Enhanced Investments - Financial Portal

Published: 2023-11-02 17:34:43 ET

ofs-20230930

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 September 30, 2023


			¨			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 ý 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 October 31, 2023 was 13,398,078.

OFS CAPITAL CORPORATION

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Assets and Liabilities as of S ept ember 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 (unaudited) and 2022 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the Three and Nine Months Ended Sept ember 30, 2023 (unaudited) and 2022 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 (unaudited) and 2022 (unaudited)	7
	Consolidated Schedules of Investments as of Sept ember 30, 2023 (unaudited) and December 31, 2022	8
	Notes to Consolidated Financial Statements (unaudited)	30
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 , Use of Proceeds, and Issuer Purchases of Equity Securities	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
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
Adjusted NII			A financial measure calculated and presented on a basis other than in accordance with GAAP and represents net investment income excluding the capital gains incentive fee
Administration 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
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, as amended, that provides for borrowings in an aggregate principal amount up to $150,000,000 issued pursuant to a Revolving Credit and Security Agreement, as amended, by and among OFSCC-FS, the lenders from time to time parties thereto, BNP Paribas, as administrative agent, OFSCC-FS Holdings, LLC, a wholly owned subsidiary of the Company, as equityholder, the Company, as servicer, Citibank, N.A., as collateral agent and Virtus Group, LP, as collateral administrator
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			Dividend reinvestment plan
EBITDA			Earnings before interest, taxes, depreciation and amortization
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
GAAP			Accounting principles generally accepted in the United States
HPCI			Hancock Park Corporate Income, Inc., a Maryland corporation and non-traded BDC, for which 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 which 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, focusing primarily on investments in middle market loans and broadly syndicated loans, debt and equity positions in CLOs and other structured credit investments
OFS Services			OFS Capital Services, LLC, a wholly owned subsidiary of OFSAM and affiliate of OFS Advisor


Term			Explanation or Definition
OFSAM			Orchard First Source Asset Management, LLC, a subsidiary of OFSAM Holdings and a full-service provider of capital and leveraged finance solutions to U.S. corporations
OFSAM Holdings			Orchard First Source Asset Management Holdings, LLC, a holding company consisting of asset management businesses, including OFS Advisor, a registered investment adviser focusing primarily on investments in middle market loans and broadly syndicated loans, debt and equity positions in CLOs and other structured credit investments, and OFS CLO Management, LLC and OFS CLO II Management, LLC, each a registered investment adviser focusing primarily on investments in broadly syndicated loans
OFSCC-FS			OFSCC-FS, LLC, an indirect wholly owned subsidiary of the Company
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 Securities
Prime Rate			United States Prime interest rate
PWB Credit Facility			A senior secured revolving credit facility, as amended, with Pacific Western Bank, as lender, that provides for borrowings to the Company in an aggregate principal amount up to $25,000,000
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 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 Securities			CLO mezzanine debt, CLO subordinated notes and CLO loan accumulation facility positions

Unsecured Notes			The Unsecured Notes Due February 2026 and the Unsecured Notes Due October 2028
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 2028			The Company’s $55.0 million aggregate principal amount of 4.95% notes due October 31, 2028

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 Holdings;

•the constraint on investments due to access to material nonpublic information;

•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 providing first lien senior secured loans to larger borrowers and the impact of these plans on our risk profile, including our belief that the seniority of such loans in a borrower’s capital structure may provide greater downside protection against adverse economic changes, including those caused by the impacts of the ongoing war between Russia and Ukraine, the current conflict in Israel, rising interest and elevated inflation rates, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility;

•the percentage of investments that will bear interest on a floating rate or fixed rate basis;

•interest rate volatility;

•plans by SBIC I LP to repay its outstanding SBA debentures;

•our ability to raise debt or equity capital as a BDC;

•the success of our current borrowings, follow-on equity offerings and issuances of senior securities or future borrowings to fund the growth of our investment portfolio;

•the timing, form and amount of any distributions from our portfolio companies;

•the impact of a protracted decline in the liquidity of credit markets on our business;

•the general economy and its impact on the industries in which we invest;

•the impact of current political, economic and industry conditions, including changes in the interest rate environment, inflation, significant market volatility, instability in the U.S. and international banking systems, ongoing supply chain and labor market disruptions, resource shortages and other conditions affecting the financial

and capital markets on our business, financial condition, results of operations and the fair value of our portfolio investments;

•the impact of the ongoing war between Russia and Ukraine or current conflict in Israel and general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;

•our ability to consummate credit facilities in the future on commercially reasonable terms, if at all;

•the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks;

•the belief that we have sufficient levels of liquidity to support our existing portfolio companies;

•the belief that long-dated financing affords us operational flexibility;

•the belief that our portfolio is well positioned and will continue to produce strong results and perform well in the current interest rate environment;

•the belief that our cash balances are not exposed to any significant credit risk as a result of the recent banking failures;

•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, 2022, filed on March 3, 2023, and “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed on May 5, 2023, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed on August 4, 2023. 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)


	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Investments, at fair value:
Non-control/non-affiliate investments (amortized cost of $413,958 and $446,620, respectively)	$	365,782	$	402,771
Affiliate investments (amortized cost of $18,905 and $18,100, respectively)	91,465		96,701
Control investment (amortized cost of $0 and $10,160, respectively)	—		1,104
Total investments, at fair value (amortized cost of $432,863 and $474,880, respectively)	457,247		500,576
Cash	15,942		14,937
Interest receivable	1,779		2,202

Prepaid expenses and other assets	2,014		3,002
Total assets	$	476,982	$	520,717

Liabilities
Revolving lines of credit	$	91,100	$	104,700
SBA debentures (net of deferred debt issuance costs of $50 and $223, respectively)	31,870		50,697
Unsecured Notes (net of deferred debt issuance costs of $2,912 and $3,647, respectively)	177,088		176,353
Interest payable	1,990		3,947
Payable to adviser and affiliates (Note 3)	3,797		3,909

Accrued professional fees	321		444
Other liabilities	148		244
Total liabilities	306,314		340,294

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 September 30, 2023 and December 31, 2022, respectively	$	—	$	—
Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 13,398,078 and 13,398,078 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	134		134
Paid-in capital in excess of par	184,841		184,841
Total distributable losses	(14,307)		(4,552)
Total net assets	170,668		180,423

Total liabilities and net assets	$	476,982	$	520,717

Number of shares outstanding	13,398,078		13,398,078
Net asset value per share	$	12.74	$	13.47

See Notes to Consolidated Financial Statements (unaudited).

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Investment income
Interest income:
Non-control/non-affiliate investments	$	14,291	$	12,550	$	41,785	$	32,597

Control investment	—		—		—		141
Total interest income	14,291		12,550		41,785		32,738





Dividend income:
Non-control/non-affiliate investments	11		—		19		713
Affiliate investments	323		279		1,434		284
Control investment	—		—		—		45
Total dividend income	334		279		1,453		1,042
Fee income:
Non-control/non-affiliate investments	26		539		222		960

Control investment	—		—		—		6
Total fee income	26		539		222		966
Total investment income	14,651		13,368		43,460		34,746
Expenses
Interest expense	4,913		4,657		14,798		12,224
Management fee	1,796		1,986		5,573		6,062
Income Incentive Fee	1,348		1,093		3,866		1,093
Capital Gains Fee	—		—		—		(1,916)
Professional fees	397		396		1,262		1,155
Administration fee	380		435		1,302		1,309
Other expenses	427		429		1,196		1,194
Total expenses	9,261		8,996		27,997		21,121
Net investment income	5,390		4,372		15,463		13,625

Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on non-control/non-affiliate investments	—		(943)		275		(1,146)

Net realized gain (loss) on control investments	—		—		(10,516)		278
Income tax benefit (expense) on net realized gains on investments	117		413		(54)		365
Net unrealized appreciation (depreciation) on non-control/non-affiliate investments	1,405		(14,077)		(4,328)		(41,019)
Net unrealized appreciation (depreciation) on affiliate investments	(4,917)		650		(6,040)		19,683
Net unrealized appreciation (depreciation) on control investment	—		—		9,056		(1,684)
Deferred tax expense on net unrealized appreciation	—		27		—		21
Net loss on investments	(3,395)		(13,930)		(11,607)		(23,502)
Loss on extinguishment of debt	(194)		—		(213)		(144)
Net increase (decrease) in net assets resulting from operations	$	1,801	$	(9,558)	$	3,643	$	(10,021)

Net investment income per common share – basic and diluted	$	0.40	$	0.33	$	1.15	$	1.01
Net increase (decrease) in net assets resulting from operations per common share – basic and diluted	$	0.14	$	(0.71)	$	0.27	$	(0.75)
Distributions declared per common share	$	0.34	$	0.29	$	1.00	$	0.86
Basic and diluted weighted average shares outstanding	13,398,078		13,428,410		13,398,078		13,425,466

See Notes to Consolidated Financial Statements (unaudited).

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

(Dollar amounts in thousands, except per share data)


	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, 2021	—	$	—	13,422,413	$	134	$	185,113	$	18,497	$	203,744
Net decrease in net assets resulting from operations:
Net investment income	—	—		—	—		—		13,625		13,625
Net realized loss on investments, net of taxes	—	—		—	—		—		(503)		(503)
Net unrealized depreciation on investments, net of taxes	—	—		—	—		—		(22,999)		(22,999)
Loss on extinguishment of debt	—	—		—	—		—		(144)		(144)

Distributions to stockholders:
Common stock issued from reinvestment of stockholder distributions	—	—		12,893	—		128		—		128
Dividends declared	—	—		—	—		—		(11,546)		(11,546)
Common stock repurchased under Stock Repurchase Program	—	—		(28,335)	—		(231)		—		(231)
Net decrease for the nine month period ended September 30, 2022	—	—		(15,442)	—		(103)		(21,567)		(21,670)
Balances at September 30, 2022	—	$	—	13,406,971	$	134	$	185,010	$	(3,070)	$	182,074

Balances at June 30, 2022	—	$	—	13,429,777	$	134	$	185,195	$	10,383	$	195,712
Net decrease in net assets resulting from operations:
Net investment income	—	—		—	—		—		4,372		4,372
Net realized loss on investments, net of taxes	—	—		—	—		—		(530)		(530)

Net unrealized depreciation on investments, net of taxes	—	—		—	—		—		(13,400)		(13,400)
Distributions to stockholders:
Common stock issued from reinvestment of stockholder distributions	—	—		5,529	—		46		—		46
Dividends declared	—	—		—	—		—		(3,895)		(3,895)
Common stock repurchased under Stock Repurchase Program				(28,335)			(231)		—		(231)
Net decrease for the three month period ended September 30, 2022	—	—		(22,806)	—		(185)		(13,453)		(13,638)
Balances at September 30, 2022	—	$	—	13,406,971	$	134	$	185,010	$	(3,070)	$	182,074

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets (unaudited)

(Dollar amounts in thousands, except per share data)


	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, 2022	—	$	—	13,398,078	$	134	$	184,841	$	(4,552)	$	180,423
Net increase in net assets resulting from operations:
Net investment income	—	—		—	—		—		15,463		15,463
Net realized loss on investments, net of taxes	—	—		—	—		—		(10,295)		(10,295)
Net unrealized depreciation on investments, net of taxes	—	—		—	—		—		(1,312)		(1,312)
Loss on extinguishment of debt	—	—		—	—		—		(213)		(213)



Dividends declared	—	—		—	—		—		(13,398)		(13,398)

Net decrease for the nine month period ended September 30, 2023	—	—		—	—		—		(9,755)		(9,755)
Balances at September 30, 2023	—	$	—	13,398,078	$	134	$	184,841	$	(14,307)	$	170,668

Balances at June 30, 2023	—	$	—	13,398,078	$	134	$	184,841	$	(11,553)	$	173,422
Net increase in net assets resulting from operations:
Net investment income	—	—		—	—		—		5,390		5,390
Income tax benefit on net realized investment gains	—	—		—	—		—		117		117
Loss on extinguishment of debt	—	—		—	—		—		(194)		(194)
Net unrealized depreciation on investments, net of taxes	—	—		—	—		—		(3,512)		(3,512)



Dividends declared	—	—		—	—		—		(4,555)		(4,555)

Net decrease for the three month period ended September 30, 2023	—	—		—	—		—		(2,754)		(2,754)
Balances at September 30, 2023	—	$	—	13,398,078	$	134	$	184,841	$	(14,307)	$	170,668

See Notes to Consolidated Financial Statements (unaudited).

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(Dollar amounts in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	3,643	$	(10,021)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized loss on investments	10,241		868
Income tax (benefit) expense on net realized investment gains	54		(365)
Loss on extinguishment of debt	213		144
Net unrealized depreciation on investments, net of taxes	1,312		22,999
Amortization of Net Loan Fees	(1,238)		(1,334)
Amendment fees collected	166		206
Payment-in-kind interest and dividend income	(1,491)		(650)
Accretion of interest income on Structured Finance Securities	(8,534)		(7,647)
Amortization of debt issuance costs	1,153		1,154
Amortization of intangible asset	306		307
Purchase and origination of portfolio investments	(34,721)		(144,894)
Proceeds from principal payments on portfolio investments	48,207		75,218
Proceeds from sale or redemption of portfolio investments	18,803		31,060
Proceeds from distributions received from portfolio investments	10,610		14,261
Changes in operating assets and liabilities:
Interest receivable	423		(354)
Interest payable	(1,957)		(1,673)
Payable to adviser and affiliates	(112)		(2,431)
Receivable for investment sold	—		11,325
Payable for investments purchased	—		(8,788)
Other assets and liabilities	(75)		(610)
Net cash provided by (used in) operating activities	47,003		(21,225)

Cash flows from financing activities
Distributions paid to stockholders	(13,398)		(11,418)
Borrowings under revolving lines of credit	24,650		58,650
Repayments under revolving lines of credit	(38,250)		(35,750)
Repayments of SBA debentures	(19,000)		(19,000)


Payment of deferred financing costs	—		(1,022)
Repurchases of common stock under Stock Repurchase Program	—		(231)
Net cash used in financing activities	(45,998)		(8,771)
Net increase (decrease) in cash	1,005		(29,996)
Cash at beginning of period	14,937		43,048
Cash at end of period	$	15,942	$	13,052

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	15,602	$	12,742
Reinvestment of distributions to stockholders	—		128

See Notes to Consolidated Financial Statements (unaudited).

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments (unaudited)

September 30, 2023

(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		11.43%	SOFR+	6.00%	1/28/2022	11/16/2027	$	8,840	$	8,793	$	8,532	4.8	%

Advantage Sales & Marketing Inc. (F/K/A Karman Buyer Corp) (14) (15)	Advertising Agencies
Senior Secured Loan		10.04%	SOFR+	4.50%	3/2/2022	10/28/2027	2,266		2,242		2,190		1.3

AIDC IntermediateCo 2, LLC (15)	Computer Systems Design Services
Senior Secured Loan		11.75%	SOFR+	6.25%	7/22/2022	7/22/2027	1,985		1,951		1,970		1.2
Senior Secured Loan		11.77%	SOFR+	6.25%	7/31/2023	7/22/2027	46		45		46		—
							2,031		1,996		2,016		1.2
Allen Media, LLC (14) (15)	Cable and Other Subscription Programming
Senior Secured Loan		11.04%	SOFR+	5.50%	3/2/2021	2/10/2027	3,739		3,735		3,347		2.0

All Star Auto Lights, Inc. (4) (15) (21)	Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan		10.94%	SOFR+	5.50%	12/19/2019	8/20/2025	22,920		22,753		22,918		13.4
Senior Secured Loan		10.94%	SOFR+	5.50%	8/4/2022	8/20/2025	4,938		4,876		4,938		2.9
							27,858		27,629		27,856		16.3
Astro One Acquisition Corporation (6)	Other Miscellaneous Nondurable Goods Merchant Wholesalers
Senior Secured Loan		14.23%	L+	8.50%	1/31/2022	9/14/2029	3,000		2,704		385		0.2

Avison Young (6) (22)	Nonresidential Property Managers
Senior Secured Loan (15)		12.15%	SOFR+	6.50%	11/25/2021	1/31/2026	3,925		3,903		2,060		1.2
Senior Secured Loan		12.65%	SOFR+	7.00%	8/19/2022	1/31/2026	794		757		417		0.2
							4,719		4,660		2,477		1.4
BayMark Health Services, Inc. (15)	Outpatient Mental Health and Substance Abuse Centers
Senior Secured Loan		14.15%	SOFR+	8.50%	6/10/2021	6/11/2028	4,962		4,912		4,917		2.9
Senior Secured Loan (Delayed Draw)		14.15%	SOFR+	8.50%	6/10/2021	6/11/2028	3,988		3,946		3,952		2.3
							8,950		8,858		8,869		5.2
BCPE North Star US Holdco 2, Inc. (F/K/A Dessert Holdings)	Ice Cream and Frozen Dessert Manufacturing
Senior Secured Loan		12.68%	SOFR+	7.25%	2/2/2022	6/8/2029	1,667		1,644		1,464		0.9

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
Boca Home Care Holdings, Inc. (20)	Services for the Elderly and Persons with Disabilities
Senior Secured Loan (Delayed Draw) (15)		12.14%	SOFR+	6.50%	2/25/2022	2/25/2027	$	11,044	$	10,937	$	10,636	6.2	%
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	6.50%	2/25/2022	2/25/2027	—		(10)		(48)		—
Common Equity (1,290 Class A units) (10) (13)					2/25/2022				1,290		937		0.5
Preferred Equity (3,446 Class A Units) 12.0% cash / 2.0% PIK					3/3/2023				345		344		0.2
							11,044		12,562		11,869		6.9
Constellis Holdings, LLC (10)	Other Justice, Public Order, and Safety Activities
Common Equity (20,628 common shares)					3/27/2020				703		37		—

Convergint Technologies Holdings, LLC	Security Systems Services (except Locksmiths)
Senior Secured Loan		12.18%	SOFR+	6.75%	9/28/2018	3/30/2029	5,938		5,859		5,897		3.5

Creation Technologies (15) (22)	Bare Printed Circuit Board Manufacturing
Senior Secured Loan		11.03%	SOFR+	5.50%	9/24/2021	10/5/2028	1,975		1,964		1,866		1.1

Diamond Sports Group, LLC (6) (14) (15)	Television Broadcasting
Senior Secured Loan		15.43%	SOFR+	10.00%	3/9/2022	5/25/2026	253		248		132		0.1
Senior Secured Loan (10)		10.68%	SOFR+	5.25%	11/19/2019	8/24/2026	1,935		1,935		46		—
							2,188		2,183		178		0.1
East West Manufacturing (15)	Fluid Power Pump and Motor Manufacturing
Senior Secured Loan		11.12%	SOFR+	5.75%	2/11/2022	12/22/2028	1,935		1,920		1,850		1.1

Electrical Components International, Inc.	Current-Carrying Wiring Device Manufacturing
Senior Secured Loan		14.02%	SOFR+	8.50%	4/8/2021	6/26/2026	3,679		3,429		3,603		2.1

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		6/30/2017	12/31/2025	6,311		6,312		6,311		3.7
Senior Secured Loan (6) (10)		10.00% PIK	N/A		6/30/2017	12/31/2026	7,650		6,584		3,528		2.1
Senior Secured Loan (Revolver) (5)		n/m (18)	N/A		11/29/2021	12/31/2025	—		—		—		—
Equity Participation Rights (10) (17)					12/31/2021				4,722		—		—

							13,961		17,618		9,839		5.8

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
Excelin Home Health, LLC (4) (6)	Home Health Care Services
Senior Secured Loan		15.15% cash / 2.25% PIK	SOFR+	9.50%	10/25/2018	9/30/2025	$	4,339	$	4,231	$	3,443	2.0	%

GGC Aerospace Topco L.P. (10)	Other Aircraft Parts and Auxiliary Equipment Manufacturing
Common Equity (368,852 Class A units)					12/29/2017				450		—		—
Common Equity (40,984 Class B units)					12/29/2017				50		—		—
									500		—		—
GoTo Group (F/K/A LogMeIn, Inc.) (14) (15)	Data Processing, Hosting, and Related Services
Senior Secured Loan		10.27%	SOFR+	4.75%	3/26/2021	8/31/2027	2,924		2,923		1,955		1.1

Heritage Grocers Group, LLC. (F/K/A Tony's Fresh Market / Cardenas Markets) (15)	Supermarkets and Other Grocery (except Convenience) Stores
Senior Secured Loan		12.24%	SOFR+	6.75%	7/20/2022	8/1/2029	5,940		5,643		5,957		3.5

Honor HN Buyer Inc.	Services for the Elderly and Persons with Disabilities
Senior Secured Loan (15)		11.29%	SOFR+	5.75%	10/15/2021	10/15/2027	6,483		6,396		6,483		3.8
Senior Secured Loan (Delayed Draw) (15)		11.29%	SOFR+	5.75%	10/15/2021	10/15/2027	4,099		4,035		4,099		2.4
Senior Secured Loan (Revolver) (5)		13.25%	Prime+	4.75%	10/15/2021	10/15/2027	95		85		95		0.1
Senior Secured Loan (Delayed Draw) (5) (15)		11.54%	SOFR+	6.00%	3/31/2023	10/15/2027	1,889		1,871		1,889		1.1
							12,566		12,387		12,566		7.4
Idera	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan		12.12%	SOFR+	6.75%	1/27/2022	3/2/2029	4,000		4,000		4,000		2.3

Inergex Holdings, LLC	Other Computer Related Services
Senior Secured Loan		12.59% cash / 2.00% PIK	SOFR+	7.00%	10/1/2018	10/1/2024	14,868		14,754		14,868		8.7
Senior Secured Loan (Revolver)		12.59% cash / 2.00% PIK	SOFR+	7.00%	10/1/2018	10/1/2024	2,344		2,302		2,344		1.4
							17,212		17,056		17,212		10.1
Ivanti Software, Inc. (14) (15)	Software Publishers
Senior Secured Loan		9.76%	SOFR+	4.25%	3/26/2021	12/1/2027	2,940		2,948		2,552		1.5

JP Intermediate B, LLC (15)	Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan		11.13%	SOFR+	5.50%	1/14/2021	11/20/2027	4,700		4,501		3,608		2.1

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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

Kreg LLC	Other Ambulatory Health Care Services
Senior Secured Loan (15) (11)		9.79% cash / 2.50% PIK	SOFR+	4.25%	12/20/2021	12/20/2026	$	17,032	$	16,951	$	15,826	9.3	%
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	6.25%	12/20/2021	12/20/2026	—		(6)		(95)		(0.1)
							17,032		16,945		15,731		9.2
Metasource (15)	All Other Business Support Services
Senior Secured Loan		11.68% cash / 0.50% PIK	SOFR+	6.25%	5/17/2022	5/17/2027	2,758		2,734		2,598		1.5
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	SOFR+	6.25%	5/17/2022	5/17/2027	—		(5)		(69)		—
							2,758		2,729		2,529		1.5
One GI LLC	Offices of Other Holding Companies
Senior Secured Loan (Delayed Draw) (15)		12.17%	SOFR+	6.75%	12/13/2021	12/22/2025	7,451		7,368		7,008		4.1
Senior Secured Loan (Delayed Draw) (5) (15)		12.17%	SOFR+	6.75%	12/13/2021	12/22/2025	3,926		3,876		3,692		2.2
Senior Secured Loan (Revolver)		12.17%	SOFR+	6.75%	12/13/2021	12/22/2025	1,444		1,428		1,359		0.8
							12,821		12,672		12,059		7.1
Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC) (6)	Software Publishers
Senior Secured Loan		5.50%	N/A		3/13/2018	12/31/2025	16,648		14,113		6,588		3.9

PM Acquisition LLC (10) (20)	All Other General Merchandise Stores
Common Equity (499 units)					9/30/2017				499		620		0.4

Reception Purchaser LLC (15)	Transportation and Warehousing
Senior Secured Loan		11.54%	SOFR+	6.00%	4/28/2022	3/24/2028	2,529		2,500		2,381		1.4

Redstone Holdco 2 LP (F/K/A RSA Security) (15)	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan (14)		10.18%	SOFR+	4.75%	4/16/2021	4/27/2028	1,715		1,709		1,478		0.9
Senior Secured Loan		13.18%	SOFR+	7.75%	4/16/2021	4/27/2029	4,450		4,405		3,464		2.0
							6,165		6,114		4,942		2.9
RPLF Holdings, LLC (13)	Software Publishers
Common Equity (345,339 Class A units)					1/17/2018		—		—		1,189		0.7

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
RumbleOn, Inc. (15) (22)	Other Industrial Machinery Manufacturing
Senior Secured Loan (11)		13.90% cash / 0.50% PIK	SOFR+	8.75%	8/31/2021	8/31/2026	$	3,264	$	3,154	$	2,995	1.8	%
Senior Secured Loan (Delayed Draw)		13.90% cash / 0.50% PIK	SOFR+	8.25%	8/31/2021	8/31/2026	1,200		1,189		1,101		0.6
Warrants (warrants to purchase up to $218,000 in common stock) (10)					8/31/2021	8/14/2028 (12)			200		45		—
							4,464		4,543		4,141		2.4
Sentry Centers Holdings, LLC (10) (13)	Convention and Trade Show Organizers
Preferred Equity (1,603 Series B units)					9/4/2020				160		157		0.1

Signal Parent, Inc. (14) (15)	New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan		8.92%	SOFR+	3.50%	3/25/2021	4/3/2028	1,808		1,795		1,533		0.9

Spear Education Holdings, LLC (15)	Professional and Management Development Training
Senior Secured Loan		13.04%	SOFR+	7.50%	2/10/2023	12/15/2027	1,489		1,456		1,472		0.9

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.,) (15)	Child Day Care Services
Senior Secured Loan		13.68%	SOFR+	8.25%	7/26/2018	7/30/2026	6,399		6,403		6,399		3.7

SSJA Bariatric Management LLC (15)	Offices of Physicians and Mental Health Specialists
Senior Secured Loan		10.79%	SOFR+	5.25%	8/26/2019	8/26/2024	9,601		9,584		9,578		5.6
Senior Secured Loan		10.79%	SOFR+	5.25%	12/31/2020	8/26/2024	1,037		1,035		1,035		0.6
Senior Secured Loan		10.79%	SOFR+	5.25%	12/8/2021	8/26/2024	2,613		2,605		2,607		1.5
Senior Secured Loan (Revolver) (5)		10.79%	SOFR+	5.25%	8/26/2019	8/26/2024	200		199		199		0.1
							13,451		13,421		13,419		7.8
SS Acquisition, LLC (15)	Sports and Recreation Instruction
Senior Secured Loan (8)		12.27%	SOFR+	6.76%	12/30/2021	12/30/2026	3,042		3,022		3,042		1.8
Senior Secured Loan (Delayed Draw)		13.03%	SOFR+	7.59%	12/30/2021	12/30/2026	1,460		1,449		1,460		0.9
							4,502		4,471		4,502		2.7
Staples, Inc. (14) (15) (22)	Business to Business Electronic Markets
Senior Secured Loan		10.63%	L+	5.00%	6/24/2019	4/16/2026	2,877		2,845		2,475		1.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
STS Operating, Inc.	Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan		13.42%	SOFR+	8.00%	5/15/2018	4/30/2026	$	9,073	$	9,072	$	9,073	5.3	%

The Escape Game, LLC (4)	Other Amusement and Recreation Industries
Senior Secured Loan (15)		12.42%	SOFR+	7.00%	12/21/2021	12/22/2024	21,000		20,932		21,210		12.4
Senior Secured Loan (Revolver) (5)		12.42%	SOFR+	7.00%	12/21/2021	12/22/2024	2,800		2,781		2,800		1.6
							23,800		23,713		24,010		14.0
Tolemar Acquisition, Inc.	Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan (15)		11.75%	SOFR+	6.00%	10/14/2021	10/14/2026	15,386		15,343		14,495		8.5
Senior Secured Loan (Revolver) (5)		11.75%	SOFR+	6.00%	10/14/2021	10/14/2026	592		584		443		0.3
							15,978		15,927		14,938		8.8
TruGreen Limited Partnership	Landscaping Services
Senior Secured Loan		14.13%	SOFR+	8.50%	5/13/2021	11/2/2028	4,500		4,596		4,410		2.6

United Biologics Holdings, LLC (4) (10)	Medical Laboratories
Preferred Equity (4,701 units)					4/16/2013				9		20		—

Wellful Inc. (F/K/A KNS Acquisition Corp.) (14) (15)	Electronic Shopping and Mail-Order Houses
Senior Secured Loan		11.68%	SOFR+	6.25%	4/16/2021	4/21/2027	6,650		6,622		6,337		3.7

Total Debt and Equity Investments - Non-control/Non-affiliate Investments							$	311,355	$	313,293	$	282,493	165.4	%

Structured Finance Securities (22)
Apex Credit CLO 2020 Ltd. (7) (9)
Subordinated Notes		21.91%			11/16/2020	10/20/2031	$	11,080	$	10,251	$	7,608	4.5	%

Apex Credit CLO 2021 Ltd (7) (9)
Subordinated Notes		19.97%			5/28/2021	7/18/2034	8,630		7,080		5,781		3.4

Apex Credit CLO 2022-1A (7) (9)
Subordinated Notes		16.16%			4/28/2022	4/22/2033	10,726		8,862		7,145		4.2

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
Ares L CLO
Mezzanine Debt - Class E		11.07%	SOFR+	5.50%	2/17/2022	1/15/2032	$	6,000	$	5,811	$	5,488	3.2	%

Barings CLO 2019-I Ltd.
Mezzanine Debt - Class E		12.43%	SOFR+	6.86%	2/23/2022	4/15/2035	8,000		7,913		7,726		4.5

Battalion CLO XI, Ltd.
Mezzanine Debt - Class E		12.46%	SOFR+	6.85%	4/25/2022	4/24/2034	6,000		5,902		5,650		3.3

Brightwood Capital MM CLO 2023-1A, Ltd.
Mezzanine Debt - Class D		11.85%	SOFR+	6.46%	9/28/2023	10/15/2035	915		887		887		0.5
Mezzanine Debt - Class E		15.75%	SOFR+	10.36%	9/28/2023	10/15/2035	2,133		1,920		1,920		1.1
Subordinated Notes (7) (9)		14.56%			9/28/2023	10/15/2035	5,494		4,840		4,840		2.8
							8,542		7,647		7,647		4.4
Dryden 53 CLO, Ltd. (7) (9)
Subordinated Notes - Income		12.54%			10/26/2020	1/15/2031	2,700		1,393		698		0.4
Subordinated Notes		14.56%			10/26/2020	1/15/2031	2,159		1,087		558		0.3
							4,859		2,480		1,256		0.7
Dryden 76 CLO, Ltd. (7) (9)
Subordinated Notes		17.88%			9/27/2019	10/20/2032	2,750		2,339		1,837		1.1

Elevation CLO 2017-7, Ltd. (7) (9) (10) (16)
Subordinated Notes		0.00%			2/6/2019	7/15/2030	5,438		1,300		97		0.1

Flatiron CLO 18, Ltd. (7) (9)
Subordinated Notes		10.36%			1/2/2019	4/17/2031	9,680		6,586		5,234		3.1

Madison Park Funding XXIII, Ltd. (7) (9)
Subordinated Notes		24.20%			1/8/2020	7/27/2047	10,000		5,816		5,168		3.0

Madison Park Funding XXIX, Ltd. (7) (9)
Subordinated Notes		20.70%			12/22/2020	10/18/2047	9,500		6,139		5,820		3.4

Monroe Capital MML CLO X, Ltd.
Mezzanine Debt - Class E-R		14.13%	SOFR+	8.75%	4/22/2022	5/20/2034	1,000		957		936		0.5

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
Octagon Investment Partners 39, Ltd. (7) (9)
Subordinated Notes		10.72%			1/23/2020	10/20/2030	$	7,000	$	4,186	$	2,369	1.4	%

Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine Debt - Class E		12.89%	SOFR+	7.30%	1/26/2021	1/20/2034	1,000		981		976		0.6

Redding Ridge 4 (7) (9)
Subordinated Notes		9.47%			3/4/2021	4/15/2030	1,300		959		567		0.3

Regatta II Funding
Mezzanine Debt - Class DR2		12.52%	SOFR+	6.95%	6/5/2020	1/15/2029	800		800		771		0.5

Regatta XXII Funding Ltd
Mezzanine Debt - Class E		12.52%	SOFR+	7.19%	5/6/2022	7/20/2035	3,000		2,973		3,055		1.8

THL Credit Wind River 2019‐3 CLO Ltd (7) (9)
Subordinated Notes		10.40%			4/5/2019	4/15/2031	7,000		5,053		3,206		1.9

Trinitas CLO VIII (7) (9)
Subordinated Notes		10.59%			3/4/2021	7/20/2117	5,200		3,040		1,692		1.0

Venture 45 CLO Ltd.
Mezzanine Debt - Class E		13.03%	SOFR+	7.70%	4/18/2022	7/20/2035	3,000		2,939		2,900		1.7

Wellfleet CLO 2018-2 (7) (9)
Subordinated Notes		8.56%			3/4/2021	10/20/2031	1,000		650		359		0.2

Total Structured Finance Securities							$	131,505	$	100,665	$	83,289	48.8	%

Total Non-control/Non-affiliate Investments							$	442,860	$	413,958	$	365,782	214.2	%

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(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
Affiliate Investments
Contract Datascan Holdings, Inc. (4) (20)	Office Machinery and Equipment Rental and Leasing
Preferred Equity (3,061 Series A shares), 10% PIK				8/5/2015				$	7,049	$	8,748	5.1	%
Common Equity (11,273 shares) (10)				6/28/2016				104		1,969		1.2
								7,153		10,717		6.3
DRS Imaging Services, LLC (13) (20)	Data Processing, Hosting, and Related Services
Common Equity (1,135 units)				3/8/2018				1,135		358		0.2

Master Cutlery, LLC (4) (10) (20)	Sporting and Recreational Goods and Supplies Merchant Wholesalers
Subordinated Loan (6) (11)		13.00% PIK	N/A	4/17/2015	5/25/2024	9,442		4,680		100		0.1
Preferred Equity (3,723 Series A units), 8% PIK				4/17/2015				3,483		—		—
Common Equity (15,564 units)				4/17/2015				—		—		—
						9,442		8,163		100		0.1
Pfanstiehl Holdings, Inc. (4) (20) (21)	Pharmaceutical Preparation Manufacturing
Common Equity (400 Class A shares)				1/1/2014				217		77,105		45.2

TalentSmart Holdings, LLC (10) (13) (20)	Professional and Management Development Training
Common Equity (1,595,238 Class A shares)				10/11/2019				1,595		648		0.4

TRS Services, LLC (4) (20)	Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance
Preferred Equity (1,937,191 Class A units), 11% PIK				12/10/2014				70		2,537		1.5
Common Equity (3,000,000 units) (10)				12/10/2014				572		—		—
								642		2,537		1.5

Total Affiliate Investments						$	9,442	$	18,905	$	91,465	53.7	%

Total Investments						$	452,302	$	432,863	$	457,247	267.9	%

(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.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments - Continued (unaudited)

September 30, 2023

(Dollar amounts in thousands)

(2)As of September 30, 2023, the Company held loans with an aggregate fair value of $262,717, or 94% of the total loan portfolio, that bear interest at a variable rate indexed to LIBOR (L) or SOFR, and reset monthly, quarterly, or semi-annually. For each variable-rate investment, the Company has provided the spread over the reference rate and current interest rate in effect as of September 30, 2023. 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 in 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 September 30, 2023, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.

(7)Amortized cost reflects accretion of effective yield less any cash distributions received or entitled to be received from CLO subordinated note investments. CLO subordinated note 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 September 30, 2023:


Portfolio Company	Reported Interest Rate	Interest Rate per Credit Agreement	Additional Interest per Annum
SS Acquisition, LLC	12.27%	11.75%	0.52%
SS Acquisition, LLC (Delayed Draw)	13.03%	11.75%	1.28%

(9)The rate disclosed on CLO subordinated note investments is the estimated effective yield, generally established at purchase and re-evaluated upon receipt of distributions, and based upon projected amounts and timing of future distributions and the projected amounts 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 September 30, 2023:

Portfolio Company

Investment Type

Range of PIK
Option

Range of Cash
Option

Maximum PIK
Rate Allowed

Inergex Holdings, LLC

Senior Secured Loan

0% to 2.00%

12.59% to 14.59%

2.00%

Inergex Holdings, LLC

Senior Secured - Revolver

0% to 2.00%

12.59% to 14.59%

2.00%

Kreg, LLC

Senior Secured Loan

0% to 2.00%

10.29% to 12.29%

2.50%

Master Cutlery, LLC

Subordinated Loan

0% to 13.00%

13.00%

RumbleOn, Inc.

Senior Secured Loan

0% to 0.50%

13.90% to 14.40%

0.50%

(12)Represents expiration date of the warrants.

(13)All or a 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 a portion thereof) held by OFSCC-FS. These assets are pledged as collateral of the BNP Facility and cannot be pledged under any debt obligation of the Parent.

(16)As of September 30, 2023, the investment has been optionally redeemed and is in the process of liquidating. Remaining residual distributions are anticipated to be recognized as a return of capital.

(17)Equity participation rights issued by an unaffiliated third party fully covered with underlying positions in the portfolio company.

(18)Not meaningful as there is no outstanding balance on the revolver or delayed draw facility. The Company earns unfunded commitment fees on undrawn revolving lines of credit balances, which are reported in fee income.

(19)The Company holds at least one seat on the portfolio company’s board of directors.

(20)The Company has an observer seat on the portfolio company’s board of directors.

(21)Portfolio company represents greater than 5% of total assets as of September 30, 2023.

(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 September 30, 2023, approximately 80% of the Company's assets were qualifying assets.

See Notes to Consolidated Financial Statements (unaudited).

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
24 Seven Holdco, LLC (15)	Temporary Help Services
Senior Secured Loan		10.39%	L+	6.00%	1/28/2022	11/16/2027	$	8,910	$	8,854	$	8,821	4.9	%

AIDC IntermediateCo 2, LLC (15)	Computer Systems Design Services
Senior Secured Loan		10.44%	SOFR+	6.25%	7/22/2022	7/22/2027	2,000		1,959		1,943		1.1

Allen Media, LLC (14) (15)	Cable and Other Subscription Programming
Senior Secured Loan		10.23%	SOFR+	5.50%	3/2/2021	2/10/2027	3,768		3,763		3,103		1.7

All Star Auto Lights, Inc. (4) (15) (21)	Motor Vehicle Parts (Used) Merchant Wholesalers
Senior Secured Loan		12.00%	L+	7.25%	12/19/2019	8/20/2025	23,098		22,863		22,890		12.7
Senior Secured Loan		11.76%	L+	7.25%	8/4/2022	8/20/2025	4,975		4,889		4,930		2.7
							28,073		27,752		27,820		15.4

Astro One Acquisition Corporation	Other Miscellaneous Nondurable Goods Merchant Wholesalers
Senior Secured Loan		13.23%	L+	8.50%	1/31/2022	9/14/2029	3,000		2,680		2,246		1.2

Asurion, LLC (14)	Communication Equipment Repair and Maintenance
Senior Secured Loan		9.63%	L+	5.25%	6/28/2022	1/31/2028	2,000		1,766		1,572		0.9

Atlantis Holding, LLC (14) (15)	Electronics and Appliance Stores
Senior Secured Loan		11.83%	SOFR+	7.25%	3/29/2022	3/31/2029	8,316		8,037		8,102		4.5

Avison Young (22)	Nonresidential Property Managers
Senior Secured Loan		10.19%	SOFR+	5.75%	11/25/2021	1/31/2026	3,946		3,926		3,475		1.9
Senior Secured Loan (15)		11.44%	SOFR+	7.00%	8/19/2022	1/31/2026	798		755		732		0.4
							4,744		4,681		4,207		2.3

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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 and Substance Abuse Centers
Senior Secured Loan		13.23%	L+	8.50%	6/10/2021	6/11/2028	$	4,962	$	4,904	$	4,861	2.7	%
Senior Secured Loan (Delayed Draw) (5)		13.23%	L+	8.50%	6/10/2021	6/11/2028	3,988		3,883		3,814		2.1
							8,950		8,787		8,675		4.8

BCPE North Star US Holdco 2, Inc. (F/K/A Dessert Holdings)	Ice Cream and Frozen Dessert Manufacturing
Senior Secured Loan		11.98%	L+	7.25%	2/2/2022	6/8/2029	1,667		1,641		1,540		0.9

Boca Home Care Holdings, Inc. (20)	Services for the Elderly and Persons with Disabilities
Senior Secured Loan (15)		11.33%	SOFR+	6.50%	2/25/2022	2/25/2027	9,548		9,469		9,201		5.1
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	1.00%	2/25/2022	2/25/2027	—		(11)		(47)		—
Common Equity (1,290 Class A units) (10) (13)					2/25/2022				1,290		1,098		0.6
							9,548		10,748		10,252		5.7

Constellis Holdings, LLC (10)	Other Justice, Public Order, and Safety Activities
Common Equity (20,628 common shares)					3/27/2020				703		32		—

Convergint Technologies Holdings, LLC	Security Systems Services (except Locksmiths)
Senior Secured Loan		11.07%	SOFR+	6.75%	9/28/2018	3/30/2029	5,938		5,849		5,767		3.2

Creation Technologies (15) (22)	Bare Printed Circuit Board Manufacturing
Senior Secured Loan		9.25%	L+	5.50%	9/24/2021	10/5/2028	1,990		1,977		1,854		1.0

Diamond Sports Group, LLC (14) (15)	Television Broadcasting
Senior Secured Loan		12.32%	SOFR+	8.00%	3/9/2022	5/25/2026	252		246		240		0.1
Senior Secured Loan (6)		7.57%	SOFR+	3.25%	11/19/2019	8/24/2026	1,935		1,935		248		0.1
							2,187		2,181		488		0.2

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
East West Manufacturing (15)	Fluid Power Pump and Motor Manufacturing
Senior Secured Loan		10.07%	SOFR+	5.75%	2/11/2022	12/22/2028	$	1,950	$	1,933	$	1,873	1.0	%
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	SOFR+	2.88%	2/11/2022	12/22/2028	—		(3)		(11)		—
							1,950		1,930		1,862		1.0
Electrical Components International, Inc.	Current-Carrying Wiring Device Manufacturing
Senior Secured Loan		12.88%	L+	8.50%	4/8/2021	6/26/2026	3,679		3,360		3,468		1.9

EnergySolutions, LLC (15)	Hazardous Waste Treatment and Disposal
Senior Secured Loan		8.48%	L+	3.75%	7/8/2021	5/9/2025	1,768		1,765		1,652		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		6/30/2017	12/31/2025	6,359		6,359		6,359		3.5
Senior Secured Loan (6) (10)		10.00% PIK	N/A		6/30/2017	12/31/2026	7,098		6,584		2,887		1.6
Senior Secured Loan (Revolver) (5)		n/m (18)	N/A		11/29/2021	12/31/2025	—		—		—		—
Equity Participation Rights (10) (23)					12/31/2021				4,722		—		—
							13,457		17,665		9,246		5.1
Excelin Home Health, LLC (4)	Home Health Care Services
Senior Secured Loan		14.23% cash / 1.25% PIK	L+	9.50%	10/25/2018	9/30/2025	4,277		4,210		3,987		2.2

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		—		—
Honor HN Buyer Inc (15)	Services for the Elderly and Persons with Disabilities
Senior Secured Loan		10.48%	SOFR+	5.75%	10/15/2021	10/15/2027	6,532		6,428		6,426		3.6
Senior Secured Loan (Delayed Draw) (5)		10.48%	SOFR+	5.75%	10/15/2021	10/15/2027	1,904		1,812		1,762		1.0
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	5.75%	10/15/2021	10/15/2027	—		(12)		(12)		—
							8,436		8,228		8,176		4.6

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Idera	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan		10.50%	L+	6.75%	1/27/2022	3/2/2029	$	4,000	$	4,000	$	3,732	2.1	%

Inergex Holdings, LLC	Other Computer Related Services
Senior Secured Loan (11)		12.15% cash / 2.00% PIK	L+	7.00%	10/1/2018	10/1/2024	14,868		14,669		14,868		8.2
Senior Secured Loan (Revolver) (5)		n/m (18)	L+	7.00%	10/1/2018	10/1/2024	—		(73)		—		—
							14,868		14,596		14,868		8.2

Ivanti Software, Inc. (14) (15)	Software Publishers
Senior Secured Loan		9.01%	L+	4.25%	3/26/2021	12/1/2027	2,963		2,972		2,359		1.3

JP Intermediate B, LLC (15)	Drugs and Druggists' Sundries Merchant Wholesalers
Senior Secured Loan		9.91%	L+	5.50%	1/14/2021	11/15/2025	5,369		5,227		4,622		2.6

Karman Buyer Corp (14) (15)	Advertising Agencies
Senior Secured Loan		8.28%	L+	4.50%	3/2/2022	10/28/2027	2,284		2,256		1,898		1.1

KNS Acquisition Corp. (15)	Electronic Shopping and Mail-Order Houses
Senior Secured Loan		10.42%	L+	6.25%	4/16/2021	4/21/2027	6,781		6,747		6,515		3.6

Kreg LLC (15)	Other Ambulatory Health Care Services
Senior Secured Loan		10.98% cash / 0.50% PIK	SOFR+	6.25%	12/20/2021	12/20/2026	16,550		16,452		15,675		8.7
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	6.25%	12/20/2021	12/20/2026	—		(8)		(71)		—
							16,550		16,444		15,604		8.7
LogMeIn, Inc. (14) (15)	Data Processing, Hosting, and Related Services
Senior Secured Loan		9.14%	L+	4.75%	3/26/2021	8/31/2027	2,946		2,945		1,909		1.1

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Metasource (15)	All Other Business Support Services
Senior Secured Loan		10.69%	SOFR+	6.25%	5/17/2022	5/17/2027	$	2,779	$	2,754	$	2,592	1.4	%
Senior Secured Loan (Delayed Draw) (5)		n/m (18)	SOFR+	6.25%	5/17/2022	5/17/2027	—		(8)		(81)		—
							2,779		2,746		2,511		1.4

Milrose Consultants, LLC (4) (21)	Administrative Management and General Management Consulting Services
Senior Secured Loan (15)		11.33%	SOFR+	6.50%	7/16/2019	7/16/2025	27,172		27,151		26,700		14.8
Senior Secured Loan (Revolver) (5)		11.33%	SOFR+	6.50%	7/16/2019	7/16/2025	476		470		448		0.2
							27,648		27,621		27,148		15.0

One GI LLC	Offices of Other Holding Companies
Senior Secured Loan (15)		11.13%	L+	6.75%	12/13/2021	12/22/2025	7,508		7,395		7,039		3.9
Senior Secured Loan (Delayed Draw) (5) (15)		11.14%	L+	6.75%	12/13/2021	12/22/2025	3,946		3,866		3,698		2.0
Senior Secured Loan (Revolver) (5)		n/m (18)	L+	6.75%	12/13/2021	12/22/2025	—		(21)		(90)		—
							11,454		11,240		10,647		5.9

Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC)	Software Publishers
Senior Secured Loan (6)		4.00%	N/A		3/13/2018	1/1/2024	16,648		14,113		6,864		3.8

PM Acquisition LLC	All Other General Merchandise Stores
Common Equity (499 units) (10) (13)					9/30/2017				499		967		0.5

RC Buyer, Inc.	Other Automotive Mechanical and Electrical Repair and Maintenance
Senior Secured Loan		11.23%	L+	6.50%	6/24/2022	7/30/2029	1,125		1,083		1,064		0.6

Reception Purchaser LLC (15)	Transportation and Warehousing
Senior Secured Loan		10.42%	SOFR+	6.00%	4/28/2022	3/24/2028	2,548		2,514		2,501		1.4

RPLF Holdings, LLC (10) (13)	Software Publishers
Common Equity (345,339 Class A units)					1/17/2018				492		406		0.2

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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

RSA Security (15)	Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
Senior Secured Loan (14)		9.11%	L+	4.75%	4/16/2021	4/27/2028	$	2,769	$	2,756	$	1,931	1.1	%
Senior Secured Loan		12.11%	L+	7.75%	4/16/2021	4/27/2029	4,450		4,400		3,350		1.9
							7,219		7,156		5,281		3.0
RumbleOn, Inc. (15) (22)	Other Industrial Machinery Manufacturing
Senior Secured Loan		12.98%	L+	8.25%	8/31/2021	8/31/2026	3,985		3,817		3,617		2.0
Senior Secured Loan (Delayed Draw) (5)		12.98%	L+	8.25%	8/31/2021	8/31/2026	1,202		1,186		1,042		0.6
Warrants (warrants to purchase up to $600,000 in common stock)					8/31/2021	7/25/2023 (12)			200		—		—
							5,187		5,203		4,659		2.6
Sentry Centers Holdings, LLC (10) (13)	Other Professional, Scientific, and Technical Services
Preferred Equity (1,603 Series B units)					9/4/2020				160		80		—

Signal Parent, Inc. (14) (15)	New Single-Family Housing Construction (except For-Sale Builders)
Senior Secured Loan		7.89%	L+	3.50%	3/25/2021	4/3/2028	1,822		1,807		1,566		0.9

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) (15)	Child Day Care Services
Senior Secured Loan		12.98%	L+	8.25%	7/26/2018	7/30/2026	6,399		6,375		6,182		3.4

SSJA Bariatric Management LLC (15)	Offices of Physicians and Mental Health Specialists
Senior Secured Loan		9.98%	SOFR+	5.25%	8/26/2019	8/26/2024	9,675		9,643		9,513		5.3
Senior Secured Loan		9.98%	SOFR+	5.25%	12/31/2020	8/26/2024	1,045		1,041		1,028		0.6
Senior Secured Loan		9.98%	SOFR+	5.25%	12/8/2021	8/26/2024	2,633		2,617		2,589		1.4
Senior Secured Loan (Revolver) (5)		n/m (18)	SOFR+	5.25%	8/26/2019	8/26/2024	—		(2)		(11)		—
							13,353		13,299		13,119		7.3
SS Acquisition, LLC (15)	Sports and Recreation Instruction
Senior Secured Loan (8)		11.10%	SOFR+	6.85%	12/30/2021	12/30/2026	3,042		3,017		2,988		1.7
Senior Secured Loan (Delayed Draw) (5)		11.84%	SOFR+	7.59%	12/30/2021	12/30/2026	1,217		1,205		1,184		0.7
							4,259		4,222		4,172		2.4

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Staples, Inc. (14) (15) (22)	Business to Business Electronic Markets
Senior Secured Loan		9.44%	L+	5.00%	6/24/2019	4/16/2026	$	2,900	$	2,858	$	2,689	1.5	%

STS Operating, Inc.	Industrial Machinery and Equipment Merchant Wholesalers
Senior Secured Loan		12.38%	L+	8.00%	5/15/2018	4/30/2026	9,073		9,071		9,073		5.0

The Escape Game, LLC (4)	Other amusement and recreation industries
Senior Secured Loan		11.38%	L+	7.00%	12/21/2021	12/22/2024	16,333		16,333		16,497		9.1
Senior Secured Loan (Revolver) (5)		n/m (18)	L+	7.00%	12/21/2021	12/22/2024	—		(31)		—		—
							16,333		16,302		16,497		9.1
Thryv, Inc. (14) (15)	Directory and Mailing List Publishers
Senior Secured Loan		12.88%	L+	8.50%	2/18/2021	3/1/2026	3,978		3,910		3,930		2.2

Tolemar Acquisition, Inc. (15)	Motorcycle, Bicycle, and Parts Manufacturing
Senior Secured Loan		9.32%	L+	5.75%	10/14/2021	10/14/2026	15,504		15,445		15,504		8.6
Senior Secured Loan (Revolver) (5)		12.25%	Prime +	4.75%	10/14/2021	10/14/2026	438		428		438		0.2
							15,942		15,873		15,942		8.8

Tony's Fresh Market / Cardenas Markets (15)	Supermarkets and Other Grocery (except Convenience) Stores
Senior Secured Loan		11.44%	SOFR+	6.75%	7/20/2022	8/1/2029	5,985		5,647		5,532		3.1

TruGreen Limited Partnership	Landscaping Services
Senior Secured Loan		12.91%	L+	8.50%	5/13/2021	11/2/2028	4,500		4,611		4,226		2.3

United Biologics Holdings, LLC (4) (10)	Medical Laboratories
Preferred Equity (4,701 units)					4/16/2013				8		24		—
Warrants (3,976 units)					7/26/2012	4/16/2023 (12)			9		11		—
									17		35		—

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Yahoo / Verizon Media (14) (15)	Internet Publishing and Broadcasting and Web Search Portals
Senior Secured Loan		9.88%	L+	5.50%	7/21/2021	9/1/2027	$	3,127	$	3,100	$	2,843	1.6	%

Total Debt and Equity Investments							$	342,699	$	344,143	$	314,253	174.2	%

Structured Finance Securities (22)
Apex Credit CLO 2020 (9) (16)
Subordinated Notes		19.26%			11/16/2020	10/20/2031	$	11,080	$	9,915	$	7,996	4.4	%

Apex Credit CLO 2021 Ltd (9) (16)
Subordinated Notes		18.54%			5/28/2021	7/18/2034	8,630		7,198		6,141		3.4

Apex Credit CLO 2022-1A (9) (16)
Subordinated Notes		16.48%			4/28/2022	4/22/2033	10,726		8,389		8,611		4.8

Ares L CLO
Mezzanine Debt - Class E		9.73%	L+	5.65%	2/17/2022	1/15/2032	6,000		5,749		5,272		2.9

Barings CLO 2019-I Ltd.
Mezzanine Debt - Class E		10.94%	L+	6.86%	2/23/2022	4/15/2035	8,000		7,899		7,308		4.1

Battalion CLO XI, Ltd.
Mezzanine Debt - Class E		11.17%	L+	6.85%	4/24/2022	4/24/2034	6,000		5,855		5,445		3.0

Brightwood Capital MM CLO 2022-1, LTD (17)
Loan accumulation facility		14.50%			1/5/2022	12/31/2032	8,500		8,500		8,299		4.6

Dryden 53 CLO, LTD. (9) (16)
Subordinated Notes - Income		23.00%			10/26/2020	1/15/2031	2,700		1,499		1,029		0.5
Subordinated Notes		22.97%			10/26/2020	1/15/2031	2,159		1,199		823		0.5
							4,859		2,698		1,852		1.0

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Dryden 76 CLO, Ltd. (9) (16)
Subordinated Notes		19.75%			9/27/2019	10/20/2032	$	2,750	$	2,266	$	2,030	1.1	%

Elevation CLO 2017-7, Ltd. (7) (9) (16)
Subordinated Notes		0.00%			2/6/2019	7/15/2030	5,449		1,311		118		0.1

Flatiron CLO 18, Ltd. (9) (16)
Subordinated Notes		20.94%			1/2/2019	4/17/2031	9,680		6,907		5,587		3.1

Madison Park Funding XXIII, Ltd. (9) (16)
Subordinated Notes		23.69%			1/8/2020	7/27/2047	10,000		6,112		5,319		2.9

Madison Park Funding XXIX, Ltd. (9) (16)
Subordinated Notes		19.83%			12/22/2020	10/18/2047	9,500		6,459		5,645		3.1

Monroe Capital MML CLO X, Ltd.
Mezzanine Debt - Class E-R		13.03%	SOFR+	8.75%	4/22/2022	5/20/2034	1,000		945		874		0.5

Octagon Investment Partners 39, Ltd. (9) (16)
Subordinated Notes		18.97%			1/23/2020	10/20/2030	7,000		4,504		3,202		1.8

Park Avenue Institutional Advisers CLO Ltd 2021-1
Mezzanine Debt - Class E		11.54%	L+	7.30%	1/26/2021	1/20/2034	1,000		978		910		0.5

Redding Ridge 4 (9) (16)
Subordinated Notes		17.49%			3/4/2021	4/15/2030	1,300		1,034		695		0.4

Regatta II Funding
Mezzanine Debt - Class DR2		11.03%	L+	6.95%	6/5/2020	1/15/2029	800		778		738		0.4

Regatta XXII Funding Ltd
Mezzanine Debt - Class E		11.24%	SOFR+	7.19%	5/6/2022	7/20/2035	3,000		2,971		2,990		1.7

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
THL Credit Wind River 2019‐3 CLO Ltd. (9) (16)
Subordinated Notes		14.24%			4/5/2019	4/15/2031	$	7,000	$	5,347	$	3,926	2.2	%

Trinitas CLO VIII (9) (16)
Subordinated Notes		23.02%			3/4/2021	7/20/2117	5,200		3,060		2,216		1.2

Venture 45 CLO Ltd.
Mezzanine Debt - Class E		11.66%	SOFR+	7.70%	4/18/2022	7/20/2035	3,000		2,931		2,876		1.6

Wellfleet CLO 2018-2 (9) (16)
Subordinated Notes		23.88%			3/4/2021	10/20/2031	1,000		670		471		0.3

Total Structured Finance Securities							$	131,474	$	102,477	$	88,518	49.1	%

Total Non-control/Non-affiliate Investments							$	474,173	$	446,620	$	402,771	223.2	%

Affiliate Investments
Contract Datascan Holdings, Inc. (4) (20)	Office Machinery and Equipment Rental and Leasing
Preferred Equity (3,061 Series A shares) 10% PIK					8/5/2015				$	6,315	$	6,202	3.4	%
Common Equity (11,273 shares) (10)					6/28/2016				104		510		0.3
									6,419		6,712		3.7
DRS Imaging Services, LLC (10) (13) (20)	Data Processing, Hosting, and Related Services
Common Equity (1,135 units)					3/8/2018				1,135		1,568		0.9

Master Cutlery, LLC (4) (10) (20)	Sporting and Recreational Goods and Supplies Merchant Wholesalers
Subordinated Loan (6) (11)		13.00% PIK	N/A		4/17/2015	7/20/2023	8,578		4,680		122		0.1	%
Preferred Equity (3,723 Series A units), 8% PIK					4/17/2015				3,483		—		—
Common Equity (15,564 units)					4/17/2015				—		—		—
							8,578		8,163		122		0.1

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 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
Pfanstiehl Holdings, Inc. (4) (10) (20) (21)	Pharmaceutical Preparation Manufacturing
Common Equity (400 Class A shares)				1/1/2014				$	217	$	85,456	47.4	%

TalentSmart Holdings, LLC (10) (13) (20)	Professional and Management Development Training
Common Equity (1,595,238 Class A shares)				10/11/2019				1,595		953		0.5

TRS Services, LLC (4) (20)	Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance
Preferred Equity (1,937,191 Class A units), 11% PIK				12/10/2014				—		1,890		1.0
Common Equity (3,000,000 units)				12/10/2014				572		—		—
								572		1,890		1.0

Total Affiliate Investments						$	8,578	$	18,101	$	96,701	53.6	%

Control Investment
Eblens Holdings, Inc. (20)	Shoe Store
Subordinated Loan (6)		13.00% PIK	N/A	7/13/2017	10/3/2025	$	4,945	$	4,605	$	1,104	0.6	%
Subordinated Loan (6)		13.00% PIK	N/A	7/13/2017	10/3/2025	4,945		4,605		—		—
Common Equity (356 Class A units) (10)				10/3/2022				950		—		—
						9,890		10,160		1,104		0.6
Total Control Investment						$	9,890	$	10,160	$	1,104	0.6	%

Total Investments						$	492,641	$	474,880	$	500,576	277.4	%

(2)At December 31, 2022, the Company held loans with an aggregate principal amount of $312,595, or 87% of the total loan portfolio, that bear interest at a variable rate indexed to LIBOR (L) or SOFR, and reset monthly, quarterly, or semi-annually. For each variable-rate investment, the Company has provided the spread over the reference rate and current interest rate in effect at December 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 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, 2022, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

December 31, 2022

(Dollar amounts in thousands)

(7)As of December 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.


Portfolio Company	Reported Interest Rate	Interest Rate per Credit Agreement	Additional Interest per Annum
SS Acquisition, LLC	11.10%	10.49%	0.61%
SS Acquisition, LLC (Delayed Draw)	11.84%	10.49%	1.35%

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

(10) Non-income producing.

(11) The interest rate on these investments contains a PIK provision, whereby the issuer has the option to make interest payments in cash or with the issuance of additional securities as payment of the entire PIK provision. The interest rate in the schedule represents the current interest rate in effect for these investments. The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed as of December 31, 2022:

Portfolio Company

Investment Type

Range of PIK
Option

Range of Cash
Option

Maximum PIK
Rate Allowed

Inergex Holdings, LLC

Senior Secured Loan

0% to 2.00%

12.15% to 14.15%

2.00%

Master Cutlery, LLC

Senior Secured Loan

0% to 13.00%

13.00%

(12)Represents expiration date of the warrants.

(13)All or a 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 a 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 note investments. CLO subordinated note 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.

(17)Loan accumulation facilities are financing structures intended to aggregate loans that are expected to form part of the portfolio of a future CLO vehicle. Reported yields represent an estimated yield to be earned on the investment. Income notes associated with loan accumulation facilities generally pay returns equal to the income earned on facility assets, less costs of debt financing and manager costs and expenses. In January 2023, the Company prospectively adjusted the estimated yield on this position to 0.00% due to an adverse change in estimated cash flows in accordance with ASC 325-40. As of December 31, 2022, the fair value of the loan accumulation facility was determined by a probability weighted NAV analysis.

(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, 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 December 31, 2022, approximately 80% of the Company's assets were qualifying assets.

(23)Equity participation rights issued by unaffiliated third party fully covered with underlying positions in the portfolio company.

See Notes to Consolidated Financial Statements.

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 to 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 to OCCI, a non-diversified, externally managed, closed-end management investment company that is registered as an investment company under the 1940 Act and that primarily invests in Structured Finance Securities. Additionally, OFS Advisor serves as the adviser to separately-managed accounts and sub-advisor to investment companies managed by an affiliate.

The Company may make investments directly or through one or more of its subsidiaries: OFSCC-FS, SBIC I LP or OFSCC-MB.

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, subject to a borrowing base and other covenants.

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 continue to repay its outstanding SBA debentures prior to their scheduled maturity dates.

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, 2022, filed on March 3, 2023. 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, 2022.

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 (decrease) 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.

Concentration of credit risk: Aside from the Company’s investments, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

the year, the Company exceeds 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. If borrowers completely fail to perform according to the terms of the contracts, the amount of loss due to credit risk from the Company’s investments is equal to the sum of the Company’s recorded investments and the unfunded commitments disclosed in Note 6.

Cash: The Company’s cash balances are maintained with a member bank of the FDIC, and at times, such balances exceed the FDIC insurance limit. The Company does not believe its cash balances are exposed to any significant credit risk. Cash balances are held in US Bank N.A. and Citibank N.A. money market deposit accounts. In addition, the Company’s use of cash held by SBIC I LP and OFSCC-FS is limited by SBA regulation and the terms and conditions of the BNP Facility, respectively, including but not limited to, payment of interest expense and principal on the outstanding borrowings.

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, 2023. 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 to 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.

For the years ended December 31, 2023 and 2022, OFS Advisor agreed to reduce its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (excluding cash) at the end of the two most recently completed calendar quarters. OFS Advisor’s base management fee reduction is renewable on an annual basis, and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets. OFS Advisor most recently renewed the agreement to reduce its base management fee for the 2023 calendar year on January 11, 2023.

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 September 30, 2023, 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 September 30, 2023 and December 31, 2022, there were no accrued Capital Gains Fees.

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 continuation of the Administration Agreement was most recently approved by the Board on April 5, 2023. 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 September 30, 2023, affiliates of OFS Advisor held approximately 3,020,992 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 and nine months ended September 30, 2023 and 2022 are presented below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Management fee	$	1,796	$	1,986	$	5,573	$	6,062
Incentive fees:
Income Incentive Fee	1,348		1,093		3,866		1,093
Capital Gains Fee(1)	—		—		—		(1,916)
Administration fee	380		435		1,302		1,309
Distributions paid to affiliates	1,027		876		3,021		2,597

(1) For the nine months ended September 30, 2022, the negative Capital Gains Fee represents the reversal of a previously accrued Capital Gains Fee resulting from the reduction in net unrealized appreciation on the investment portfolio.

Note 4. Investments

As of September 30, 2023, the Company had loans to 43 portfolio companies, of which approximately 99% were senior secured loans and 1% were subordinated loans, at fair value. The Company also had equity investments in 15 portfolio companies and 23 investments in Structured Finance Securities. As of September 30, 2023, 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	$	304,865	70.3	%	178.6	%	$	279,144	61.1	%	163.5	%
Subordinated debt investments	4,680		1.1		2.7		100		—		0.1
Preferred equity	11,116		2.6		6.5		11,806		2.6		6.9
Common equity, warrants and other(1)	11,537		2.7		6.8		82,908		18.1		48.6
Total Portfolio Company Investments	332,198		76.7		194.6		373,958		81.8		219.1
Structured Finance Securities	100,665		23.3		59.0		83,289		18.2		48.8
Total investments	$	432,863	100.0	%	253.6	%	$	457,247	100.0	%	267.9	%

(1) Includes the Company’s investment in Pfanstiehl Holdings, Inc. See “Note 4 — Portfolio Concentration” for additional information.

Geographic composition is determined by the location of the corporate headquarters of the portfolio company. All international investments are denominated in US dollars. As of September 30, 2023 and December 31, 2022, the Company’s investment portfolio was domiciled as follows:


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
United States	$	327,538	$	371,481	$	367,723	$	407,851
Canada	4,660		2,477		4,680		4,207
Cayman Islands(1)	93,017		75,641		102,477		88,518
Jersey(1)	7,648		7,648		—		—




Total investments	$	432,863	$	457,247	$	474,880	$	500,576

(1) Investments domiciled in the Cayman Islands and Jersey represent Structured Finance Securities held by the Company. These investments generally represent beneficial interests in underlying portfolios of debt investments in companies domiciled in the United States.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

As of September 30, 2023, 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
All Other Business Support Services	$	2,729	0.6	%	1.6	%	$	2,529	0.6	%	1.5	%
Convention and Trade Show Organizers	160		—		0.1		157		—		0.1

Landscaping Services	4,596		1.1		2.7		4,410		1.0		2.6

Security Systems Services (except Locksmiths)	5,859		1.4		3.4		5,897		1.3		3.5
Temporary Help Services	8,793		2.0		5.2		8,532		1.9		5.0

Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries	23,713		5.5		13.9		24,010		5.3		14.1
Construction
Electrical Contractors and Other Wiring Installation Contractors	17,618		4.1		10.3		9,839		2.2		5.8
New Single-Family Housing Construction (except For-Sale Builders)	1,795		0.4		1.1		1,533		0.3		0.9


Education Services

Professional and Management Development Training	3,051		0.7		1.8		2,120		0.5		1.2
Sports and Recreation Instruction	4,471		1.0		2.6		4,502		1.0		2.6





Health Care and Social Assistance

Child Day Care Services	6,403		1.5		3.8		6,399		1.4		3.7



Home Health Care Services	4,231		1.0		2.5		3,443		0.8		2.0
Medical Laboratories	9		—		—		20		—		—
Offices of Physicians and Mental Health Specialists	13,423		3.1		7.9		13,419		2.9		7.9
Other Ambulatory Health Care Services	16,945		3.9		9.9		15,731		3.4		9.2

Outpatient Mental Health and Substance Abuse Centers	8,858		2.0		5.2		8,869		1.9		5.2

Services for the Elderly and Persons with Disabilities	24,949		5.8		14.5		24,435		5.3		14.1
Information


Cable and Other Subscription Programming	3,735		0.9		2.2		3,347		0.7		2.0
Data Processing, Hosting, and Related Services	4,058		0.9		2.4		2,313		0.5		1.4





Software Publishers	17,061		3.9		10.0		10,329		2.3		6.1
Television Broadcasting	2,183		0.5		1.3		178		—		0.1

Management of Companies and Enterprises
Offices of Other Holding Companies	12,672		2.9		7.4		12,059		2.6		7.1
Manufacturing
Bare Printed Circuit Board Manufacturing	1,964		0.5		1.2		1,866		0.4		1.1


Current-Carrying Wiring Device Manufacturing	3,429		0.8		2.0		3,603		0.8		2.1

Other Aircraft Parts and Auxiliary Equipment Manufacturing	500		0.1		0.3		—		—		—

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
Fluid Power Pump and Motor Manufacturing	$	1,920	0.4	%	1.1	%	$	1,850	0.4	%	1.1	%
Ice Cream and Frozen Dessert Manufacturing	1,644		0.4		1.0		1,464		0.3		0.9
Motorcycle, Bicycle, and Parts Manufacturing	15,927		3.7		9.3		14,938		3.3		8.8




Other Industrial Machinery Manufacturing	4,543		1.0		2.6		4,141		0.9		2.3


Pharmaceutical Preparation Manufacturing	217		0.1		0.1		77,105		16.9		45.2









Other Services (except Public Administration)


Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance	642		0.1		0.4		2,537		0.6		1.5



Professional, Scientific, and Technical Services

Advertising Agencies	2,242		0.5		1.3		2,190		0.5		1.3

Computer Systems Design Services	1,996		0.5		1.2		2,016		0.4		1.2





Other Computer Related Services	17,056		3.9		10.0		17,212		3.8		10.1




Public Administration
Other Justice, Public Order, and Safety Activities	703		0.2		0.4		37		—		—

Real Estate and Rental and Leasing


Nonresidential Property Managers	4,660		1.1		2.7		2,477		0.5		1.5
Office Machinery and Equipment Rental and Leasing	7,153		1.7		4.2		10,717		2.3		6.3

Retail Trade



Electronic Shopping and Mail-Order Houses	6,622		1.5		3.9		6,337		1.4		3.7


Supermarkets and Other Grocery (except Convenience) Stores	5,643		1.3		3.3		5,957		1.3		3.5

All Other General Merchandise Stores	499		0.1		0.3		620		0.1		0.4
Transportation and Warehousing




Transportation and Warehousing	2,500		0.6		1.5		2,381		0.5		1.4
Wholesale Trade
Business to Business Electronic Markets	2,845		0.7		1.7		2,475		0.5		1.5
Computer and Computer Peripheral Equipment and Software Merchant Wholesalers	10,114		2.3		5.8		8,942		2.0		5.1

Drugs and Druggists' Sundries Merchant Wholesalers	4,501		1.0		2.6		3,608		0.8		2.1


Industrial Machinery and Equipment Merchant Wholesalers	9,072		2.1		5.3		9,073		2.0		5.3


Motor Vehicle Parts (Used) Merchant Wholesalers	27,629		6.4		16.2		27,856		6.1		16.3

Other Miscellaneous Nondurable Goods Merchant Wholesalers	2,704		0.6		1.6		385		0.1		0.2
Sporting and Recreational Goods and Supplies Merchant Wholesalers	8,163		1.9		4.8		100		—		0.1

Total Portfolio Company Investments	$	332,198	76.7	%	194.6	%	$	373,958	81.8	%	219.1	%
Structured Finance Securities	100,665		23.3		59.0		83,289		18.2		48.8
Total investments	$	432,863	100.0	%	253.6	%	$	457,247	100.0	%	267.9	%

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

As of December 31, 2022, the Company had loans to 52 portfolio companies, of which 99.6% were senior secured loans and 0.4% were subordinated loans, at fair value. The Company also held equity investments in 16 portfolio companies and 23 investments in Structured Finance Securities. At December 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	$	335,558	70.7	%	186.0	%	$	311,636	62.3	%	172.7	%
Subordinated debt investments	13,890		2.9		7.7		1,226		0.2		0.7
Preferred equity	9,966		2.1		5.5		8,196		1.6		4.5
Common equity, warrants and other	12,989		2.7		7.2		91,000		18.2		50.4
Total debt and equity investments	$	372,403	78.4	%	206.4	%	$	412,058	82.3	%	228.3	%
Structured Finance Securities	102,477		21.6		56.8		88,518		17.7		49.1
Total	$	474,880	100.0	%	263.2	%	$	500,576	100.0	%	277.4	%

As of December 31, 2022, 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
All Other Business Support Services	$	2,745	0.6	%	1.5	%	$	2,511	0.5	%	1.4	%
Convention and Trade Show Organizers	160		—		0.1		80		—		—
Hazardous Waste Treatment and Disposal	1,765		0.4		1.0		1,652		0.3		0.9
Landscaping Services	4,611		1.0		2.6		4,226		0.8		2.3

Security Systems Services (except Locksmiths)	5,849		1.2		3.2		5,767		1.2		3.2
Temporary Help Services	8,854		1.9		4.9		8,821		1.8		4.9

Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries	16,303		3.4		9.0		16,497		3.3		9.1
Construction
Electrical Contractors and Other Wiring Installation Contractors	17,666		3.7		9.8		9,247		1.8		5.1
New Single-Family Housing Construction (except For-Sale Builders)	1,807		0.4		1.0		1,566		0.3		0.9


Education Services

Professional and Management Development Training	1,595		0.3		0.9		953		0.2		0.5
Sports and Recreation Instruction	4,222		0.9		2.3		4,172		0.8		2.3





Health Care and Social Assistance

Child Day Care Services	6,375		1.3		3.5		6,182		1.2		3.4



Home Health Care Services	4,210		0.9		2.3		3,987		0.8		2.2
Medical Laboratories	17		—		—		35		—		—
Offices of Physicians and Mental Health Specialists	13,299		2.8		7.4		13,119		2.6		7.3
Other Ambulatory Health Care Services	16,444		3.5		9.1		15,604		3.1		8.6

Outpatient Mental Health and Substance Abuse Centers	8,787		1.9		4.9		8,675		1.7		4.8

Services for the Elderly and Persons with Disabilities	18,977		4.0		10.5		18,427		3.7		10.2
Information


Cable and Other Subscription Programming	3,763		0.8		2.1		3,103		0.6		1.7

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
Data Processing, Hosting, and Related Services	$	4,080	0.9	%	2.3	%	$	3,477	0.7	%	1.9	%
Directory and Mailing List Publishers	3,910		0.8		2.2		3,930		0.8		2.2
Internet Publishing and Broadcasting and Web Search Portals	3,100		0.7		1.7		2,843		0.6		1.6



Software Publishers	17,577		3.7		9.7		9,629		1.9		5.3
Television Broadcasting	2,182		0.5		1.2		488		0.1		0.3

Management of Companies and Enterprises
Offices of Other Holding Companies	11,240		2.4		6.2		10,646		2.1		5.9
Manufacturing
Bare Printed Circuit Board Manufacturing	1,977		0.4		1.1		1,854		0.4		1.0


Current-Carrying Wiring Device Manufacturing	3,360		0.7		1.9		3,468		0.7		1.9

Fluid Power Pump and Motor Manufacturing	1,931		0.4		1.1		1,862		0.4		1.0
Ice Cream and Frozen Dessert Manufacturing	1,641		0.3		0.9		1,540		0.3		0.9
Motorcycle, Bicycle, and Parts Manufacturing	15,873		3.3		8.8		15,942		3.2		8.8


Other Aircraft Parts and Auxiliary Equipment Manufacturing	500		0.1		0.3		—		—		—

Other Industrial Machinery Manufacturing	5,203		1.1		2.9		4,660		0.9		2.6



Pharmaceutical Preparation Manufacturing	217		—		0.1		85,456		17.1		47.4









Other Services (except Public Administration)


Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance	572		0.1		0.3		1,890		0.4		1.0
Communication Equipment Repair and Maintenance	1,766		0.4		1.0		1,572		0.3		0.9
Other Automotive Mechanical and Electrical Repair and Maintenance	1,083		0.2		0.6		1,064		0.2		0.6

Professional, Scientific, and Technical Services
Administrative Management and General Management Consulting Services	27,621		5.8		15.3		27,148		5.4		15.0
Advertising Agencies	2,256		0.5		1.3		1,898		0.4		1.1

Computer Systems Design Services	1,959		0.4		1.1		1,943		0.4		1.1




Other Computer Related Services	14,595		3.1		8.1		14,868		3.0		8.2




Public Administration
Other Justice, Public Order, and Safety Activities	703		0.1		0.4		32		—		—

Real Estate and Rental and Leasing


Nonresidential Property Managers	4,680		1.0		2.6		4,207		0.8		2.3
Office Machinery and Equipment Rental and Leasing	6,418		1.4		3.6		6,713		1.3		3.7

Retail Trade


Electronic Shopping and Mail-Order Houses	6,747		1.4		3.7		6,515		1.3		3.6
Electronics and Appliance Stores	8,037		1.7		4.5		8,102		1.6		4.5
Shoe Store	10,160		2.1		5.6		1,104		0.2		0.6

Supermarkets and Other Grocery (except Convenience) Stores	5,647		1.2		3.1		5,532		1.1		3.1

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
All Other General Merchandise Stores	$	499	0.1	%	0.3	%	$	967	0.2	%	0.5	%
Transportation and Warehousing




Transportation and Warehousing	2,514		0.5		1.4		2,501		0.5		1.4
Wholesale Trade
Business to Business Electronic Markets	2,858		0.6		1.6		2,689		0.5		1.5
Computer and Computer Peripheral Equipment and Software Merchant Wholesalers	11,156		2.3		6.2		9,013		1.8		5.0

Drugs and Druggists' Sundries Merchant Wholesalers	5,227		1.1		2.9		4,622		0.9		2.6

Industrial Machinery and Equipment Merchant Wholesalers	9,071		1.9		5.0		9,073		1.8		5.0


Motor Vehicle Parts (Used) Merchant Wholesalers	27,751		5.8		15.4		27,821		5.6		15.4

Other Miscellaneous Nondurable Goods Merchant Wholesalers	2,680		0.6		1.5		2,246		0.4		1.2
Sporting and Recreational Goods and Supplies Merchant Wholesalers	8,163		1.7		4.4		122		—		0.1

Total debt and equity investments	$	372,403	78.4	%	206.4	%	412,058		82.3	%	228.3	%
Structured Finance Securities	102,477		21.6		56.8		88,518		17.7		49.1
Total investments	$	474,880	100.0	%	263.2	%	500,576		100.0	%	277.4	%

Non-Accrual Loans: Management reviews, for placement on non-accrual status, all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal, cash interest, or PIK interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed. Additionally, Net Loan Fees are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments and, in the judgment of management, the investments are estimated to be fully collectible as to all principal and interest. For the three months ended September 30, 2023, loans with an aggregate amortized cost and fair value of $11,843 and $6,436, respectively, were placed on non-accrual status. The aggregate amortized cost and fair value of loans on non-accrual status as of September 30, 2023 was $39,155 and $16,698, respectively, and as of December 31, 2022 was $36,522 and $11,225, respectively.

Portfolio Concentration: As of September 30, 2023, the Company’s common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 16.9% and 45.2% of its total portfolio at fair value and its total net assets, respectively.

Note 5. Fair Value of Financial Instruments

The Company’s investments are carried at fair value and determined in accordance with a documented valuation policy that is applied in a consistent manner. On September 7, 2022, pursuant to Rule 2a-5 of the 1940 Act (“Rule 2a-5”), the Board designated OFS Advisor as the valuation designee to perform fair value determinations relating to the Company’s investments, commencing with the quarter ended September 30, 2022, and the Board maintains oversight of OFS Advisor in its capacity as valuation designee, as prescribed in Rule 2a-5.

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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

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 management to exercise significant judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The Company generally categorizes its investment portfolio into Level 3, and to a lesser extent Level 2, of the hierarchy.

The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the measurement date. The following table presents the Company’s transfers of Level 2 and Level 3 debt investments for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Transfers from Level 2 to Level 3	$	—	$	—	$	—	$	3,252
Transfers from Level 3 to Level 2	5,957		6,403		7,491		6,403

Transfers between levels during the reporting periods were due to availability of reliable Indicative Prices in those periods.

Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the values that would have been used had a ready market or observable inputs existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantly less than the value at which such investment had previously been recorded. The Company’s investments are subject to market risk as a result of economic and political developments, including impacts from rising interest rates and elevated inflation rates, the ongoing war between Russia and Ukraine, the current conflict in Israel, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility. Market risk is directly impacted by the volatility and liquidity in the markets in which certain investments are traded and can affect the fair value of the Company’s investments.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

The following tables present the Company’s investment portfolio measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022:


Security	Level 1		Level 2		Level 3		Fair Value as of September 30, 2023
Debt investments	$	—	$	21,666	$	257,578	$	279,244
Equity investments	—		—		94,714		94,714
Structured Finance Securities	—		—		83,289		83,289
	$	—	$	21,666	$	435,581	$	457,247


Security	Level 1		Level 2		Level 3		Fair Value as of December 31, 2022
Debt investments	$	—	$	30,823	$	282,039	$	312,862
Equity investments	—		—		99,196		99,196
Structured Finance Securities	—		—		88,518		88,518
	$	—	$	30,823	$	469,753	$	500,576

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

The following tables provides the primary quantitative information about valuation techniques and the Company’s unobservable inputs to its Level 3 fair value measurements as of September 30, 2023 and December 31, 2022. The Company may make changes to the valuation techniques, among techniques otherwise commonly used in accordance with its valuation policies, and/or the weighting of techniques used for particular investments based on changes in facts-and-circumstances and depending on the availability of, or changes in, information in order to produce the best estimate of fair value as of the measurement date. In addition to the techniques and unobservable inputs noted in the tables below and in accordance with OFS Advisor’s valuation policy, OFS Advisor, as valuation designee, may also use other valuation techniques and methodologies when determining the fair value measurements of the Company’s investment assets.

Fair Value as of September 30, 2023

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

234,746

Discounted cash flow

Discount rates

10.32% - 21.66% (13.18%)

Senior secured

2,477

Market approach

EBITDA multiples

7.00x - 7.00x (7.00x)

Senior secured

20,255

Market approach

Revenue multiples

0.40x - 1.40x (0.59x)

Subordinated

100

Market approach

Revenue multiples

0.23x - 0.23x (0.23x)

Structured Finance Securities:

Subordinated notes(1)

48,043

Discounted cash flow

Discount rates

16.00% - 58.00% (32.24%)

Constant default rate

2.00% - 2.00% (2.00%)

Recovery rate

65.00% - 65.00% (65.00%)

Subordinated notes

Market approach

Net asset value liquidation(2)

Subordinated notes

4,840

Market approach

Transaction Price

Mezzanine debt

27,502

Discounted cash flow

Discount margin

6.85% - 10.25% (8.04%)

Constant default rate

2.00% - 3.00% (2.03%)

Recovery rate

65.00% - 65.00% (65.00%)

Mezzanine debt

2,807

Market approach

Transaction Price

Equity investments:

Preferred equity

11,462

Market approach

EBITDA multiples

4.58x - 7.50x (6.84x)

Preferred equity

344

Discounted cash flow

Discount rates

13.26% - 13.26% (13.26%)

Common equity, warrants and other

5,445

Market approach

EBITDA multiples

4.58x - 16.50x (9.55x)

Common equity, warrants and other

77,105

Discounted cash flow

Discount rates

10.75% - 10.75% (10.75%)

Market approach

EBITDA multiples

12.50x - 12.50x (12.50x)

Common equity, warrants and other

358

Market approach

Revenue multiples

0.40x - 0.70x (0.70x)

435,581

(1) The cash flows utilized in the discounted cash flow calculations assume: (i) liquidation of (a) certain distressed investments and (b) all investments currently in default held by the issuing CLO at their current market prices; and (ii) redeployment of proceeds at the issuing CLO’s assumed reinvestment rate.

(2) Net asset value liquidation represents the fair value, or estimated expected residual value, of the Structured Finance Security 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, 2022

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

264,702

Discounted cash flow

Discount rates

10.21% - 20.71% (12.94%)

Senior secured

16,110

Market approach

Revenue multiples

0.46x - 0.70x (0.56x)

Subordinated

1,226

Market approach

EBITDA multiples

10.50x - 10.50x (10.50x)

Structured Finance Securities:

Subordinated notes(1)

53,688

Discounted cash flow

Discount rates

12.50% - 34.00% (22.14%)

Constant default rate

2.00% - 2.00% (2.00%)

Recovery rate

65.00% - 65.00% (65.00%)

Mezzanine debt

26,413

Discounted cash flow

Discount margin

7.25% - 11.60% (8.58%)

Constant default rate

2.00% - 3.00% (2.03%)

Recovery rate

65.00% - 65.00% (65.00%)

Subordinated notes

118

Market approach

Net asset value liquidation(2)

Loan accumulation facility

8,299

Market approach

Probability weighted NAV analysis

Equity investments:

Preferred equity

6,202

Market approach

EBITDA multiples

7.25x - 7.25x (7.25x)

Preferred equity

1,901

Market approach

Revenue multiples

0.15x - 0.87x (0.87x)

Common equity, warrants and other

91,070

Market approach

EBITDA multiples

3.72x - 11.75x (9.63x)

Common equity, warrants and other

Market approach

Revenue multiples

0.15x - 0.87x (0.15x)

469,753

(2) NAV liquidation represents the fair value, or estimated expected residual value, of the investment.

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 approaches used in developing input assumptions to these 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 nine months ended September 30, 2023 and September 30, 2022:


	Nine Months Ended September 30, 2023
	Senior Secured Debt Investments		Subordinated Debt Investments		Preferred Equity		Common Equity, Warrants and Other		Structured Finance Securities		Total
Level 3 assets, December 31, 2022	$	280,813	$	1,226	$	8,196	$	91,000	$	88,518	$	469,753

Net realized loss on investments	(140)		(9,210)		—		(6,642)		—		(15,992)
Net unrealized appreciation (depreciation) on investments	(3,110)		8,084		2,461		(844)		(3,416)		3,175
Amortization of Net Loan Fees	994		—		—		—		170		1,164
Accretion of interest income on Structured Finance Securities	—		—		—		—		8,534		8,534
Capitalized PIK interest and dividends	687		—		804		—		—		1,491
Amendment fees received	(166)		—		—		—		—		(166)
Purchase and origination of portfolio investments	26,378		—		345		356		7,642		34,721
Proceeds from principal payments on portfolio investments	(37,777)		—		—		—		(8,511)		(46,288)
Sale and redemption of portfolio investments	(2,710)		—		—		—		—		(2,710)
Proceeds from distributions received from portfolio investments	—		—		—		(962)		(9,648)		(10,610)
Transfers out of Level 3	(7,491)		—		—		—		—		(7,491)

Level 3 assets, September 30, 2023	$	257,478	$	100	$	11,806	$	82,908	$	83,289	$	435,581

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)


	Nine Months Ended September 30, 2022
	Senior Secured Debt Investments		Subordinated Debt Investments		Preferred Equity		Common Equity, Warrants and Other		Structured Finance Securities		Total
Level 3 assets, December 31, 2021	$	261,113	$	17,943	$	3,765	$	83,486	$	75,201	$	441,508
Net realized loss on investments	(122)		—		(51)		(6)		—		(179)
Net unrealized appreciation (depreciation) on investments	(9,416)		(5,488)		3,558		6,050		(12,600)		(17,896)
Amortization of Net Loan Fees	1,058		6		—		—		186		1,250
Accretion of interest income on Structured Finance Securities	—		—		—		—		7,647		7,647
Capitalized PIK interest and dividends	362		58		230		—		—		650
Amendment fees	(206)		—		—		—		—		(206)
Purchase and origination of portfolio investments	85,066		—		—		1,290		43,198		129,554
Proceeds from principal payments on portfolio investments	(51,060)		(8,245)		—		—		(9,500)		(68,805)
Sale and redemption of portfolio investments	(2,845)		—		—		(3,141)		—		(5,986)
Proceeds from distributions received from portfolio investments	—		—		—		—		(14,261)		(14,261)
Transfers out of Level 3	(6,403)		—		—		—		—		(6,403)
Transfers into Level 3	3,252		—		—		—		—		3,252
Level 3 assets, September 30, 2022	$	280,799	$	4,274	$	7,502	$	87,679	$	89,871	$	470,125

The net unrealized depreciation reported in the Company’s consolidated statements of operations for the nine months ended September 30, 2023 and 2022, attributable to the Company’s Level 3 assets still held at those respective period ends, was as follows:


	Nine Months Ended September 30,
	2023		2022
Senior secured debt investments	$	(4,125)	$	(8,941)
Subordinated debt investments	(22)		(5,487)
Preferred equity	2,474		3,507
Common equity, warrants and other	(7,590)		7,657
Structured Finance Securities	(3,622)		(12,553)
Net unrealized depreciation on investments held	$	(12,885)	$	(15,817)

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Other Financial Assets and Liabilities

The Company provides disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments, such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such financial instruments. The PWB Credit Facility and BNP Facility are variable rate instruments and fair value is estimated to approximate carrying value.

The following table sets forth carrying values and fair values of the Company’s debt as of September 30, 2023 and December 31, 2022:


	As of September 30, 2023				As of December 31, 2022
Description	Carrying Value(1)		Fair Value		Carrying Value(1)		Fair Value
PWB Credit Facility	$	—	$	—	$	—	$	—
BNP Facility	91,100		91,100		104,700		104,700
Unsecured Notes Due February 2026	123,129		113,799		122,547		109,037
Unsecured Notes Due October 2028	53,959		47,850		53,806		47,058
SBA-guaranteed debentures	31,870		30,692		50,697		49,470
Total debt	$	300,058	$	283,441	$	331,750	$	310,265

(1) Carrying value is calculated as the outstanding principal amount less unamortized deferred debt issuance costs.

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 September 30, 2023 and December 31, 2022:


	September 30, 2023
Description	Level 1(1)		Level 2		Level 3(2)		Total
PWB Credit Facility	$	—	$	—	$	—	$	—
BNP Facility	—		—		91,100		91,100
Unsecured Notes Due February 2026	—		—		113,799		113,799
Unsecured Notes Due October 2028	47,850		—		—		47,850
SBA-guaranteed debentures	—		—		30,692		30,692
Total debt, at fair value	$	47,850	$	—	$	235,591	$	283,441


	December 31, 2022
Description	Level 1(1)		Level 2		Level 3(2)		Total
PWB Credit Facility	$	—	$	—	$	—	$	—
BNP Facility	—		—		104,700		104,700
Unsecured Notes Due February 2026	—		—		109,037		109,037
Unsecured Notes Due October 2028	47,058		—		—		47,058
SBA-guaranteed debentures	—		—		49,470		49,470
Total debt, at fair value	$	47,058	$	—	$	263,207	$	310,265

(1) For Level 1 measurements, fair value is estimated by using the closing price of the security on the Nasdaq Global Select Market.

(2) 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

As of September 30, 2023, the Company has outstanding commitments to fund investments totaling $14,059 under various undrawn revolvers and other credit facilities.

Legal and regulatory proceedings: From time to time, the Company is involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot be predicted with any certainty, management is of the opinion, based on the advice of legal counsel, that final disposition of any litigation should not have a material adverse effect on the financial position of the Company as of September 30, 2023.

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, as of September 30, 2023 and December 31, 2022, SBIC I LP held $152,322 and $176,521 in assets, respectively, which accounted for approximately 32% and 34% of the Company’s total consolidated assets, respectively. These assets cannot be pledged under any debt obligation of the Company.

On March 1, 2023 and September 27, 2023, SBIC I LP redeemed SBA debentures of $5,000 and $14,000 respectively, that were contractually due March 1, 2025. As of September 30, 2023, SBIC I LP had outstanding debentures totaling $31,920, which bear a fixed interest rate of 2.87% and mature on March 1, 2025.

For the three and nine months ended September 30, 2023 and 2022, 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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Stated interest expense	$	328		$	369		$	1,006		$	1,184
Amortization of debt issuance costs	43			48			133			140
Total interest and debt financing costs	$	371		$	417		$	1,139		$	1,324
Cash paid for interest expense	$	694		$	737		$	1,419		$	1,739
Effective interest rate	3.27		%	3.28		%	3.24		%	3.21		%
Average outstanding balance	$	45,311		$	50,920		$	46,795		$	55,026

BNP Facility: On June 20, 2019, OFSCC-FS entered into the BNP Facility, which provides for borrowings in an aggregate principal amount up to $150,000, subject to a borrowing base and other covenants. On June 24, 2022, OFSCC-FS amended the BNP facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027; (iii) convert the benchmark interest rate from LIBOR to SOFR; (iv) increase the applicable margin by 0.40% on all classes of loans; and (v) increase the applicable margin floor from 1.925% to 2.65%. OFSCC-FS also pays a non-usage fee depending on the size of the unused portion of the BNP Facility. Fees and legal costs incurred in connection with the BNP Facility are amortized over the life of the facility.

The BNP Facility is collateralized by all the assets held by OFSCC-FS. OFSCC-FS and the Company have each made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.

As of September 30, 2023 and December 31, 2022, OFSCC-FS had outstanding debt of $91,100 and $104,700, respectively. As of September 30, 2023, the unused commitment under the BNP Facility was $58,900.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

For the three and nine months ended September 30, 2023 and 2022, 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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Stated interest expense(1)	$	2,012		$	1,671		$	6,008		$	3,295
Amortization of debt issuance costs	95			95			285			231
Total interest and debt financing costs	$	2,107		$	1,766		$	6,293		$	3,526
Cash paid for interest expense	$	2,101		$	1,520		$	6,069		$	2,906
Effective interest rate	8.61		%	5.20		%	8.12		%	3.74		%
Average outstanding balance	$	97,883		$	135,680		$	103,327		$	125,574

(1) Stated interest expense includes unused fees.

PWB Credit Facility: On March 7, 2018, the Company entered into the PWB Credit Facility. On April 22, 2022, the Company amended the PWB Credit Facility to: (i) increase the maximum amount available under the PWB Credit Facility from $25,000 to $35,000; and (ii) extend the maturity date of the PWB Credit Facility from February 28, 2023 to February 28, 2024. On December 15, 2022, the Company amended the PWB Credit Facility to: (i) reduce the maximum amount available under the PWB Credit Facility from $35,000 to $25,000; and (ii) eliminate the “No Net Losses” covenant, which restricted net losses (defined as income after adjustments to the investment portfolio for gains and losses, realized and unrealized, also shown as net increase (decrease) in net assets resulting from operations) in more than two quarters during the prior four quarters then ended. Fees and legal costs incurred in connection with the PWB Credit Facility are amortized over the life of the facility.

The maximum availability of the PWB Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base as specified in the BLA. The PWB Credit Facility is guaranteed by OFSCC-MB and secured by all of our current and future assets, excluding assets held by SBIC I LP, OFSCC-FS, and the Company’s partnership interests in SBIC I LP and SBIC I GP. The Company has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.

As of September 30, 2023 and December 31, 2022, the Company had $-0- and $-0-, respectively, of outstanding debt under the PWB Credit Facility. As of September 30, 2023, the unused commitment under the PWB Credit Facility was $25,000.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Stated interest expense(1)	$	25	$	49	$	136	$	96
Amortization of debt issuance costs	—		1		1		4
Total interest and debt financing costs	$	25	$	50	$	137	$	100
Cash paid for interest expense	$	24	$	49	$	135	$	95
Effective interest rate	n/m(2)		n/m(2)		n/m(2)		n/m(2)
Average outstanding balance	$	587	$	1,391	$	1,669	$	719

(1) Stated interest expense includes unused fees.

(2) Not meaningful due to a minimal average outstanding balance relative to the size of the total commitment and unused fees incurred during the periods.

Unsecured Notes: As of September 30, 2023 and December 31, 2022, the Company had the following Unsecured Notes outstanding:

Unsecured Notes Due February 2026: On February 10, 2021 and March 18, 2021, the Company issued $125,000 in aggregate principal of unsecured notes. The Unsecured Notes Due February 2026 bear interest at a rate of 4.75% per year payable semi-annually and mature on February 10, 2026. The Company may redeem the Unsecured Notes Due February 2026 in whole or in part at any time, or from time to time, at its option at par plus a “make-whole” premium, if applicable.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Unsecured Notes Due October 2028: On October 28, 2021 and November 1, 2021, the Company issued $55,000 in aggregate principal of unsecured notes. The Unsecured Notes Due October 2028 bear interest at a rate of 4.95% per year payable semi-annually and mature on October 31, 2028. The Company may redeem the Unsecured Notes Due October 2028 in whole or in part at any time, or from time to time, at its option on or after October 31, 2023.

The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all current and future unsecured indebtedness of the Company. Because the Unsecured Notes are not secured by any of the Company’s assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which the Company subsequently grants a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the PWB Credit Facility.

The indenture governing the Unsecured Notes contains certain covenants, including: (i) prohibiting additional borrowings, including through the issuance of additional debt securities, unless the Company's asset coverage, as defined in the 1940 Act, after giving effect to any exemptive relief granted to the Company by the SEC, equals at least 150% after such borrowings; and (ii) prohibiting (a) the declaration of any cash dividend or distribution upon any class of the Company’s capital stock (except to the extent necessary for the Company to maintain its treatment as a RIC under Subchapter M of the Code), or (b) the purchase of any capital stock unless the Company’s asset coverage, as defined in the 1940 Act, is at least 150% at the time of such capital transaction and after deducting the amount of such transaction.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Stated interest expense	$	2,165		$	2,165		$	6,495		$	6,495
Amortization of debt issuance costs	245			259			734			779
Total interest and debt financing costs	$	2,410		$	2,424		$	7,229		$	7,274
Cash paid for interest expense	$	3,649		$	3,649		$	7,979		$	8,002
Effective interest rate	5.35		%	5.39		%	5.35		%	5.39		%
Average outstanding balance	$	180,000		$	180,000		$	180,000		$	180,000

The following table shows the scheduled maturities of the principal balances of the Company’s outstanding borrowings as of September 30, 2023:


	Payments due by period
	Total		Less than 1 year		1 to 3 years		3 to 5 years		After 5 years
PWB Credit Facility	$	—	$	—	$	—	$	—	$	—
Unsecured Notes	180,000		—		125,000		—		55,000
SBA Debentures	31,920		—		31,920		—		—
BNP Facility	91,100		—		—		91,100		—
Total	$	303,020	$	—	$	156,920	$	91,100	$	55,000

For the three and nine months ended September 30, 2023 and 2022, the average dollar borrowings and weighted average effective interest rate on the Company’s outstanding borrowings were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Average dollar borrowings	$	323,781		$	367,992		$	331,792		$	361,319
Weighted average effective interest rate	6.07		%	5.06		%	5.95		%	4.51		%

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Note 8. Financial Highlights

The following is a schedule of financial highlights for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Per share operating performance:
Net asset value per share at beginning of period	$	12.94		$	14.57		$	13.47		$	15.18
Net investment income(4)	0.40			0.33			1.15			1.01
Net realized gain (loss) on investments, net of taxes(4)	0.01			(0.04)			(0.77)			(0.04)
Net unrealized depreciation on investments, net of taxes(4)	(0.26)			(1.00)			(0.09)			(1.71)
Loss on extinguishment of debt(4)	(0.01)			—			(0.02)			(0.01)
Total income (loss) from operations	0.14			(0.71)			0.27			(0.75)
Distributions declared	(0.34)			(0.29)			(1.00)			(0.86)
Issuance/repurchase of common stock(8)	—			0.01			—			0.01
Net asset value per share at end of period	$	12.74		$	13.58		$	12.74		$	13.58

Per share market value, end of period	$	11.24		$	8.22		$	11.24		$	8.22
Total return based on market value(1)(6)	17.1		%	(14.2)		%	21.7		%	(17.9)		%
Total return based on net asset value(2)(6)	1.4		%	(3.5)		%	3.9		%	(2.6)		%
Shares outstanding at end of period	13,398,078			13,406,971			13,398,078			13,406,971
Weighted average shares outstanding	13,398,078			13,428,410			13,398,078			13,425,466
Ratio/Supplemental Data (dollar amounts in thousands)
Average net asset value(3)	$	172,045		$	188,893		$	176,080		$	197,479
Net asset value at end of period	$	170,668		$	182,074		$	170,668		$	182,074
Net investment income	$	5,390		$	4,372		$	15,463		$	13,625
Ratio of total expenses to average net assets(5)	21.5		%	19.0		%	21.2		%	14.3		%
Ratio of total expenses and loss on extinguishment of debt to average net assets(5)	21.6		%	19.0		%	21.3		%	14.3		%
Ratio of net investment income to average net assets(5)	12.5		%	9.3		%	11.7		%	9.2		%
Ratio of loss on extinguishment of debt to average net assets(6)	0.1		%	—		%	0.1		%	0.1		%
Portfolio turnover(7)	1.8		%	4.2		%	7.1		%	22.7		%

(1)Calculated as ending market value less beginning market value, adjusted for distributions reinvested at prices based on the Company’s DRIP for the respective distributions.

(2)Calculated as ending net asset value less beginning net asset value, adjusted for distributions reinvested at prices based on the Company’s DRIP 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)Not annualized.

(7)Portfolio turnover rate is calculated using the lesser of period-to-date sales, portfolio investment distributions and principal payments or period-to-date purchases over the average of the invested assets at fair value.

(8)Common stock issued through the DRIP and repurchased through the Stock Repurchase Program.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Note 9. Capital Transactions

Distributions: The Company intends to make quarterly distributions to stockholders, that represent over time, substantially all of its net investment income. In addition, although the Company may distribute at least annually net realized capital gains, net of taxes if any, out of assets legally available for such distribution, the Company may also retain such capital gains for investment through a deemed distribution. If the Company makes a deemed distribution, stockholders will be treated for U.S. federal income tax purposes as if they had received an actual distribution of the capital gains, net of taxes.

The Company is limited on the use of cash held by OFS SBIC I LP under restrictions imposed by SBA regulations. In addition, distributions from OFSCC-FS to the Company are restricted by the terms and conditions of the BNP Facility.

The following table summarizes distributions declared and paid for the nine months ended September 30, 2023 and 2022:


Date Declared	Record Date	Payment Date	Amount Per Share		Cash Distribution		DRIP Shares Issued	DRIP Shares Value
Nine Months Ended September 30, 2022
March 1, 2022	March 24, 2022	March 31, 2022	$	0.28	$	3,719	3,016	$	39
May 3, 2022	June 23, 2022	June 30, 2022	0.29		3,850		4,348	43
August 2, 2022	September 23, 2022	September 30, 2022	0.29		3,849		5,529	46
			$	0.86	$	11,418	12,893	$	128
Nine Months Ended September 30, 2023
February 28, 2023	March 24, 2023	March 31, 2023	$	0.33	$	4,421	—	$	—	(1)
May 2, 2023	June 23, 2023	June 30, 2023	0.33		4,422		—	—		(1)
August 1, 2023	September 22, 2023	September 29, 2023	0.34		4,555		—	—		(1)
			$	1.00	$	13,398	—	$	—

(1) During the nine months ended September 30, 2023, the Company directed the DRIP plan administrator to purchase shares on the open market in order to satisfy the DRIP obligation to deliver shares of common stock. Accordingly, the Company purchased shares to satisfy the DRIP obligation as follows:


Nine Months Ended September 30, 2023	Number of Shares Purchased	Average Price Paid Per Share		Total Amount Paid
January 1, 2023 through March 31, 2023	5,096	$	10.43	$	53
April 1, 2023 through June 30, 2023	5,823	10.06		59
July 1, 2023 through September 30, 2023	8,007	11.22		90

Distributions in excess of the Company’s current and accumulated ICTI would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of the Company’s distributions is made annually as of the end of its fiscal year based upon its estimated ICTI for the full year and distributions paid for the full year. Each year, a statement on Form 1099-DIV identifying the tax character of distributions is mailed to the Company’s stockholders.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

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. The Stock Repurchase Program currently expires on May 22, 2024, or when 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 nine months ended September 30, 2023 and September 30, 2022, respectively:


Period	Total Number of Shares Purchased	Cost of Shares Purchased		Average Price Paid Per Share		Weighted Average Discount to NAV Prior to Repurchases
Nine Months Ended September 30, 2022
January 1, 2022 through March 31, 2022	—	$	—	$	—	n/a
April 1, 2022 through June 30, 2022	—	—		—		n/a
July 1, 2022 through September 30, 2022	28,335	231		8.14		44.2	%

Nine Months Ended September 30, 2023
January 1, 2023 through March 31, 2023	—	$	—	$	—	n/a
April 1, 2023 through June 30, 2023	—	—		—		n/a
July 1, 2023 through September 30, 2023	—	—		—		n/a

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


		Nine Months Ended September 30, 2023
Name of Portfolio Company	Investment Type (1)	Net Realized Gain (Loss)		Net change in unrealized appreciation/(depreciation)		Interest		Dividends		Fees		Total Income (2)		December 31, 2022, Fair Value		Gross Additions (3)		Gross Reductions (4)		September 30, 2023, Fair Value (5)
Control Investment
Eblens Holdings, Inc.	Subordinated Loan (6)	$	(4,605)	$	3,501	$	—	$	—	$	—	$	—	$	1,104	$	—	$	(1,104)	$	—
	Subordinated Loan (6)	(4,605)		4,605		—		—		—		—		—		—		—		—
	Common Equity (6)	(1,306)		950		—		—		—		—		—		356		(356)		—
		(10,516)		9,056		—		—		—		—		1,104		356		(1,460)		—

Total Control Investment		(10,516)		9,056		—		—		—		—		1,104		356		(1,460)		—
Affiliate Investments
Contract Datascan Holdings, Inc.	Preferred Equity (7)	—		1,811		—		735		—		735		6,202		2,546		—		8,748
	Common Equity (6)	—		1,459		—		—		—		—		510		1,459		—		1,969
		—		3,270		—		735		—		735		6,712		4,005		—		10,717

DRS Imaging Services, LLC	Common Equity	—		(1,211)		—		34		—		34		1,569		—		(1,211)		358


Master Cutlery, LLC	Subordinated Loan (6)	—		(22)		—		—		—		—		122		—		(22)		100
	Preferred Equity (6)	—		—		—		—		—		—		—		—		—		—
	Common Equity (6)	—		—		—		—		—		—		—		—		—		—
		—		(22)		—		—		—		—		122		—		(22)		100

Pfanstiehl Holdings, Inc	Common Equity	—		(8,351)		—		547		—		547		85,456		—		(8,351)		77,105


TalentSmart Holdings, LLC	Common Equity (6)	—		(305)		—		—		—		—		953		—		(305)		648


TRS Services, Inc.	Preferred Equity (7)	—		579		—		118		—		118		1,890		647		—		2,537
	Common Equity (6)	—		—		—		—		—		—		—		—		—		—
		—		579		—		118		—		118		1,890		647		—		2,537

Total Affiliate Investments		—		(6,040)		—		1,434		—		1,434		96,701		4,652		(9,889)		91,465
Total Control and Affiliate Investments		$	(10,516)	$	3,016	$	—	$	1,434	$	—	$	1,434	$	97,805	$	5,008	$	(11,349)	$	91,465

(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.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

(2)Represents the total amount of interest, fees or dividends included in income for the nine months ended September 30, 2023, 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 Net Loan Fees, and net increases in unrealized appreciation or decreases in net unrealized 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 unrealized depreciation.

(5)Fair value was determined using significant unobservable inputs. See Note 5 for further details.

(6)Non-income producing.

(7)Dividends recognized as income include PIK dividends contractually earned but not declared.

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share data)

Note 11. Subsequent Events

On October 31, 2023, the Board declared a distribution of $0.34 per share for the fourth quarter of 2023, payable on December 29, 2023 to stockholders of record as of December 22, 2023.

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, 2022.

Overview

Key performance metrics per common share are presented below:


	September 30, 2023		June 30, 2023
Net asset value	$	12.74	$	12.94


	Three Months Ended				Nine Months Ended
	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
Net investment income	$	0.40	$	0.38	$	1.15	$	1.01
Net increase (decrease) in net assets resulting from operations	0.14		(0.15)		0.27		(0.75)
Distributions paid	0.34		0.33		1.00		0.86

Our NAV per common share decreased from $12.94 at June 30, 2023 to $12.74 at September 30, 2023, primarily due to unrealized depreciation on investments of $0.26 per common share. For the quarter ended September 30, 2023, net investment income of $0.40 per common share exceeded our quarterly distribution of $0.34 per common share during such period.

For the quarter ended September 30, 2023, total investment income increased to $14.7 million from $14.5 million in the prior quarter, primarily due to an increase of $0.2 million in interest income. Interest income increased due to certain non-recurring interest on a realized Structured Finance Security, partially offset by a reduction in interest on our debt investments related to certain loans placed on non-accrual status during the current quarter. For the quarter ended September 30, 2023, our portfolio’s weighted-average performing income yield increased to 14.6% from 13.8% in the prior quarter, primarily due to interest income recognized on the pay off of a loan accumulation facility.

For the quarter ended September 30, 2023, our weighted-average debt interest costs increased to 6.1% compared to 6.0% for the quarter ended June 30, 2023, primarily due to an increase in the cost of debt on our BNP Facility resulting from SOFR rate increases. As of September 30, 2023, approximately 89% of our outstanding debt matures in 2026 and beyond, 70% of our outstanding debt carries fixed interest rates and 59% of our outstanding debt is unsecured. We continue to believe that our balance sheet remains well positioned in the current interest rate environment.

For the quarter ended September 30, 2023, we recognized a net loss on investments of $3.4 million, primarily due to net unrealized depreciation of $3.5 million. The net unrealized depreciation of $3.5 million was primarily due to net unrealized depreciation of $6.8 million on our debt and equity investments, partially offset by net unrealized appreciation of $3.3 million on our Structured Finance Securities.

During the quarter ended September 30, 2023, loans with an aggregate fair value of $6.4 million were placed on non-accrual status. As of September 30, 2023, our loan portfolio had non-accrual loans with an aggregate fair value of $16.7 million, or 3.7% of our total investments at fair value. For the quarter ended September 30, 2023, our loans on non-accrual status experienced net unrealized depreciation of $2.6 million.

As of September 30, 2023, our asset coverage ratio of 163% exceeded the minimum asset coverage requirement of 150% under the 1940 Act, and we remained in compliance with all applicable covenants under our outstanding debt facilities. As of September 30, 2023, we had access to $25.0 million under our PWB Credit Facility, as well as $58.9 million under our BNP Facility, each of which are subject to a borrowing base and other covenants. As of September 30, 2023, we had unfunded commitments of $14.1 million to 9 portfolio companies.

On October 31, 2023, the Board declared a distribution of $0.34 per share for the fourth quarter of 2023, payable on December 29, 2023, to stockholders of record as of December 22, 2023.

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 Consolidated Financial Statements - Note 2” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Estimates” in our Annual Report on Form 10-K for the year ended December 31, 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 as of September 30, 2023 (dollar amounts in thousands):


Investment Type			Range of Fair Value
			Low-end		High-end
Debt investments:
Senior secured	$	279,144	$	273,970	$	284,328
Subordinated	100		100		100

Structured Finance Securities:
Subordinated notes	52,980		50,448		55,507
Mezzanine debt	30,309		29,784		30,832


Equity investments:
Preferred equity	11,806		11,185		12,413
Common equity, warrants and other	82,908		75,623		90,198
	$	457,247	$	441,110	$	473,378

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 other funds, including HPCI and OCCI. Additionally, OFS Advisor provides sub-advisory services to: (i) 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; and (ii) 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.

For the years ended December 31, 2023 and 2022, OFS Advisor agreed to reduce its base management fee attributable to all of the OFSCC-FS Assets to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets (excluding cash) at the end of the two most recently completed calendar quarters. OFS Advisor’s base management fee reduction is renewable on an annual basis and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets. OFS Advisor most recently renewed the agreement to reduce its base management fee for the 2023 calendar year on January 11, 2023.

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 our existing Order, which superseded a previous order that we received on October 12, 2016, and provides us with greater flexibility to enter into co-investment transactions with certain 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. We are generally permitted to co-invest with Affiliated Funds if, under the terms of our existing Order, 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 transaction, 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 application for an amendment to our existing Order to permit us to participate in follow-on investments in our existing portfolio companies with private funds that do not hold any investments in such existing portfolio companies. However, if filed, there is no guarantee that such application will be granted.

Conflicts may arise when we make an investment in conjunction with an investment being made by an Affiliated Account, or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company’s capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Potential conflicts arise when addressing, among other things, questions as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced. For a discussion of the risks associated with conflicts of interest, see “Item 1. Business — Regulation — 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 1. Business — Regulation — Conflicts of Interest — Conflicts Related to Portfolio Investments” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Portfolio Composition and Investment Activity

Portfolio Composition

As of September 30, 2023, the fair value of our debt investment portfolio totaled $279.2 million in 43 portfolio companies, of which approximately 99% were senior secured loans. As of September 30, 2023, we had equity investments in 15 portfolio companies with a fair value of approximately $94.7 million. As of September 30, 2023, we also had 23 investments in Structured Finance Securities with a fair value of $83.3 million and unfunded commitments of $14.1 million to 9 portfolio companies. Set forth in the tables and charts below is selected information with respect to our portfolio as of September 30, 2023 and December 31, 2022.

The following table presents our investment portfolio by each wholly owned legal entity within the consolidated group as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands):


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
OFS Capital Corporation (Parent)	$	187,162	$	157,133	$	195,823	$	162,308
SBIC I LP	77,250		143,330		97,214		167,211
OFSCC-FS	165,561		154,432		178,460		168,050
OFSCC-MB	2,890		2,352		3,383		3,007
Total investments	$	432,863	$	457,247	$	474,880	$	500,576

The following table presents our ten largest investments by portfolio company based on fair value as of September 30, 2023 (dollar amounts in thousands):


Portfolio Company	Type	Amortized Cost		Fair Value		% of Total Portfolio, at Fair Value
Pfanstiehl Holdings, Inc.	Equity	$	217	$	77,105	16.9	%
All Star Auto Lights, Inc.	Debt	27,629		27,856		6.1
The Escape Game, LLC	Debt	23,713		24,010		5.3
Inergex Holdings, LLC	Debt	17,056		17,212		3.8
Kreg LLC	Debt	16,944		15,731		3.4
Tolemar Acquisition, Inc.	Debt	15,927		14,938		3.3
SSJA Bariatric Management LLC	Debt	13,422		13,419		2.9
Honor HN Buyer Inc.	Debt	12,387		12,566		2.7
One GI LLC	Debt	12,673		12,058		2.6
Boca Home Care Holdings, Inc.	Debt and Equity	12,562		11,869		2.6
Total		$	152,530	$	226,764	49.6	%

As of September 30, 2023, approximately 4.5% and 12.0% of our total portfolio at fair value and net assets, respectively, were comprised of Structured Finance Securities managed by a single adviser.

Portfolio Yields

The following table presents weighted-average yield metrics for our portfolio as of September 30, 2023 and June 30, 2023:



	For the Three Months Ended
	September 30, 2023		June 30, 2023
Weighted-average performing income yield(1):
Debt investments	13.1	%	13.0	%
Structured Finance Securities	19.3	%	16.4	%
Interest-bearing investments	14.6	%	13.8	%

Weighted-average realized yield(2):
Interest-bearing investments	13.3	%	12.5	%

(1) Performing income yield is calculated as (a) the actual amount earned on performing interest-bearing investments, including interest, prepayment fees and amortization of Net Loan Fees, divided by (b) the weighted-average of total performing interest-bearing investments at amortized cost.

(2) Realized yield is calculated as (a) the actual amount earned on interest-bearing investments, including interest, prepayment fees and amortization of Net Loan Fees, divided by (b) the weighted-average of total interest-bearing investments at amortized cost, in each case, including debt investments on non-accrual status and non-income producing Structured Finance Securities.

For the three months ended September 30, 2023, the weighted average performing income yield on interest-bearing investments increased primarily due to certain non-recurring interest income recognized on the pay off of a loan accumulation facility.

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 September 30, 2023 and December 31, 2022 (dollar amounts in thousands):


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Senior secured debt investments	$	304,865	$	279,144	$	335,558	$	311,636
Subordinated debt investments	4,680		100		13,890		1,226
Preferred equity	11,116		11,806		9,966		8,196
Common equity, warrants and other	11,537		82,908		12,989		91,000
Total Portfolio Company Investments	$	332,198	$	373,958	$	372,403	$	412,058
Number of portfolio companies	54		54		63		63

As of September 30, 2023, approximately 99% and 61% of our loan portfolio and total portfolio, respectively, consisted of senior secured loans, based on fair value. We believe the seniority of our debt investments in the borrowers’ capital structures may provide greater downside protection against adverse economic changes, including those caused by the impacts of the ongoing war between Russia and Ukraine, the current conflict in Israel, rising interest and elevated inflation rates, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility.

As of September 30, 2023, the three largest industries of our Portfolio Company Investments by fair value, were (1) Manufacturing (28.1%), (2) Health Care and Social Assistance (19.3%) and (3) Wholesale Trade (14.0%), totaling an aggregate of approximately 61.4% 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 September 30, 2023, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 16.9% and 45.2% of our total portfolio at fair value and our total net assets, respectively. The value of this investment is substantially comprised of unrealized appreciation of $76.9 million. A deterioration in the operating performance of the company or other factors underlying the valuation of this investment could have a material impact on our NAV.

Structured Finance Securities

The following table summarizes the composition of our Structured Finance Securities as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands):


	September 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Subordinated notes	$	69,581	$	52,980	$	65,870	$	53,807
Mezzanine debt	31,084		30,309		28,107		26,412
Loan accumulation facilities	—		—		8,500		8,299
Total Structured Finance Securities	$	100,665	$	83,289	$	102,477	$	88,518
Number of Structured Finance Securities	23		23		23		23

As of September 30, 2023, we had no non-performing Structured Finance Securities. Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%. Structured Finance Securities that have not been optionally redeemed and are in the process of liquidating have an effective yield of 0.0% as remaining residual distributions are anticipated to be recognized as a return of capital. As of September 30, 2023, we have one Structured Finance Security with a cost and fair value of $1.3 million and $0.1 million, respectively, that has been optionally redeemed.

Investment Activity

The following is a summary of our investment activity for the three and nine months ended September 30, 2023 (dollar amounts in millions):


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Investments in debt and equity securities	$	0.7	$	27.1
Investments in Structured Finance Securities	7.6		7.6
Total investment purchases and originations	$	8.3	$	34.7

Proceeds from principal payments	$	41.9	$	48.2
Proceeds from investments sold or redeemed	—		18.8
Proceeds from distributions received from portfolio investments	3.8		10.6
Total proceeds from principal payments, sales or redemptions, and distributions received from portfolio investments	$	45.7	$	77.6

Risk Monitoring

We categorize investments in the debt securities of portfolio companies into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see “Item 1. Business–Portfolio Review/Risk Monitoring” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 3, 2023. The following table shows the classification of our debt securities of portfolio companies, excluding Structured Finance Securities, by credit risk rating as of September 30, 2023 and December 31, 2022 (dollar amounts in thousands):


	Debt Investments
	September 30, 2023						December 31, 2022
Risk Category	Amortized Cost		Fair Value		% of Debt Investments, at Fair Value		Amortized Cost		Fair Value		% of Debt Investments, at Fair Value
1 (Low Risk)	$	—	$	—	—	%	$	—	$	—	—	%
2 (Below Average Risk)	—		—		—		—		—		—
3 (Average)	259,578		252,627		90.5		298,414		288,170		92.2
4 (Special Mention)	21,627		16,890		6.0		30,060		17,218		5.5
5 (Substandard)	21,724		9,581		3.4		16,294		7,352		2.3
6 (Doubtful)	6,616		146		0.1		4,680		122		—
7 (Loss)	—		—		—		—		—		—
	$	309,545	$	279,244	100.0	%	$	349,449	$	312,862	100.0	%

Non-Accrual Loans

Management reviews, for placement on non-accrual status, all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal, cash interest, or PIK interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid interest is reversed. Additionally, Net Loan Fees are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments and, in the judgment of management, the investments are estimated to be fully collectible as to all principal and interest. For the three months ended September 30, 2023, loans with an aggregate amortized cost and fair value of $11.8 million and $6.4 million, respectively, were placed on non-accrual status. The aggregate amortized cost and fair value of loans on non-accrual status was $39.2 million and $16.7 million, respectively, as of September 30, 2023, and $36.5 million and $11.2 million, respectively, as of December 31, 2022.

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, 2022, filed on March 3, 2023. 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 Securities. This approach differs from our historical investment concentration in that we now also focus on the debt of larger U.S. companies and Structured Finance Securities. Moreover, as a BDC and a RIC, we are also 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 September 30, 2023 and June 30, 2023 and comparison of the nine months ended September 30, 2023 and 2022

Consolidated operating results for the three months ended September 30, 2023 and June 30, 2023, and the nine months ended September 30, 2023 and 2022 are as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
Investment income
Interest income:
Cash interest income	$	10,962	$	10,511	$	31,171	$	23,316
PIK interest income	170		214		610		431
Net Loan Fee amortization	420		409		1,238		1,318
Accretion of interest income on CLO subordinated notes	2,653		2,879		8,534		7,647
Other interest income	86		88		232		26
Total interest income	14,291		14,101		41,785		32,738




Dividend income:
Cash dividends	11		89		649		812
Preferred equity PIK dividends	323		245		804		230
Total dividend income	334		334		1,453		1,042
Fee income:
Syndication fees	—		60		96		393
Prepayment and other fees	26		31		126		573
Total fee income	26		91		222		966
Total investment income	14,651		14,526		43,460		34,746
Total expenses	9,261		9,403		27,997		21,121
Net investment income	5,390		5,123		15,463		13,625
Net loss on investments	(3,395)		(7,087)		(11,607)		(23,502)
Loss on extinguishment of debt	(194)		—		(213)		(144)
Net increase (decrease) in net assets resulting from operations	$	1,801	$	(1,964)	$	3,643	$	(10,021)

Investment Income

For the three months ended September 30, 2023, total investment income increased to $14.7 million from $14.5 million in the prior quarter, primarily due to an increase in total interest income of $0.2 million.

Interest income increased $0.2 million during the three months ended September 30, 2023 compared to the prior quarter, primarily due to an increase of $0.5 million in cash interest income, partially offset by a decrease of $0.2 million in accretion of interest income on Structured Finance Securities. The increase in cash interest income was primarily due to non-recurring interest income recognized on the pay off of a loan accumulation facility.

Fee income is primarily comprised of unused fees, prepayment fees and syndication fees that generally result from periodic transactions rather than from holding portfolio investments, and are considered non-recurring. We receive syndication fees on investments where OFS Advisor sources, structures, and arranges the lending group. For the three months ended September 30, 2023, total fee income decreased $0.1 million compared to the prior quarter due to no syndication fees recognized during the current quarter.

Expenses

Operating expenses for the three months ended September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023 and 2022, are presented below (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
Interest expense	$	4,913	$	5,011	$	14,798	$	12,224
Management fee	1,796		1,883		5,573		6,062
Income Incentive Fee	1,348		1,280		3,866		1,093
Capital Gains Fee	—		—		—		(1,916)
Professional fees	397		429		1,262		1,155
Administration fee	380		440		1,302		1,309
Other expenses	427		360		1,196		1,194
Total expenses	$	9,261	$	9,403	$	27,997	$	21,121

Comparison of the three months ended September 30, 2023 and June 30, 2023

Interest expense for the three months ended September 30, 2023 decreased $0.1 million compared to the prior quarter, primarily due to a decrease in our average outstanding debt balance. During the three months ended September 30, 2023, we redeemed $14.0 million of SBA debentures and reduced the total amount outstanding under the BNP Facility.

Comparison of the nine months ended September 30, 2023 and 2022

Interest expense for the nine months ended September 30, 2023 increased $2.6 million compared to the corresponding period in the prior year, primarily due to the increase in the weighted average effective interest rate on our total outstanding debt to 5.9% compared to 4.5% during the nine months ended September 30, 2022.

Management fee expense for the nine months ended September 30, 2023 decreased $0.5 million compared to the corresponding period in the prior year, primarily due to a decrease in the average quarterly portfolio fair value to $488.0 million from $532.1 million.

Incentive fees for the nine months ended September 30, 2023 increased $4.7 million compared to the corresponding period in the prior year, partially due to an increase of $2.8 million in the Income Incentive Fee during the current year primarily driven by an increase in interest income related to rising interest rates. In addition, during the nine months ended September 30, 2022, there was a full reversal of a previously accrued Capital Gains Fee as a result of the reduction in net unrealized appreciation on the investment portfolio.

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 September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023 and 2022, were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
Senior secured debt	$	(1,554)	$	1,042	$	(1,954)	$	(15,729)
Subordinated debt	(16)		(13)		(1,126)		(5,487)
Preferred equity	674		170		2,474		3,462
Common equity, warrants and other	(5,870)		(4,154)		(7,526)		6,466
Structured Finance Securities	3,253		(4,291)		(3,421)		(12,600)
Income tax benefit (expense) on net realized investment gains	118		—		(54)		365
Deferred tax benefit	—		159		—		21
Total net loss on investments	$	(3,395)	$	(7,087)	$	(11,607)	$	(23,502)

Net gain (loss) on investments for the three months ended September 30, 2023 and June 30, 2023

Three months ended September 30, 2023

For the three months ended September 30, 2023, we recognized a net loss on investments of $3.4 million, primarily due to net unrealized depreciation of $6.8 million on our debt and equity investments, partially offset by net unrealized appreciation of $3.3 million on our Structured Finance Securities.

During the three months ended September 30, 2023, our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized depreciation of $5.7 million.

Three months ended June 30, 2023

For the three months ended June 30, 2023, we recognized a net loss on investments of $7.1 million, primarily due to unrealized depreciation of $4.3 million and $2.7 million on our Structured Finance Securities and equity securities, respectively. For the three months ended June 30, 2023, our loan portfolio experienced net gains of $1.0 million.

During the three months ended June 30, 2023, our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized depreciation of $2.7 million.

During the three months ended June 30, 2023, we wrote-off the remainder of our non-accrual loan and equity investment in Eblens Holdings, Inc., resulting in a realized loss of $10.5 million, of which $9.0 million was recognized in prior fiscal years, with $0.4 million recognized during the three months ended June 30, 2023.

Net gain (loss) on investments for the nine months ended September 30, 2023 and September 30, 2022

Nine months ended September 30, 2023

During the nine months ended September 30, 2023, our portfolio experienced net losses of $11.6 million, primarily due to net unrealized depreciation of $6.7 million and $3.4 million on our common equity, warrant and other investments and Structured Finance Securities, respectively.

During the nine months ended September 30, 2023, our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized depreciation of $8.4 million.

Nine months ended September 30, 2022

During the nine months ended September 30, 2022, our portfolio experienced unrealized depreciation of $20.0 million and $12.6 million on our debt investments and Structured Finance Securities, respectively, primarily due to widening of liquid credit market spreads. These net losses were partially offset by unrealized appreciation of $16.5 million on our common equity investment in Pfanstiehl Holdings, Inc.

Loss on Extinguishment of Debt

Nine months ended September 30, 2023 and 2022

During the nine months ended September 30, 2023 and 2022, we redeemed SBA debentures of $19.0 million and $19.0 million, respectively, and, as a result, we recognized losses on extinguishment of debt of $0.2 million and $0.1 million, respectively, related to the acceleration of unamortized deferred borrowing costs on the redeemed debentures.

Non-GAAP Financial Measure – Adjusted Net Investment Income

On a supplemental basis, we disclose Adjusted NII (including on a per share basis), which is a financial measure calculated and presented on a 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 is positive from the date of the election to be a BDC through the reporting date. 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 the 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 September 30, 2023 and June 30, 2023 and nine months ended September 30, 2023 and 2022, respectively (dollar amounts in thousands, except per share data):


	Three Months Ended								Nine Months Ended September 30,
	September 30, 2023				June 30, 2023				2023				2022
	(000's)		Per Share		(000's)		Per Share		(000's)		Per Share		(000's)		Per Share
Net investment income	$	5,390	$	0.40	$	5,123	$	0.38	$	15,463	$	1.15	$	13,625	$	1.01
Capital Gains Fee	—		—		—		—		—		—		(1,916)		(0.14)
Adjusted NII	$	5,390	$	0.40	$	5,123	$	0.38	$	15,463	$	1.15	$	11,709	$	0.87

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

As of September 30, 2023, we held cash of $15.9 million, which includes $8.4 million held by SBIC I LP, our wholly owned SBIC, and $4.0 million held by OFSCC-FS. Our use of cash held by SBIC I LP may be restricted by SBA regulations, 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 nine months ended September 30, 2023, the Parent received return of capital and READ distributions from SBIC I LP of $2.5 million and $4.5 million, respectively. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility. During the nine months ended September 30, 2023, the Parent received $8.8 million in cash distributions from OFSCC-FS. As of September 30, 2023, cash available to be distributed from SBIC I LP and OFSCC-FS were $4.1 million and $-0- million, respectively.

As of September 30, 2023, we had an unused commitment of $25.0 million under our PWB Credit Facility, as well as an unused commitment of $58.9 million under our BNP Facility, both of which are subject to a borrowing base requirements and other covenants. Based on our regulatory asset coverage ratio as of September 30, 2023, we could access approximately $70.2 million of our unused lines of credit, subject to the provisions of the borrowing bases as of any borrowing date, and remain in compliance with asset coverage ratio requirements.

The Parent may make unsecured loans to SBIC I LP, of which the aggregate 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 September 30, 2023.

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 Securities, 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 lines of credit. These principal sources and uses of cash and liquidity are presented below (in thousands):


	Nine Months Ended September 30,
	2023		2022
Cash from net investment income(1)	$	12,638	$	8,240
Net (purchases and originations) / repayments and sales of portfolio investments(1)	34,365		(29,465)
Net cash provided by (used in) operating activities	47,003		(21,225)

Distributions paid to stockholders(2)	(13,398)		(11,418)
Net borrowings (repayments) under revolving lines of credit	(13,600)		22,900
Repayments of SBA debentures	(19,000)		(19,000)


Other financing activities	—		(1,253)
Net cash used in financing activities	(45,998)		(8,771)
Net increase (decrease) in cash	$	1,005	$	(29,996)

(1) Net purchases and originations/repayments and sales of portfolio investments includes the purchase and origination of portfolio investments, proceeds from principal payments on portfolio investments, proceeds from sale or redemption of portfolio investments, changes in receivable for investments sold, payable from investments purchased as reported in our statements of cash flows, as well as the excess of proceeds from distributions received from Structured Finance Securities over accretion of interest income on Structured Finance Securities. Cash from net investment income includes all other cash flows from operating activities reported in our statements of cash flows.

(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 increased $4.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to an increase of $5.3 million in our cash net interest margin.

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

During the nine months ended September 30, 2023, net purchases and originations of portfolio investments of $34.4 million were primarily due to $69.1 million of cash we received from amortized cost repayments, sales on our portfolio investments and the net proceeds from distributions received from Structured Finance Securities and accretion of interest income on Structured Finance Securities, partially offset by $34.7 million of cash we used to purchase portfolio investments. During the nine months ended September 30, 2022, net purchases and originations of portfolio investments of $29.5 million were primarily due to $153.7 million of cash we used to purchase portfolio investments, partially offset by $124.2 million of cash we received from amortized cost repayments, sales on our portfolio investments and the net proceeds from distributions received from Structured Finance Securities and accretion of interest income on Structured Finance Securities. 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 September 30, 2023 and December 31, 2022, SBIC I LP had outstanding debentures of $31.9 million and $50.9 million, respectively.

On a stand-alone basis, as of September 30, 2023 and December 31, 2022, SBIC I LP held $152.3 million and $176.5 million in total assets, respectively, which accounted for approximately 32% and 34% of the Company’s total consolidated assets, respectively.

As part of our plans to focus on providing first lien senior secured loans to larger borrowers, which we believe will improve our overall risk profile, SBIC I LP is repaying over time 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. During the nine months ended September 30, 2023, SBIC I LP redeemed $19.0 million of SBA debentures that were contractually due March 1, 2025.

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 PWB Credit Facility 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.

On December 15, 2022, we amended the PWB Credit Facility to: (i) reduce the maximum amount available under the PWB Credit Facility from $35.0 million to $25.0 million; and (ii) eliminate the No Net Losses covenant, which restricted net losses (defined as income after adjustments to the investment portfolio for gains and losses, realized and unrealized, also shown as net increase (decrease) in net assets resulting from operations) in more than two quarters during the prior four quarters then ended.

As of September 30, 2023, we had $-0- outstanding and an unused commitment of $25.0 million under the PWB Credit Facility, subject to a borrowing base and other covenants. As of September 30, 2023, the effective interest rate on the PWB Credit Facility was 8.80%.

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 September 30, 2023, we were in compliance in all material respects with the applicable covenants under the PWB Credit Facility.

On July 25, 2023, Banc of California and Pacific Western Bank announced the signing of a definitive merger agreement. It is uncertain whether we will be able to extend the PWB Credit Facility or negotiate a new facility with the new entity, or an alternative lender, which could impact our future ability to access liquidity and could have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders.

Unsecured Notes

The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness. Because the Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness, including,

without limitation, borrowings under the PWB Credit Facility. As of September 30, 2023 and December 31, 2022, we had $180.0 million in Unsecured Notes.

In order to, among other things, reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase the Unsecured Notes for cash in open market purchases and/or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity, prospects for future access to capital, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.

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 $91.1 million was drawn as of September 30, 2023. Borrowings under the BNP Facility bear interest based on SOFR for the relevant interest period, plus an applicable spread (subject to an effective floor of 2.65%). The BNP Facility will mature on the earlier of June 20, 2027 or upon certain other events defined in the credit agreement which may result in accelerated maturity. Borrowings under the BNP Facility are secured by substantially all of the assets held by OFSCC-FS. As of September 30, 2023, we were in compliance in all material respects with the applicable covenants under the BNP Facility.

On June 24, 2022, we amended the BNP Facility to, among other things: (i) extend the reinvestment period under the BNP Facility for three years from June 20, 2022 to June 20, 2025; (ii) extend the maturity date under the BNP Facility from June 20, 2024 to June 20, 2027; (iii) convert the benchmark interest rate from LIBOR to SOFR; (iv) increase the top two Moody’s Industry concentrations from 15% to 17.5% and 20%; (v) increase the applicable margin by 0.40% on all classes of loans; and (vi) increase the applicable margin floor from 1.925% to 2.65%.

As of September 30, 2023, the effective interest rate on the BNP Facility was 8.67% and the unused commitment under the facility was $58.9 million. On a stand-alone basis, as of September 30, 2023 and December 31, 2022, OFSCC-FS held approximately $160.2 million and $173.7 million in total assets, respectively, which accounted for approximately 34% 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 Securities and other non-qualifying assets, consistent with our investment strategy. As of September 30, 2023, approximately 80% of our investments were qualifying assets.

BDCs are generally required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities to total senior securities. We received an exemptive order from the SEC to permit us to exclude the debt of SBIC I LP guaranteed by the SBA from the definition of Senior Securities in the statutory asset coverage ratio under the 1940 Act, which limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate the need to raise additional capital from various sources, including the equity markets and the securitization or other debt-related markets, which may or may not be available on favorable terms, if at all.

On May 3, 2018, our Board, including a required majority (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our minimum required asset coverage ratio decreased from 200% to 150%, effective May 3, 2019.

On May 22, 2018, the Board authorized the Stock Repurchase Program under which we could acquire up to $10.0 million of our outstanding common stock through the two-year period ending May 22, 2020. On May 4, 2020 and May 3, 2022, the Board extended the Stock Repurchase Program for additional two-year periods. Under the extended Stock Repurchase Program, we are authorized to repurchase shares in open-market transactions, including through block purchases, depending on prevailing market conditions and other factors. We expect the Stock Repurchase Program to be in place through May 22, 2024, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets 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. During the nine months ended September 30, 2023, we did not make any repurchases of common stock on the open market under the Stock Repurchase Program. As of September 30, 2023, the approximate dollar value of shares remaining that may be purchased under the program was $9.6 million.

As of September 30, 2023, the aggregate amount outstanding of the senior securities issued by us was $303.0 million, for which our asset coverage was 163%. The Small Business Administration debentures are not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC effective November 26, 2013. The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.

As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if the Board determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale. On July 19, 2023, 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.

We continue to monitor the instability in the current banking environment arising from recent bank failures. If the banks and financial institutions with whom we have credit facilities enter into receivership, undergo consolidation or become insolvent in the future, our liquidity may be reduced significantly. At various times, our cash balances at third-party financial institutions exceed the federally insured limit. Our cash balances are retained in custodian accounts with U.S. Bank N.A and Citibank N.A., and we do not believe they are exposed to any significant credit risk. We continue to monitor our portfolio and believe the deposit risk and counterparty risk to be minimal.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

As of September 30, 2023, we had $15.9 million of cash and cash equivalents, as well as $25.0 million and $58.9 million of unfunded commitments under our PWB Credit Facility and BNP Facility, respectively, to meet our short-term contractual obligations. As of September 30, 2023, we had $14.1 million in outstanding commitments to fund portfolio investments under various undrawn revolvers and other credit facilities. Long-term contractual obligations, such as our BNP Facility that matures in 2027 and has $91.1 million outstanding as of September 30, 2023, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $154.4 million as of September 30, 2023. The OFSCC-FS portfolio includes broadly syndicated loans that can be sold over a relatively short period to generate cash. 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.

As of September 30, 2023, we have $31.9 million of outstanding SBA debentures that mature in 2025, which we may repay prior to their maturity dates by using proceeds from investment repayments. As of September 30, 2023, the SBIC I LP investment portfolio had a fair value of $143.3 million.

As of September 30, 2023, we continue to believe our $303.0 million of debt financing, of which 89% contractually matures in 2026 and beyond and 70% carries fixed interest rates, affords us operational flexibility.

Off-Balance Sheet Arrangements

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 on 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. 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 and incur significant realized losses on our invested capital.

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 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, during the year, we may pay a special 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. We may choose to retain a portion of our taxable income in any year and pay the 4% U.S. federal excise tax on the retained amounts. Each year, a statement on Form 1099-DIV identifying the source of the distribution is mailed to the Company’s stockholders.

Recent Developments

On October 31, 2023, our Board declared a distribution of $0.34 per share for the fourth quarter of 2023, payable on December 29, 2023 to stockholders of record as of December 22, 2023.

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 war between Russia and Ukraine, the current conflict in Israel, rising interest and elevated inflation rates, ongoing supply chain and labor market disruptions, instability in the U.S. and international banking systems and the risk of recession or a shutdown of U.S. government services has introduced significant volatility in the financial markets, and the effects of this volatility has 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, 2022, filed on March 3, 2023 and “Part II — Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed on May 5, 2023 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed on August 4, 2023.

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 OFS Advisor, as valuation designee, based, in part, on independent third-party valuation firms that have been engaged at the direction of OFS Advisor 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 nine months ended September 30, 2023 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 elevated inflation rates may affect both our cost of funding and the valuation of our investment portfolio. As of September 30, 2023, 94% of our loan portfolio, at fair value, bore interest at floating interest rates and contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis.

Our outstanding SBA debentures and Unsecured Notes bear interest at fixed rates. As of September 30, 2023, our PWB Credit Facility and BNP Facility have floating interest rate provisions based on the Prime Rate and SOFR, respectively.

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates as of September 30, 2023. As of September 30, 2023, 1-month and 3-month SOFR were 5.32% and 5.40%, respectively, and certain loan contracts in our investment portfolio have not reset to the current market rate. Assuming that the interim and unaudited consolidated balance sheet as of September 30, 2023 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	$	344	$	(228)	$	116
50	1,100		(456)		644
75	1,857		(683)		1,174
100	2,613		(911)		1,702
125	3,369		(1,139)		2,230


Basis point decrease	Interest income		Interest expense		Net change
25	$	(1,168)	$	228	$	(940)
50	(1,924)		456		(1468)
75	(2,681)		683		(1,998)
100	(3,437)		911		(2,526)
125	(4,193)		1,139		(3,054)

Credit Risk

We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. As of September 30, 2023 and December 31, 2022, we held our cash balances with third-party financial institutions and such balances are in excess of Federal Deposit Insurance Corporation insured limit. We seek to mitigate this exposure by monitoring the credit standing of these financial institutions.

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 September 30, 2023. 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 September 30, 2023, 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

During the quarter ended September 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are 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 September 30, 2023. 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, 2022 (the “Annual Report on Form 10-K”), filed on March 3, 2023, and in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “First Quarter 10-Q”), filed on May 5, 2023 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed on August 4, 2023 (the “Second Quarter 10-Q”), which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K, the First Quarter 10-Q and Second Quarter 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K, the First Quarter 10-Q and the Second Quarter 10-Q. The risks previously disclosed in the Annual Report on Form 10-K, the First Quarter 10-Q and Second Quarter 10-Q 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.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Sales of Unregistered Securities, Use of Proceeds

None.

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. As of September 30, 2023, the approximate dollar value of shares remaining that may be purchased under the program was $9.6 million.

During the three months ended September 30, 2023, the Company did not make any repurchases of its common stock on the open market under the Stock Repurchase Program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) Not applicable.

(b) Not applicable.

(c) During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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 Rules 13a-14 and 15d-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 Rules 13a-14 and 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†

101

Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)


*			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: November 2, 2023	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