OFS Capital Refinances $69M Note Amid Macro Uncertainty, Focuses on Monetizing Pfanstiehl Equity.

OFS Capital has outlined a $69M note refinancing and continued focus on monetizing Pfanstiehl equity despite macro uncertainty. The company's net investment income was stable at $0.25 per share, but net asset value dropped. Chairman and CEO Bilal Rashid highlighted the stable income but acknowledged the challenging environment.

OFS Capital (OFS) reported its second-quarter 2025 earnings, showcasing a stable net investment income of $0.25 per share despite a challenging macroeconomic environment. The company's net asset value (NAV) per share decreased by 9% to $10.91, primarily due to a $7.8 million unrealized depreciation on the Pfanstiehl Holdings equity investment [1].

Chairman and CEO Bilal Rashid highlighted the stable income but acknowledged the difficulties posed by economic headwinds, including uncertainty surrounding tariffs and U.S. monetary policy [1]. Rashid emphasized the company's long-term focus on improving net investment income by rotating noninterest-earning equity positions into interest-earning assets, particularly through the monetization of its minority equity investment in Pfanstiehl [1].

OFS Capital initiated a refinancing process for its $125 million unsecured notes maturing in February 2026. In July, the company completed a $69 million unsecured note offering in a leverage-neutral transaction. The new notes mature in July 2028, carry a 7.5% coupon, and have a 1-year no-call provision. The company intends to pay off a total of $94 million in August [1].

Despite the stable net investment income, the company's total investment income increased by approximately 2% to $10.5 million, driven by nonrecurring fee income and a modest yield improvement. Total expenses rose by approximately 5% to $7.2 million, leading to a slight decline in net investment income [1]. The regulatory asset coverage ratio was 160%, down 5 percentage points sequentially [1].

The company maintained its quarterly distribution at $0.34 per share for Q3 2025, with CFO Kyle Spina noting that the level of the distribution is being evaluated in light of the current macroeconomic environment and the new cost of debt capital [1]. Rashid expressed confidence in the portfolio and adviser capabilities, stating that the company is focused on maintaining a consistent dialogue with its portfolio companies and supporting them with additional capital if appropriate [1].

OFS Capital's stock saw a 3.13% decline in regular trading, closing at $8.48, despite beating earnings per share (EPS) forecasts by 4.17%. The decline can be attributed to broader market concerns and a 9% decrease in NAV [2]. The company has maintained dividend payments for 13 consecutive years, with four straight years of dividend increases [2].

Overall, OFS Capital demonstrated resilience in a challenging economic environment, with a slight increase in total investment income and a focus on improving net investment income through strategic asset rotation and monetization efforts.

References:
[1] https://seekingalpha.com/news/4476668-ofs-capital-outlines-69m-note-refinancing-and-continued-focus-on-monetizing-pfanstiehl-equity
[2] https://www.investing.com/news/transcripts/earnings-call-transcript-ofs-capital-q2-2025-beats-eps-forecast-amid-market-concerns-93CH-4166362