense		Net change
25	$	(170)	$	317	$	147
50	(330)		596		266
75	(391)		611		220
100	(421)		611		190
125	(424)		611		187

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 March 31, 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 March 31, 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.

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 March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 March 31, 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, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K 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.

Other than the risk described below, 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. The risks previously disclosed in our Annual Report on Form 10-K should be read together with the other information disclosed elsewhere in this Quarterly Report on Form 10-Q and our other reports filed with the SEC.

Global economic, political and market conditions may adversely affect our business, financial condition and results of operations, including our revenue growth and profitability.

The current worldwide financial markets situation, as well as various social and political tensions in the United States and around the world (including wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may contribute to increased market volatility, may have long term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. For example, the COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. In addition, the ongoing conflict between Russia and Ukraine, and resulting market volatility, could adversely affect our business, financial condition or results of operations. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objectives, but there can be no assurance that we will be successful in doing so.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three month period ended March 31, 2022, we issued 3,016 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 $39,201.

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 March 31, 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 (1)	Cost of Shares Purchased		Average Price Paid Per Share		Maximum Number (or Appropriate Dollar Value) of Shares that May Yet Be Purchased Under the Stock Repurchase Program
May 22, 2018 through December 31, 2018	300	$	3	$	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, 2021	700	5		6.70		9,992
January 1, 2022 through March 31, 2022	—	—		—		9,992

(1) Excludes shares purchased on the open market and reissued in order to satisfy the DRIP obligation.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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

Description

Form and SEC File No.

Filing Date with SEC

Filed with this 10-Q

3.1

Certificate of Incorporation of OFS Capital Corporation

Form N-2/A
(333-166363)

March 18, 2011

3.2

Certificate of Correction to Certificate of Incorporation of OFS Capital Corporation

Form 10-K

March 26, 2013

3.3

Bylaws of OFS Capital Corporation

Form N-2/A
(333-166363)

March 18, 2011

14.1

Joint Code of Ethics of OFS Capital Corporation and OFS Advisor

31.1

Certification of Chief Executive Officer pursuant to Rule s 13a-14 a nd 1 5d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act

31.2

Certification of Chief Financial Officer pursuant to Rule s 13a-14 and 15d -14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley A ct

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 13 50, as Ad opted Pursuant to S ection 906 of the Sarbanes-Oxley Act of 2002

†

32.2

Certific ation of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Ad opted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†


*			Filed herewith
†			Furnished herewith

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: May 6, 2022	OFS 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