Overview

OFS Capital Corporation is a business development company that provides financing solutions to middle-market companies in the United States. The company’s financial performance for the three and nine months ended September 30, 2025 is summarized below.

Financial Highlights

OFS Capital’s net asset value (NAV) per common share decreased from $10.91 at June 30, 2025 to $10.17 at September 30, 2025. This was primarily due to a net loss on investments of $0.58 per share and the company’s quarterly distribution of $0.34 per share exceeding its quarterly net investment income of $0.22 per share.

For the quarter ended September 30, 2025, total investment income increased slightly to $10.6 million, up from $10.5 million in the prior quarter. This was mainly due to an increase in non-recurring income, partially offset by a decrease in cash interest income.

OFS Capital’s total outstanding debt decreased from $243.4 million at June 30, 2025 to $239.2 million at September 30, 2025. However, the company’s weighted-average debt interest costs increased to 6.67% in the third quarter, up from 6.21% in the prior quarter, primarily due to refinancing a portion of its lower-yielding debt.

Investment Performance

For the quarter ended September 30, 2025, OFS Capital recognized a net loss on investments of $7.8 million, consisting of a $4.6 million net realized loss and $3.1 million in net unrealized depreciation. The net realized loss was mainly due to the sale of a debt investment, while the net unrealized depreciation was primarily attributable to the company’s common equity investment in Pfanstiehl Holdings, Inc.

As of September 30, 2025, OFS Capital had non-accrual loans with an aggregate fair value of $23.1 million, or 6.2% of its total investments at fair value. This included loans to BayMark Health Services, Inc. that were placed on non-accrual status during the quarter.

The company’s asset coverage ratio of 157% as of September 30, 2025 exceeded the minimum requirement of 150% under the Investment Company Act of 1940. OFS Capital remained in compliance with all applicable covenants under its credit facilities and unsecured notes.

Liquidity and Capital Resources

As of September 30, 2025, OFS Capital had $5.0 million in cash and cash equivalents, including $2.5 million held by its wholly-owned subsidiary, OFSCC-FS. The company had an unused commitment of $25.0 million under its Banc of California Credit Facility, subject to the terms of the borrowing base and other covenants.

However, the reinvestment period of the OFSCC-FS’s BNP Facility expired on September 30, 2025, terminating the ability to access the unused commitment of that facility. If OFS Capital is unable to enter into a new credit facility, its short-term liquidity could be constrained.

As of September 30, 2025, OFS Capital had $239.2 million of outstanding debt, with a weighted-average effective interest rate of 7.03%. Approximately 62% of the company’s debt matures in more than two years, and 75% is unsecured.

During the nine months ended September 30, 2025, OFS Capital generated $24.3 million in net cash from operating activities, which was used to fund $13.7 million in distributions to stockholders and $9.2 million in net repayments under its revolving credit facilities.

The company also issued $94.0 million of new unsecured notes with a weighted-average coupon of 7.63% and used the proceeds to redeem $94.0 million of its 4.75% unsecured notes due in 2026, in a leverage-neutral refinancing transaction.

Regulatory Considerations

As a business development company, OFS Capital is subject to various regulatory requirements, including maintaining at least 70% of its assets in qualifying investments, such as those in eligible private companies. As of September 30, 2025, approximately 81% of the company’s investments were qualifying assets.

OFS Capital’s Board of Directors has also authorized a stock repurchase program, under which the company can acquire up to $10.0 million of its outstanding common stock through May 2026. However, the company did not make any repurchases during the nine months ended September 30, 2025.

Outlook

OFS Capital’s financial performance in the third quarter of 2025 was mixed, with a decrease in NAV per share and a net loss on investments, partially offset by a slight increase in total investment income. The company’s liquidity position remains adequate, but could be impacted by the expiration of the reinvestment period for its OFSCC-FS BNP Facility.

Going forward, OFS Capital’s ability to generate consistent investment income and manage its portfolio risks will be crucial to its financial stability and ability to maintain its dividend payments to shareholders. The company’s success in refinancing its debt and accessing new sources of capital will also be important factors in determining its future performance.

Overall, OFS Capital’s third-quarter results highlight the challenges faced by business development companies in the current economic environment, but the company appears to be taking steps to strengthen its financial position and navigate these uncertainties.