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.

Net Asset Value and Investment Income

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, such as cash dividends, acceleration of loan fee amortization, and other interest income, partially offset by a decrease in cash interest income.

Expenses and Net Investment Income

Operating expenses for the third quarter of 2025 were $7.6 million, up from $7.2 million in the prior quarter. This increase was primarily driven by higher interest expense, which rose by $0.7 million due to the refinancing of a portion of the company’s unsecured notes.

Net investment income for the third quarter of 2025 was $2.9 million, down from $3.3 million in the prior quarter. The decrease was mainly attributable to the higher interest expense.

For the nine months ended September 30, 2025, net investment income was $9.7 million, down from $12.6 million in the same period of the prior year. This decline was primarily due to a $3.3 million decrease in total interest income and a $1.8 million decrease in total dividend income.

Net Realized and Unrealized Gains (Losses) on Investments

OFS Capital recognized a net loss on investments of $7.8 million for the third quarter of 2025, compared to a net loss of $12.9 million in the prior quarter. The current quarter’s net loss was primarily driven by $4.5 million in net unrealized depreciation on the company’s common equity investment in Pfanstiehl Holdings, Inc. and $4.2 million in net losses on the company’s Structured Finance Securities.

For the nine months ended September 30, 2025, the company recorded a net loss on investments of $31.4 million, which included $20.0 million in net unrealized depreciation and $11.4 million in net realized losses. The net unrealized depreciation was largely due to a $10.8 million decline in the value of the Pfanstiehl Holdings investment, as well as $4.0 million in depreciation on non-accrual debt investments. The net realized losses were primarily attributable to $6.9 million in losses on the company’s Structured Finance Securities.

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 OFSCC-FS subsidiary. 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.

The company’s total outstanding debt decreased from $243.4 million at June 30, 2025 to $239.2 million at September 30, 2025. OFS Capital’s weighted-average debt interest costs increased from 6.21% in the second quarter to 6.67% in the third quarter, primarily due to the refinancing of a portion of its 4.75% unsecured notes with new unsecured notes bearing interest at 7.50% and 8.00%.

During the nine months ended September 30, 2025, the company generated $24.3 million in net cash from operating activities, which included $6.9 million in cash from net investment income and $17.3 million in net repayments and sales of portfolio investments. The company used $25.3 million in net cash for financing activities, including $13.7 million in distributions paid to stockholders and $9.2 million in net repayments under its revolving credit facilities.

Portfolio Composition and Investment Activity

As of September 30, 2025, OFS Capital’s investment portfolio had a fair value of $370.2 million, consisting of $205.6 million in debt investments, $98.4 million in equity investments, and $66.2 million in Structured Finance Securities. The company’s debt investment portfolio was primarily composed of first lien (88%) and second lien (12%) loans.

During the nine months ended September 30, 2025, the company made $41.0 million in new investments and received $60.1 million in principal repayments, sales, and distributions from its portfolio investments. As of September 30, 2025, the company had $18.3 million in unfunded commitments to 11 portfolio companies.

The company’s largest investment was its $78.5 million common equity stake in Pfanstiehl Holdings, Inc., which accounted for 21.2% of the total portfolio at fair value and 57.6% of the company’s net assets. The valuation of this investment is subject to significant unobservable inputs and could have a material impact on OFS Capital’s NAV if the operating performance of Pfanstiehl Holdings changes.

Non-Accrual Loans and Risk Monitoring

As of September 30, 2025, OFS Capital had non-accrual loans with an aggregate fair value of $23.1 million, or 6.2% of the company’s total investments at fair value. This included first lien debt investments of $13.1 million and second lien debt investments of $10.0 million.

The company categorizes its debt investments into seven risk categories, with the majority (69.4%) classified as “Average” risk as of September 30, 2025. Approximately 26.8% of the debt investments were classified as “Special Mention,” and 3.8% were classified as “Substandard.”

Subsequent Events and Outlook

On October 28, 2025, OFS Capital’s Board of Directors declared a distribution of $0.17 per share for the fourth quarter of 2025, payable on December 31, 2025 to stockholders of record as of December 19, 2025.

Also on October 28, 2025, OFSCC-FS, a subsidiary of OFS Capital, entered into a waiver agreement with the administrative agent and lenders of its BNP Facility to waive certain events of default related to the facility’s coverage tests and over-collateralization ratio.

Looking ahead, OFS Capital’s ability to grow its investment portfolio and generate returns for shareholders will depend on its access to capital, the performance of its existing investments, and its ability to identify and execute on new investment opportunities. The company’s liquidity position could be significantly impacted if the maturity date of its Banc of California Credit Facility is not extended or if it is unable to enter into a new credit facility when the reinvestment period of the BNP Facility expires.

Overall, OFS Capital’s financial results for the third quarter and first nine months of 2025 reflect the challenges faced by the company, including net losses on investments, higher interest expense, and a decline in net investment income. The company’s ability to navigate these challenges and position itself for future growth will be crucial in the coming quarters.