OFS CAPITAL CORPORATION Quarterly Report (Form 10-Q)

Overview of OFS Capital Corporation’s Financial Performance

OFS Capital Corporation (OFS) is a business development company that provides debt and equity financing to middle-market companies in the United States. In this report, we’ll take a closer look at OFS’s financial performance for the three months ended March 31, 2026.

OFS’s net asset value (NAV) per common share decreased from $9.19 at the end of 2025 to $8.16 as of March 31, 2026. This was primarily due to net losses on investments of $1.03 per share and a $0.01 per share loss on extinguishment of debt, partially offset by $0.18 per share in net investment income.

Total investment income for the quarter decreased from $9.4 million in the prior quarter to $8.9 million, mainly due to lower interest income, partially offset by higher dividend income. Expenses, net of a management fee waiver, decreased slightly from $6.7 million to $6.4 million.

OFS reported a net decrease in net assets resulting from operations of $11.6 million for the quarter, compared to a $10.8 million decrease in the prior quarter. This was driven by net losses on investments of $13.9 million, including $10.3 million in losses on the company’s Structured Finance Securities portfolio.

Debt and Liquidity

As of March 31, 2026, OFS had $202.5 million in outstanding debt, down from $220.5 million at the end of 2025. The company’s weighted-average effective interest rate on its debt increased to 7.30% from 7.07% in the prior quarter, primarily due to higher interest costs on its Unsecured Notes.

OFS has two main sources of debt financing:

1. Banc of California Credit Facility: As of March 31, 2026, OFS had $8.8 million outstanding and $6.3 million in unused commitments under this revolving credit facility. The facility matures in February 2028.

2. Unsecured Notes: OFS had $149.0 million in Unsecured Notes outstanding as of March 31, 2026, down from $165.0 million at the end of 2025 due to the redemption of the remaining $16.0 million of Unsecured Notes Due February 2026. The Unsecured Notes have staggered maturities, with $124.0 million due in 1-3 years and $25.0 million due in 3-5 years.

In addition, in February 2026, OFS’s subsidiary OFSCC-FS entered into a new $80.0 million revolving credit facility with Natixis (the “Natixis Facility”). As of March 31, 2026, OFSCC-FS had $44.7 million outstanding and $35.3 million in unused commitments under this facility.

OFS’s total outstanding debt decreased by $18.0 million during the quarter, primarily due to the $16.0 million redemption of the Unsecured Notes Due February 2026 and $2.0 million in net paydowns on its revolving credit facilities. The company’s asset coverage ratio, a measure of leverage, was 154% as of March 31, 2026, exceeding the 150% minimum required under the Investment Company Act of 1940.

Portfolio Composition and Performance

As of March 31, 2026, OFS’s investment portfolio had a fair value of $308.1 million, consisting of:

• 51% first lien and second lien debt investments
• 33% equity investments (including preferred equity, common equity, warrants, and other)
• 16% Structured Finance Securities

The company’s top 10 investments accounted for 62.5% of the total portfolio at fair value, with the largest investment being a 73.6% ownership stake in Pfanstiehl Holdings, Inc., a global pharmaceutical ingredients manufacturer.

For the quarter, OFS recognized a net loss on investments of $13.9 million, including $10.3 million in losses on its Structured Finance Securities portfolio. The company also had $10.9 million in non-accrual loans as of March 31, 2026, representing 3.5% of the total investment portfolio at fair value.

OFS’s weighted-average performing income yield on interest-bearing investments decreased from 13.5% in the prior quarter to 12.5% in the current quarter, primarily due to lower yields on its Structured Finance Securities. The company’s overall weighted-average realized yield on interest-bearing investments was 10.9% for the quarter.

Strengths and Weaknesses

Key strengths of OFS Capital Corporation include:

• Diversified investment portfolio across industries and asset types
• Experienced management team with a track record of investing in middle-market companies
• Access to multiple sources of debt financing, including revolving credit facilities and unsecured notes
• Compliance with regulatory requirements, including maintaining sufficient asset coverage

Weaknesses and risks include:

• Concentration risk, with the top 10 investments accounting for a significant portion of the portfolio
• Exposure to non-accrual loans and potential credit quality issues in the portfolio
• Reliance on debt financing, which increases the company’s sensitivity to interest rate movements
• Potential conflicts of interest with the external investment advisor, OFS Advisor

Outlook and Conclusion

Looking ahead, OFS Capital Corporation faces a challenging environment with continued volatility in the financial markets and potential credit quality concerns in its investment portfolio. The company’s ability to generate consistent investment income and manage its debt levels will be crucial to its future performance.

Overall, OFS Capital Corporation’s financial results for the first quarter of 2026 were mixed, with decreases in net asset value, investment income, and net investment income, as well as significant net losses on investments. The company’s leverage position remains manageable, but its portfolio composition and credit quality will require close monitoring going forward. Investors should carefully consider OFS’s strengths, weaknesses, and the broader economic outlook when evaluating the company’s prospects.