OFS Capital Corp: Form 10-Q for the period ended Jun 30, 2025

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, 2024.

Overview

Key performance metrics per common share are presented below:

Our NAV per common share decreased to $10.91 at June 30, 2025 from $11.97 at March 31, 2025, due to a net loss on investments of $0.97 per common share and our quarterly distribution of $0.34 per common share exceeding our quarterly net investment income of $0.25 per common share.

For the quarter ended June 30, 2025, total investment income increased to $10.5 million from $10.3 million in the prior quarter, primarily due to an increase in non-recurring fee income of $0.1 million. See “—Results of Operations” for additional information.

Our total outstanding debt decreased from $248.1 million at March 31, 2025 to $243.4 million at June 30, 2025. For the quarter ended June 30, 2025, our weighted-average debt interest costs remained relatively stable at 6.21% compared to 6.29% for the quarter ended March 31, 2025. See “—Liquidity and Capital Resources” and “—Recent Developments” for additional details.

For the quarter ended June 30, 2025, we recognized a net loss on investments of $12.9 million due to net unrealized depreciation, net of taxes, of $8.7 million and a net realized loss of $4.2 million. For the quarter ended June 30, 2025, our net unrealized depreciation, net of taxes, of $8.7 million was primarily attributable to net unrealized depreciation of $7.8 million on our common equity investment in Pfanstiehl Holdings, Inc. For the quarter ended June 30, 2025, our net realized loss of $4.2 million was primarily due to a net realized loss of $4.0 million recognized upon the sale of certain Structured Finance Securities, which had been primarily recognized in prior periods. As of June 30, 2025, we had non-accrual loans with an aggregate fair value of $15.2 million, or 4.0% of our total investments at fair value. See “—Portfolio Composition and Investment Activity” for additional information.

As of June 30, 2025, our asset coverage ratio of 160% 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 June 30, 2025, we had unused commitments of $25.0 million under our Banc of California Credit Facility and $86.6 million under our BNP Facility, each of which is subject to a borrowing base and other covenants. As of June 30, 2025, we had unfunded commitments of $16.1 million to ten portfolio companies. See “—Liquidity and Capital Resources” for additional information.

On July 29, 2025, the Board declared a distribution of $0.34 per share for the third quarter of 2025, payable on September 30, 2025 to stockholders of record as of September 19, 2025.

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, 2024.

The following table illustrates the impact of our fair value measures if we selected the low or high end of the range of estimated values for all investments as of June 30, 2025 (dollar amounts in thousands):

(1) A majority of our investments are classified as Level 3 under ASC Topic 820. This means that our portfolio valuations are based on unobservable inputs and assumptions about how market participants would price the asset in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment and estimation.

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 and cash equivalents 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 advised or sub-advised by 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, 2025 and 2024, 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 (other than cash and cash equivalents but including assets purchased with borrowed amounts) 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 2025 calendar year on January 8, 2025.

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 the 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; (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies; (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing; and (4) the proposed investment by us would not benefit OFS Advisor, the other Affiliated Funds that are participating in the investment, or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the exemptive relief and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act.

In addition, we may file a new application for exemptive relief that, if granted, would supersede our existing Order and permit us to co-invest pursuant to a different set of conditions than those in our existing Order. 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” and “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” in our Annual Report on Form 10-K for the year ended December 31, 2024.

Portfolio Composition and Investment Activity

Portfolio Composition

As of June 30, 2025, the fair value of our debt investment portfolio totaled $211.3 million in 35 portfolio companies, of which approximately 85% and 15% were first lien and second lien debt investments, respectively. We also had equity investments in 15 portfolio companies with a fair value of approximately $98.9 million and 15 investments in Structured Finance Securities with a fair value of $72.6 million. As of June 30, 2025, we had unfunded commitments of $16.1 million to ten portfolio companies. Set forth in the tables and charts below is selected information with respect to our portfolio as of June 30, 2025 and December 31, 2024.

The following table presents our ten largest investments by issuer based on fair value as of June 30, 2025 (dollar amounts in thousands):

48

As of June 30, 2025, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 21.7% and 56.8% 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 $82.8 million. The valuation’s unobservable inputs incorporate discounts for the minority-interest and illiquid nature of the security; however, the valuation, in accordance with fair value concepts, does not directly factor in inputs related to a potential forced sale or non-orderly transaction that could be executed in the future, and that may be specific to the entity’s objectives, and are not representative of market-participant assumptions that would otherwise be utilized in an orderly transaction.

As of June 30, 2025, approximately 4.6% and 12.1% of our total portfolio at fair value and net assets, respectively, were comprised of Structured Finance Securities managed by a single adviser.

A deterioration or improvement in the operating performance of these portfolio investments, or other factors underlying the valuation of these investments, could have a material impact on our NAV.

Portfolio Yields

The following table presents weighted-average yield metrics for our portfolio as of June 30, 2025 and March 31, 2025:

(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-performing Structured Finance Securities.

For the three months ended June 30, 2025, the weighted-average performing income yield on interest-bearing investments increased to 13.6% from 13.4% during the prior quarter, primarily due to a 21 basis point increase in earned yields on our debt investments. As of June 30, 2025, 90% of our total loan portfolio, at fair value, consisted of variable rate investments, generally indexed to SOFR. See additional information under “Item 3. Quantitative and Qualitative Disclosures About Market Risk”.

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 June 30, 2025 and December 31, 2024 (dollar amounts in thousands):

(1) As of June 30, 2025 and December 31, 2024, first lien debt investments include unitranche investments (which are loans that combine both senior and subordinated debt, in a first lien position) with an amortized cost and fair value of $134.5 million and $125.5 million, respectively, and $128.1 million and $119.2 million, respectively.

As of June 30, 2025, 100% of our loan portfolio and 55% of our total portfolio consisted of first lien and second lien loans, based on fair value.

As of June 30, 2025, the three largest industries of our Portfolio Company Investments by fair value, were: (1) Manufacturing (35.3%); (2) Health Care and Social Assistance (20.3%); and (3) Administrative and Support and Waste Management and Remediation Services (6.8%), totaling an aggregate of approximately 62.4% of our Portfolio Company Investment portfolio. For a full summary of our investment portfolio by industry, see “Item 1—Financial Statements—Note 4.”

Structured Finance Securities

The following table summarizes the composition of our Structured Finance Securities as of June 30, 2025 and December 31, 2024 (dollar amounts in thousands):

Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%, as remaining residual distributions are anticipated to be recognized as a return of capital. As of June 30, 2025, the amortized cost and fair value of non-performing Structured Finance Securities were $2.4 million and $0.5 million, respectively.

During the six months ended June 30, 2025, we sold Structured Finance Securities for aggregate net proceeds of $8.5 million, resulting in an aggregate net realized loss of $5.7 million, of which $1.2 million was recognized during the six months ended June 30, 2025.

Investment Activity

The following is a summary of our investment activity for the three months ended June 30, 2025 and March 31, 2025, and the six months ended June 30, 2025 and 2024 (dollar amounts in thousands):

Risk Monitoring

We categorize debt investments 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, 2024, filed on March 4, 2025. The following table shows the classification of our debt investments, excluding Structured Finance Securities, by credit risk rating as of June 30, 2025 and December 31, 2024 (dollar amounts in thousands):

Non-Accrual Loans

Management reviews, for placement on non-accrual status, all loans and CLO mezzanine debt investments that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid cash interest is reversed. Additionally, Net Loan Fees are no longer recognized as of the date the loan is placed on non-accrual status. Depending upon management’s judgment, interest payments subsequently received on non-accrual investments may be recognized as interest income or applied as a reduction to amortized cost. 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, it is probable that the Company will collect all principal and interest from the investment.

As of June 30, 2025

The following table shows the classification of our debt investments on non-accrual status (dollar amounts in thousands):

For the three and six months ended June 30, 2025, no new loans were placed on non-accrual status.

As of December 31, 2024

The following table shows the classification of our debt investments on non-accrual status (dollar amounts in thousands):

For the three months ended December 31, 2024, we sold a second lien debt investment, which was previously on non-accrual status, resulting in a net realized loss of $1.9 million.

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, 2024, filed on March 4, 2025. 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. 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. 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 June 30, 2025 and March 31, 2025 and comparison of the six months ended June 30, 2025 and 2024

Consolidated operating results for the three months ended June 30, 2025 and March 31, 2025 and the six months ended June 30, 2025 and 2024 are as follows (in thousands):

Investment Income

Comparison of the three months ended June 30, 2025 and March 31, 2025

For the three months ended June 30, 2025, total investment income increased to $10.5 million from $10.3 million in the prior quarter, primarily due to an increase in non-recurring fee income of $0.1 million.

For the three months ended June 30, 2025, interest income and dividend income increased by $0.1 million compared to the prior quarter, primarily attributable to one additional accrual day.

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 June 30, 2025, we recognized syndication fee income of $0.1 million, compared to no syndication fees for the three months ended March 31, 2025.

Comparison of the six months ended June 30, 2025 and 2024

Total investment income for the six months ended June 30, 2025 decreased $4.6 million compared to the corresponding period in the prior year, primarily due to decreases in total dividend income of $2.4 million and total interest income of $2.3 million.

Expenses

Operating expenses for the three months ended June 30, 2025 and March 31, 2025, and the six months ended June 30, 2025 and 2024 are presented below (in thousands):

Comparison of the three months ended June 30, 2025 and March 31, 2025

Interest expense for the three months ended June 30, 2025 remained stable compared to the prior quarter.

Income Incentive Fees for the three months ended June 30, 2025 increased $0.5 million compared to the prior quarter, primarily due to an increase in net investment income return on net assets in the current quarter.

Comparison of the six months ended June 30, 2025 and 2024

Interest expense for the six months ended June 30, 2025 decreased $1.0 million compared to the corresponding period in the prior year, primarily due to a decrease in the average outstanding debt balance from $273.1 million during the corresponding period in the prior year to $248.5 million during the current year.

Net realized and unrealized gain (loss) on investments

Net loss on investments, inclusive of realized and unrealized gains (losses), by investment type for the three months ended June 30, 2025 and March 31, 2025, and the six months ended June 30, 2025 and 2024 were as follows (in thousands):

Net gain (loss) on investments for the three months ended June 30, 2025 and March 31, 2025

Three months ended June 30, 2025

For the three months ended June 30, 2025, we recognized a net loss on investments of $12.9 million, primarily due to net unrealized depreciation of $7.8 million on our common equity investment in Pfanstiehl Holdings, Inc. and net unrealized depreciation of $2.0 million on our debt investments, of which $1.7 million related to our non-accrual debt investments.

Three months ended March 31, 2025

For the three months ended March 31, 2025, we recognized a net loss on investments of $10.8 million, primarily comprised of net losses of $8.1 million on our debt investments, of which $3.9 million related to non-accrual debt investments, and net losses of $1.5 million on our Structured Finance Securities.

Net gain (loss) on investments for the six months ended June 30, 2025 and 2024

Six months ended June 30, 2025

For the six months ended June 30, 2025, we recognized a net loss on investments of $23.7 million, comprised of net unrealized depreciation of $17.1 million and net realized losses of $6.8 million. The net unrealized depreciation during the period was primarily due to depreciation of $6.3 million on our common equity investment in Pfanstiehl Holdings, Inc. and $5.6 million on our non-accrual debt investments.

Six months ended June 30, 2024

For the six months ended June 30, 2024, we recognized a net loss on investments of $7.8 million, comprised of net unrealized depreciation of $4.0 million and net realized losses of $3.5 million. The net loss during the period was primarily comprised of net unrealized depreciation of $5.8 million on our non-accrual debt investments offset, in part, by net unrealized appreciation of $4.0 million on our Structured Finance Securities.

Liquidity and Capital Resources

As of June 30, 2025, we held cash and cash equivalents of $10.2 million, which included $2.7 million held by OFSCC-FS. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility. During the six months ended June 30, 2025, the Parent received $4.9 million in cash distributions from OFSCC-FS.

As of June 30, 2025, we had an unused commitment of $25.0 million under our Banc of California Credit Facility, as well as an unused commitment of $86.6 million under our BNP Facility, both of which are subject to borrowing base requirements and other covenants. On June 18, 2025, OFSCC-FS executed an amendment to the BNP Facility to extend its reinvestment period to August 31, 2025, upon which the ability to access the unused commitment of the facility terminates. The BNP Facility is scheduled to mature on June 20, 2027. If we are unable to amend the BNP Facility to extend the reinvestment period or enter into a new credit facility, our short-term liquidity will be significantly reduced.

As of June 30, 2025, we had unfunded commitments of $16.1 million to ten portfolio companies.

As of June 30, 2025, the aggregate amount outstanding of the senior securities issued by us was $243.4 million, for which our asset coverage was 160%, exceeding our minimum asset coverage requirement of 150% under the 1940 Act. 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.

Sources and Uses of Cash

We generate operating cash flows from net investment income and the net proceeds from the 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):

(1) Cash from net investment income includes all other cash flows from operating activities reported in our statements of cash flows. 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 differences in proceeds from distributions received from Structured Finance Securities relative to accretion of interest income on Structured Finance Securities.

(2) We currently estimate that a portion of our distributions for the year ending December 31, 2025 will be characterized as a tax return of capital. 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

For the six months ended June 30, 2025, cash from net investment income of $6.0 million remained stable compared to the six months ended June 30, 2024.

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

During the six months ended June 30, 2025, net repayments and sales of portfolio investments of $12.2 million were primarily due to $36.9 million of cash we received from principal repayments, sales on our portfolio investments and the proceeds from distributions received from Structured Finance Securities, net of accretion of interest income on Structured Finance Securities, partially offset by $24.7 million of cash we used to purchase portfolio investments. During the six months ended June 30, 2024, net repayments and sales of portfolio investments of $16.5 million were primarily due to $28.8 million of cash we received from principal 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 $12.3 million of cash we used to purchase portfolio investments. See “—Portfolio Composition and Investment Activity—Investment Activity.”

Borrowings

As of June 30, 2025, we had $243.4 million of outstanding debt with a weighted-average effective interest rate of 6.13%.

SBA Debentures

On March 1, 2024, SBIC I LP fully repaid its outstanding SBA debentures totaling $31.9 million and, on April 17, 2024, surrendered its license to operate as a SBIC.

Banc of California Credit Facility

We are party to the BLA with Banc of California, as lender, to provide us with a senior secured revolving credit facility, or the Banc of California Credit Facility, which is available for general corporate purposes including investment funding and is scheduled to mature on February 28, 2026. The Banc of California Credit Facility currently bears interest at a variable Prime Rate plus a 0.25% margin, with a 5.00% floor, and an annual commitment fee of 0.50% based on the maximum principal amount of the facility. As of June 30, 2025, the effective interest rate on the Banc of California Credit Facility was 8.25%. The maximum availability of the Banc of California Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which typically excludes Structured Finance Securities and as otherwise specified in the BLA. The Banc of California Credit Facility is guaranteed by OFSCC-MB and secured by all of our and OFSCC-MB’s current and future assets, excluding assets held by OFSCC-FS and SBIC I LP and our partnership interests in SBIC I LP.

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 June 30, 2025, we were in compliance in all material respects with the applicable covenants under the Banc of California Credit Facility.

As of June 30, 2025, we had no outstanding indebtedness and an unused commitment of $25.0 million under the Banc of California Credit Facility, subject to a borrowing base and other covenants.

Unsecured Notes

As of June 30, 2025 and December 31, 2024, we had $180.0 million in outstanding 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 Banc of California Credit Facility and BNP Facility.

In order to, among other things, reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase the Unsecured Notes for cash in open market purchases and/or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity, prospects for future access to capital, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. During the six months ended June 30, 2025, no outstanding Unsecured Notes were repurchased.

As of June 30, 2025, the Unsecured Notes had the following terms and balances (dollar amounts in thousands):

(1) The weighted-average fixed cash interest rate on the Unsecured Notes as of June 30, 2025 was 4.81%.

(2) The effective interest rate on the Unsecured Notes includes deferred debt issuance cost amortization.

(3) We may redeem the Unsecured Notes Due February 2026 in whole or in part at any time, or from time to time. We may be required to pay a “make-whole” premium on redemptions dated prior to November 10, 2025. We may redeem the Unsecured Notes Due October 2028 in whole or in part at any time.

Subsequent to June 30, 2025, we caused notices to be issued to the holders of the Unsecured Notes Due February 2026

regarding the exercise of our option to redeem in aggregate $94.0 million of the issued and outstanding Unsecured Notes Due

February 2026. See “—Recent Developments” for additional information.

Subsequent to June 30, 2025, we closed the public offering of $69.0 million aggregate principal amount of our Unsecured Notes Due July 2028. See “—Recent Developments” for additional information.

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 $63.4 million was drawn as of June 30, 2025. 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 reinvestment period (and the ability to access the undrawn facility commitment) of the BNP Facility ends on August 31, 2025, unless extended. The BNP Facility is scheduled to mature on June 20, 2027. Borrowings under the BNP Facility are secured by substantially all of the assets held by OFSCC-FS. As of June 30, 2025, we were in compliance in all material respects with the applicable covenants under the BNP Facility.

On June 18, 2025, OFSCC-FS executed an amendment to the BNP facility to extend the reinvestment period under the BNP Facility from June 20, 2025 to August 31, 2025.

As of June 30, 2025, the effective interest rate on the BNP Facility was 8.27% and the unused commitment under the facility was $86.6 million, subject to a borrowing base and other covenants.

On a stand-alone basis, as of June 30, 2025 and December 31, 2024, OFSCC-FS held approximately $137.8 million and $151.0 million in total assets, respectively, which accounted for approximately 35% and 35% of our consolidated total 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 or available to us on favorable terms, if at all. 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 and incur a capital loss.

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. Investments in Structured Finance Securities are generally made in non-U.S. entities and therefore are generally deemed to be non-qualifying. As of June 30, 2025, approximately 80% of our investments were qualifying assets.

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, effective May 3, 2019, our minimum required asset coverage ratio decreased from 200% to 150%.

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 ended May 22, 2020. On each of May 4, 2020 and May 3, 2022, our Board extended the Stock Repurchase Program for additional two-year periods. On April 30, 2024, our Board extended the Stock Repurchase Program for the two-year period ending on May 22, 2026. 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, 2026, 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 six months ended June 30, 2025, we did not make any repurchases of common stock on the open market under the Stock Repurchase Program. As of June 30, 2025, the approximate dollar value of shares remaining that may be purchased under the program was $9.6 million.

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 30, 2025, 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 current banking environment. 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 and cash equivalent balances are retained in custodian accounts with U.S. Bank Trust Company, National Association and Citibank N.A., and we do not believe they are exposed to any significant credit risk.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

As of June 30, 2025, we had $10.2 million of cash and cash equivalents, as well unused commitments of $25.0 million under our Banc of California Credit Facility and $86.6 million under our BNP Facility, respectively, to meet our short-term contractual obligations, subject to contractual requirements and regulatory asset coverage requirements. The stated unused commitments on our credit facilities are each subject to a borrowing base and other covenants. As of June 30, 2025, we had $16.1 million in unfunded commitments to fund portfolio investments that can be funded with our current cash or credit facilities.

On June 18, 2025, OFSCC-FS executed an amendment to the BNP facility to extend the reinvestment period of the BNP Facility from June 20, 2025 to August 31, 2025, upon which the ability to access the unused commitment of the facility terminates. The BNP Facility is scheduled to mature on June 20, 2027. If we are unable to amend the BNP Facility to extend the reinvestment period or enter into a new credit facility, our short-term liquidity will be significantly reduced.

Long-term contractual obligations, such as our BNP Facility that matures in 2027 and had $63.4 million outstanding as of June 30, 2025, could be repaid by selling OFSCC-FS portfolio investments that have a fair value of $134.1 million as of June 30, 2025. A portion of the OFSCC-FS portfolio includes broadly syndicated loans in larger portfolio companies that generally can be sold over a relatively short period to generate cash. As of June 30, 2025, the broadly syndicated loan investments in the OFSCC-FS portfolio totaled $27.2 million at fair value. 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. 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.

As of June 30, 2025, we had $180.0 million of outstanding Unsecured Notes, of which $125.0 million matures on February 10, 2026. The Unsecured Notes Due February 2026 can be repaid by issuing additional senior securities to refinance the debt. If we refinance the Unsecured Notes Due February 2026 by issuing additional senior securities, current market rates for similar debt are higher than the stated rate of 4.75% on the Unsecured Notes Due February 2026. On July 23, 2025, we closed the public offering of $69.0 million aggregate principal amount of our 7.50% Unsecured Notes Due July 2028, which included $9.0 million of aggregate principal amount related to the underwriters’ option to cover overallotments, and on each of July 11, 2025 and July 22, 2025, we caused notices to be issued to the holders of our Unsecured Notes Due February 2026 regarding the exercise of our option to redeem in August 2025 an aggregate $94.0 million of the issued and outstanding Unsecured Notes Due February 2026. See “—Recent Developments” for additional information.

As of June 30, 2025, approximately 23% of our outstanding debt matures in more than two years and 74% of our outstanding debt carries fixed interest rates and is unsecured. The issuance of $69.0 million of our Unsecured Notes Due July 2028 on July 23, 2025 extended our debt maturities.

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 borrowing capacity under the Banc of California Credit Facility and BNP Facility.

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% 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. Distributions in excess of our 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. We currently estimate that a portion of our distributions for the year ending December 31, 2025 will be characterized as a tax return of capital. Return of capital distributions may permanently reduce our total net assets, and may require us to borrow funds or liquidate assets in order to cover the return of capital portion of the distribution. The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our estimated ICTI for the full year and distributions paid for the full year. Each year, a statement on Form 1099-DIV identifying the source of the distribution is mailed to our stockholders.

Recent Developments

Redemption of Unsecured Notes Due 2026

On July 11, 2025, we caused notices to be issued to the holders of the Unsecured Notes Due February 2026 regarding the exercise of our option to redeem on August 11, 2025 $25.0 million of the issued and outstanding amount of such notes, plus accrued interest. On July 22, 2025, we caused notices to be issued to the holders of the Unsecured Notes Due February 2026 regarding the exercise of our option to redeem on August 21, 2025 $69.0 million of the issued and outstanding amount of such notes, plus accrued interest. The Unsecured Notes Due February 2026 will be redeemed at the greater of (a) 100% of the principal amount of the Unsecured Notes Due February 2026 to be redeemed, or (b) the sum of the present value of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to each respective redemption date) on the Unsecured Notes Due February 2026 to be redeemed, discounted to each respective redemption date on a semi- annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus 50 basis points.

Issuance of Unsecured Notes Due July 2028

On July 23, 2025, we closed the public offering of $69.0 million aggregate principal amount of our Unsecured Notes Due July 2028, which included $9.0 million of aggregate principal amount related to the underwriters’ option to cover overallotments. The estimated net proceeds to us from the Unsecured Notes Due July 2028, after deducting underwriting fees of $1.4 million and estimated offering expenses of $0.3 million, was approximately $67.3 million. The Unsecured Notes Due July 2028 bear interest at a stated rate of 7.50% and will mature on July 31, 2028. We may redeem the Unsecured Notes Due July 2028 in whole or in part at any time, or from time to time, on or after July 31, 2026.

Declaration of a Distribution

On July 29, 2025, our Board declared a distribution of $0.34 per share for the third quarter of 2025, payable on September 30, 2025 to stockholders of record as of September 19, 2025.

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 escalated armed conflict and heightened regional tensions in the Middle East, interest rate and inflation rate changes, ongoing supply chain and labor market disruptions, including those as a result of strikes, work stoppages or accidents, the agenda of the U.S. presidential administration, including the impact of tariff enactment and tax reductions, trade disputes with other countries, 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, 2024, filed on March 4, 2025.

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 most portfolio investments 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 significantly 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 six months ended June 30, 2025 for more information relating to our investment valuation.

Interest Rate Risk

As of June 30, 2025, we held loans and mezzanine debt investments with an aggregate fair value of $202.0 million that bore interest at floating interest rates and contained interest rate reset provisions that adjust applicable interest rates to current rates on a periodic basis. The aggregate 100 basis point reduction in the U.S. Federal Reserve target federal funds rate enacted from September 2024 through December 2024 has resulted in our variable rate debt investments generating less interest income. Changes in interest rates, including potential additional interest rate reductions approved by the U.S. Federal Reserve, may impact our results of operations, cost of funding and the valuation of our investments. Additional reductions in interest rates would reduce our interest income, which could in turn decrease our net investment income if such decreases in base interest rates are not offset by other factors, such as increases in the spread over such base interest rates or decreases in our operating expenses.

Our Unsecured Notes bear interest at fixed rates, which may result in net interest margin compression in a period of falling rates. In addition, subsequent to June 30, 2025, we refinanced $69.0 million of our 4.75% Unsecured Notes due February 2026 with 7.50% Unsecured Notes due July 2028. The refinancing of this debt to a higher interest rate will result in net interest margin compression in future periods. As of June 30, 2025, our Banc of California Credit Facility and BNP Facility had floating interest rate provisions based on the applicable reference rates.

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates as of June 30, 2025. As of June 30, 2025, 1-month and 3-month SOFR were 4.32% and 4.29%, respectively. Assuming that the interim and unaudited consolidated balance sheet as of June 30, 2025 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).

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Although we believe that the foregoing analysis is indicative of our net interest margin sensitivity to interest rate changes as of June 30, 2025, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio, and other business developments, including borrowings under our credit facilities, that could affect net increase in net assets resulting from operations, or net income. The preceding table does not reflect the impact of the subsequent partial refinancing of our 4.75% Unsecured Notes due February 2026. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

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 June 30, 2025. 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 June 30, 2025, 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 June 30, 2025, 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.

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, 2024 (the “Annual Report on Form 10-K”), filed on March 4, 2025, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K. The risks previously disclosed in the Annual Report on Form 10-K should be read together with the other information disclosed elsewhere in this Quarterly Report on Form 10-Q and our other reports filed with the SEC.