SEC Info - OFS Capital Corp. - ‘10-K’ for 12/31/22

i 125,000

i 3,721

—

N/A

i 125,000

i 3,870

—

N/A

4.95% Notes due 2028

i 55,000

i 8,457

—

i 23.27

i 55,000

i 8,795

—

i 25.51

6.25% Notes due 2023

i 25,000

i 14,754

—

i 24.82

6.375% Notes due 2025

i 50,000

i 7,377

—

i 22.66

i 50,000

i 7,519

—

i 25.30

i 50,000

i 5,645

—

i 24.84

6.50% Notes due 2025

i 48,525

i 7,601

—

i 22.80

i 48,525

i 7,747

—

i 25.29

i 48,525

i 5,817

—

i 24.43

5.95% Notes due 2026

i 54,325

i 6,790

—

i 21.89

i 54,325

i 6,920

—

i 24.75

BNP Facility

i 104,700

i 4,442

—

N/A

i 100,000

i 4,837

—

N/A

i 31,450

i 11,728

—

N/A

i 56,450

i 6,659

—

N/A

PWB Credit Facility

i —

—

N/A

i —

—

N/A

i 600

i 614,760

—

N/A

i —

—

N/A

i 12,000

i 23,521

—

N/A

December 31, 2017

i 17,600

i 11,540

—

N/A

December 31, 2016

i 9,500

i 15,821

—

N/A

(dollar amounts in thousands, except per unit data)

Class and Year

Total Amount Outstanding (1)

Asset Coverage Per Unit (2)

Involuntary Liquidating Preference Per Unit (3)

Average Market Value Per Unit (4)

December 31, 2015

i —

—

N/A

WM Credit Facility

December 31, 2014

i 72,612

i 2,847

—

N/A

December 31, 2013

i 108,955

i 2,256

—

N/A

SBA debentures (SBIC I LP)(5)

i 50,920

i —

—

N/A

i 69,920

i —

—

N/A

i 105,270

i —

—

N/A

i 149,880

i —

—

N/A

i 149,880

i —

—

N/A

December 31, 2017

i 149,880

i —

—

N/A

December 31, 2016

i 149,880

i —

—

N/A

December 31, 2015

i 149,880

i —

—

N/A

December 31, 2014

i 127,295

i —

—

N/A

December 31, 2013

i 26,000

i —

—

N/A

Total Senior Securities(6)

i 335,620

i 1,634

—

N/A

i 349,920

i 1,728

—

N/A

i 315,170

i 1,757

—

N/A

i 359,180

i 1,796

—

N/A

i 260,405

i 2,554

—

N/A

December 31, 2017

i 167,480

i 11,540

—

N/A

December 31, 2016

i 159,380

i 15,821

—

N/A

December 31, 2015

i 149,880

i —

—

N/A

December 31, 2014

i 199,907

i 2,847

—

N/A

December 31, 2013

i 134,955

i 2,256

—

N/A

(1) Total amount of each class of senior securities outstanding at the end of the period presented.

(2) 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 the class of senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the “Asset Coverage Per Unit.”

(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

(4) i Average market value per unit for our unsecured notes represents the average of the daily closing prices as reported on the Nasdaq Market during the period presented. Not applicable to our 4.75% Notes due 2026, PWB Credit Facility, BNP Facility, WM Credit Facility or SBA debentures because these senior securities are not registered for public trading.

(5) The SBA 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.

(6) The Asset Coverage Per Unit does not include the SBA debentures as described in footnote (5) above.

FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for each year in the ten-year period ended December 31, 2022. The financial highlights as of December 31, 2022, 2021, 2020 and 2019 were audited by KPMG LLP and the financial highlights for each year in the six-year period ended December 31, 2018 are derived from our consolidated financial statements that were audited by our former independent registered public accounting firms. The data should be read in conjunction with our consolidated financial statements and notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Annual Report.


	Years Ended December 31,
	2022			2021			2020			2019			2018			2017			2016			2015			2014			2013
Per share operating performance:
Net asset value per share at beginning of year	$	15.18		$	11.85		$	12.46		$	13.10		$	14.12		$	14.82		$	14.76		$	14.24		$	14.58		$	14.80



Net investment income(4)	1.37			1.00			0.92			1.43			1.38			1.28			1.46			1.39			0.95			0.59





Net realized gain (loss), net of taxes(4)	(0.13)			(1.54)			(0.75)			(0.29)			(0.36)			0.55			0.25			(0.17)			(0.35)			0.30



Net unrealized appreciation (depreciation), net of deferred taxes(4)	(1.79)			5.12			0.25			(0.42)			(0.31)			(1.19)			(0.29)			0.66			0.42			(0.09)
Loss on extinguishment of debt(4)	(0.01)			(0.34)			(0.06)			—			—			—			—			—			—			—
Loss on impairment of goodwill(4)	—			—			(0.08)			—			—			—			—			—			—			—
Total from operations	(0.56)			4.24			0.28			0.72			0.71			0.64			1.42			1.88			1.02			0.80
Distributions	(1.16)			(0.91)			(0.86)			(1.36)			(1.73)			(1.36)			(1.36)			(1.36)			(1.36)			(1.02)
Issuance/repurchase of common stock(5)	0.01			—			(0.03)			—			—			(0.03)			—			—			—			—
Other(6)	—			—			—			—			—			0.05			—			—			—			—
Net asset value per share at end of year	$	13.47		$	15.18		$	11.85		$	12.46		$	13.10		$	14.12		$	14.82		$	14.76		$	14.24		$	14.58

Per share market value, end of period	$	10.15		$	10.90		$	7.15		$	11.17		$	10.60		$	11.90		$	13.76		$	11.48		$	11.78		$	12.83
Total return based on market value(1)	4.4		%	66.8		%	(24.0)		%	18.3		%	3.5		%	(4.7)		%	32.3		%	9.0		%	2.4		%	1.3		%
Total return based on net asset value(2)	(0.6)		%	40.2		%	13.6		%	6.7		%	7.8		%	5.0		%	10.9		%	16.0		%	7.5		%	7.7		%
Shares outstanding at end of period	13,398,078			13,422,413			13,409,559			13,376,836			13,357,337			13,340,217			9,700,297			9,691,170			9,650,834			9,629,797
Weighted average shares outstanding	13,417,410			13,413,861			13,394,005			13,364,244			13,348,203			12,403,706			9,693,801			9,670,153			9,634,471			9,619,723
Ratio/Supplemental Data (in thousands except ratios)
Average net asset value(3)	$	194,068		$	178,628		$	148,175		$	171,889		$	182,468		$	171,631		$	142,818		$	140,002		$	138,131		$	141,058
Net asset value at end of year	$	180,423		$	203,744		$	158,956		$	166,627		$	175,023		$	188,336		$	143,778		$	143,012		$	137,471		$	140,378
Net investment income	$	18,352		$	13,450		$	12,295		$	19,098		$	18,385		$	15,877		$	14,145		$	13,411		$	9,135		$	5,718
Ratio of total expenses, net to average net assets(8)	15.7		%	19.2		%	22.4		%	19.4		%	13.4		%	10.2		%	11.9		%	13.5		%	9.9		%	8.0		%
Ratio of total expenses, net and losses on impairment of goodwill and extinguishment of debt to average net assets(9)	15.7		%	21.8		%	23.7		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Ratio of net investment income to average net assets(10)	9.5		%	7.5		%	8.3		%	11.1		%	10.5		%	8.4		%	9.8		%	9.6		%	6.6		%	4.1		%
Ratio of goodwill impairment loss to average net assets	—		%	—		%	0.7		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Ratio of loss on extinguishment of debt to average net assets	0.1		%	2.6		%	0.6		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Portfolio turnover(7)	28.0		%	54.9		%	28.1		%	21.2		%	41.9		%	50.4		%	18.1		%	44.6		%	34.9		%	19.7		%

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

(2)Calculated as ending net asset value less beginning net asset value, adjusted for distributions reinvested at the Company’s dividend reinvestment plan for the respective distributions.

(3)Based on the average of the net asset value at the beginning of the indicated period and the end of each calendar quarter within the period indicated.

(4)Calculated on the average share method.

(5)The issuance/repurchase of common stock on a per share basis reflects the net asset value change as a result of DRIP issuances, shares repurchased pursuant to the Stock Repurchase Program or the follow-on public offering of 3,625,000 shares in during 2017.

(6)Represents the impact of different share amounts used in calculating per share data as a result of calculating certain per share data based on a weighted average shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.

(7)Portfolio turnover rate is calculated using the lesser of year-to-date sales, Structured Finance Security distributions and principal payments or year-to-date purchases over the average of the invested assets at fair value at the beginning of the indicated period and the end of each calendar quarter within the period indicated.

(8)Ratio of total expenses before incentive fee waiver to average net assets was 22.7% and 13.4% for the years ended December 31, 2020 and December 31, 2018, respectively.

(9)Ratio of total expenses before incentive fee waiver and losses on impairment of goodwill and extinguishment of debt to average net assets was 24.0% for the year ended December 31, 2020.

(10)Ratio of net investment income before incentive fee waiver to average net assets was 8.0% and 10.5% for the years ended December 31, 2020 and December 31, 2018, respectively.

Item 6. Reserved.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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;

•constraint on investment 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;

•the creation of leveraged lending opportunities as a result of the large amount of unfunded buyout commitments driving demand for leveraged buyouts over the next several years;

•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 rising interest and inflation rates, the risk of recession and related market volatility, the continuing COVID-19 pandemic and the ongoing war between Russia and Ukraine.

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

•the holding period of our investments;

•interest rate volatility, including the transition from LIBOR to SOFR and/or other alternative reference rate(s);

•the ability of SBIC I LP to make distributions enabling us to meet RIC requirements;

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

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

•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 impact of current political, economic and industry conditions, including changes in the interest rate environment, inflation, significant market volatility, supply chain disruptions, resource shortages, other conditions affecting the financial and capital markets, and the continuing impacts of the COVID-19 pandemic 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 and general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;

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

•the belief that we have sufficient levels of liquidity to support our existing portfolio companies and deploy capital in new investment opportunities;

•the belief that the unrealized depreciation on our Structured Finance Securities and Broadly Syndicated Loans were primarily related to widening of liquid credit market spreads and to a lesser extent, fundamental credit issues;

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

•the effect of new or modified laws or regulations governing our operations;

•the ability to continue generating strong risk-adjusted net returns by assembling a diversified portfolio of investments across a broad range of industries;

•the need and availability of additional capital on favorable terms to finance growth given our expectation to distribute substantially all of our net ordinary income and net realized capital gains to our stockholders; and

•the ability to secure financial maintenance covenants in the loans we invest.

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, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report on Form 10-K 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 “Item 1A. Risk Factors” in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

We have based the forward-looking statements on information available to us on the date of this Annual Report on Form 10-K. 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 annual report on Form 10-K are excluded from the safe harbor protection provided by Section 21E of the Securities Exchange Act.

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 Annual Report on Form 10-K.

Overview

Key performance metrics are presented below:


	December 31, 2022		December 31, 2021
Net asset value per common share	$	13.47	$	15.18


	Year Ended December 31,
	2022		2021		2020
Net investment income per common share	$	1.37	$	1.00	$	0.92
Net increase (decrease) in net assets resulting from operations per common share	(0.57)		4.24		0.28
Distributions paid per common share	1.16		0.91		0.86

Our NAV per common share decreased 11% to $13.47 at December 31, 2022, from $15.18 at December 31, 2021, primarily due to net losses on our investment portfolio of $25.8 million, or $1.92 per common share. For the year ended December 31, 2022, net losses were primarily related to unrealized depreciation of $23.0 million and $14.2 million on our loan portfolio and Structured Finance Securities, respectively, partially offset by unrealized appreciation of $13.1 million on our equity investments.

During the year ended December 31, 2022, net investment income increased $4.9 million, or 37%, compared to the prior year. The increase in net investment income was primarily due to an increase in total investment income of $1.0 million, as well as a decrease in incentive fees of $3.6 million. The decrease in incentives fees was primarily due to the reversal of a previously accrued Capital Gains Fee of $1.9 million, related to a reduction in net unrealized appreciation on the investment portfolio. The previously accrued Capital Gains Fee was neither contractually due nor payable under the terms of the Investment Advisory Agreement.

For the year ended December 31, 2022, the weighted average realized yield on interest-bearing investments increased to 10.0%, compared to 9.7% during the year ended December 31, 2021. The increase in our yield was primarily due to rising interest rates, partially offset by a reduction in prepayments and fee accelerations. We believe our portfolio is well positioned to continue to benefit in a rising interest rate environment as 94% of our loan portfolio at fair value consisted of floating rate loans.

For the year ended December 31, 2022, our weighted-average debt interest costs decreased to 4.8% from 5.1% during the year ended December 31, 2021.The decrease in our debt interest costs was primarily due to the refinancing of $177.9 million of Unsecured Notes at lower fixed rates during 2021. As of December 31, 2022, approximately 69% of our outstanding debt was fixed rate and approximately 85% of our outstanding debt matures in 2026 and beyond.

During the year ended December 31, 2022, our portfolio experienced net losses of $25.8 million, or $1.92 per share, primarily related to unrealized depreciation of $14.2 million and $23.0 million on our Structured Finance Securities and loan portfolio, respectively, offset by unrealized appreciation of $13.1 million on our equity investments. Unrealized depreciation on our Structured Finance Securities and Broadly Syndicated Loans were primarily related to the widening of liquid credit market spreads and to a lesser extent, fundamental credit issues. During the year ended December 31, 2022, we recognized unrealized depreciation of $11.0 million on our non-accrual loans, primarily due to unrealized depreciation of $8.0 million on our subordinated debt in Eblens Holdings, Inc. As of December 31, 2022, our portfolio had five non-accrual loans with an aggregate fair value of $11.2 million, or 3.6% of our total loan portfolio at fair value, compared to two non-accrual loans with an aggregate fair value of $7.7 million, or 2.2% of our total loan portfolio at fair value, at December 31, 2021.

For the year ended December 31, 2022, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 17% of our portfolio at fair value and 47% of our consolidated net assets, respectively. Primarily due to increased financial operating results during the year ended December 31, 2022, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc. increased by $19.7 million, to $85.5 million. Pfanstiehl Holdings, Inc. also experienced unrealized gains of $29.5 million during the year ended December 31, 2021. The value of this investment is substantially comprised of unrealized appreciation of $85.2 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.

At December 31, 2022, 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 December 31, 2022, we had an unused commitment of $25.0 million under our PWB Credit Facility, as well as an unused commitment of $45.3 million under our BNP Facility, each of which are subject to a borrowing base and other covenants. Based on fair values and net asset value at December 31, 2022, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements. We continue to believe that we have sufficient levels of liquidity to support our commitments to existing portfolio companies and we intend to continue to selectively deploy capital in new investment opportunities. As of December 31, 2022, we had unfunded commitments of $32.2 million to 16 portfolio companies.

We are also subject to financial risks, including changes in market interest rates. As of December 31, 2022, approximately $295.5 million (aggregate fair value), or 94% of our debt investments, bore interest at variable rates, of which 59% are LIBOR-based. We have prepared and planned for the transition away from LIBOR by incorporating alternate reference rates to be used in our credit agreements, and believe the impact of the transition will be minimal. However, it is not possible to predict the effect of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. Additionally, the U.S. Federal Reserve approved seven interest rate increases in 2022 and an additional interest rate increase in 2023 and has signaled that additional increases may be likely to combat inflation. See “Item 1A. Risk Factors — Risks Related to our Investments” for additional information.

On February 28, 2023, the Board declared a distribution of $0.33 per share for the first quarter of 2023, payable on March 31, 2023, to stockholders of record as of March 24, 2023.

Critical Accounting Policies and Significant Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. Critical accounting policies are those that require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas could have a material impact on our current and future financial condition and results of operations.

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 a description of our revenue recognition and fair value policies, see Note 2 to the consolidated financial statements included in “Item 8.–Financial Statements” of this report.

Revenue recognition. Our direct lending activities frequently involve the acquisition of multiple financial instruments or rights either in an initial transaction, or in subsequent or “follow-on” transactions, including amendments to existing securities. These financial instruments can include loans, preferred and common stock, warrants, or membership interests in limited liability companies. Acquired rights can include fixed or variable fees that can be either guaranteed or contingent upon operating performance of the underlying portfolio companies. Moreover, these fees may be payable in cash or additional securities. The revenue recognized on these instruments is a function of the fee or other consideration allocated to them, including amounts allocated to loan syndication fees at the time of acquisition.

These allocations are generally based on the relative fair value of the instruments at the time of the transaction, a process involving fair value estimates which is also a critical accounting policy and significant estimate. Once determined, these allocations directly affect the discount/premium and yield on debt securities, the cost and net gains/losses on equity securities, and ICTI. These allocations require an understanding of the terms and conditions of the underlying agreements and requires significant management judgment.

Interest Income: Our recognition of interest income from our loan and CLO debt investments is recognized on an accrual basis based upon the outstanding principal amount and contractual interest terms of debt investment. Net Loan Fees are amortized or accreted into interest income over the life of the respective debt investment.

PIK Income. Our recognition of PIK interest and dividends includes assessment of collectibility. We discontinue accrual of PIK income when there is reasonable doubt that the income will ultimately be collected. This includes assessments of the fair value of the investment relative to par or cost and other judgments of management.

CLO Subordinated Notes and Loan Accumulation Facilities. Interest income on our CLO subordinated note securities is recognized in accordance with ASC Subtopic 325-40, Beneficial Interests in Securitized Financial Assets, which contemplates estimating an effective yield to expected redemption utilizing estimated future cash flows from the investment. The estimated cash flows of the underlying portfolio and to our security are developed utilizing a number of assumptions, including, among others, estimates of default rates, prepayment rates, redemption timing, reinvestment prices, and liquidation-redemption price. These assumptions, and correspondingly the estimated cash flows and accretable yields, are reviewed and updated periodically, as needed.

The valuation of our Structured Finance Securities makes use of similar assumptions, plus a discount rate assumption, to develop estimated cash flows that are discounted to estimated present value.

Interest income from our investments in Loan Accumulation Facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with our Loan Accumulation Facility investments generally pay returns equal to the actual income earned on facility assets less costs of senior financing and manager costs.

Non-accrual Loans: We review all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected, for placement on non-accrual status. Interest income and 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 our judgment, the investments are estimated to be fully collectible as to all principal and interest.

Fair value estimates. As of December 31, 2022, total investments representing approximately 96% of our total assets were carried on the consolidated balance sheet at fair value. As discussed more fully in “Item 8.–Financial Statements–Note 2” GAAP requires us to categorize fair value measurements according to a three-level valuation hierarchy. The hierarchy gives the highest priority to quoted, active market prices for identical assets and liabilities (Level 1) and the lowest priority to valuation techniques that require significant management judgment because one or more of the significant inputs are unobservable in the market place (Level 3). All of our investments carried at fair value are classified as Level 2 and Level 3, with 94% of our investments classified as Level 3. In accordance with our investment strategy, we typically do not hold equity securities or other instruments that are actively traded on an exchange (Level 1).

In December 2020, the SEC issued a final rule adopting Rule 2a-5 under the 1940 Act to establish requirements for determining fair value in good faith for purposes of the 1940 Act. On September 7, 2022, pursuant to Rule 2a-5, the Board designated OFS Advisor, as the valuation designee, to perform fair value determinations relating to our investments for which market quotations are not readily available, commencing with the quarter ended September 30, 2022. In order for the Board to maintain oversight, OFS Advisor implemented the requirements as prescribed in Rule 2a-5.

As described in “Item 8.–Financial Statements–Note 5”, under the oversight of the Board, we follow a process to determine these unobservable inputs used in the fair value estimates of our investments. The most significant unobservable inputs in the Level 3 fair value measurements are the discount rates (discounted cash flows approach) and EBITDA multiples (market approach). Investments classified as Level 2 are measured on the basis of Indicative Prices provided by pricing services.

Our discounted cash flow valuations involve a determination of discount rate commensurate with the risk inherent in each investment. OFS Advisor with the assistance of independent third-party valuation firms, uses two primary methods to estimate discount rates on Portfolio Company Investments, as applicable: a method based upon a hypothetical recapitalization of the entity given its current operating performance and current market conditions; and a synthetic debt rating method, which assigns a surrogate debt rating to the entity based on known industry standards for assigning such ratings and then estimates the discount rate based on observed market yields for actual rated debt. OFS Advisor may also use a relative value method to estimate yields, which involves estimating the discount rate of non-traded subject debt investments based on an expected or assumed relationship between Indicative Prices on traded debt and the subject debt for a portfolio company. All methods for estimating the discount rate generally involve calibration of unobservable inputs utilized in estimating the discount rate on the subject investment to its internal rate of return at close or purchase date. These methods generally produce a range of discount rates, and we generally select the midpoint of the range for use in fair value measures, subject to considerations of any prepayment fees associated with the debt.

Our market approach valuations, generally applied to equity investments and investments in non-performing debt, involve a determination of an enterprise value multiple to a financial performance metric of the portfolio company, generally EBITDA. These determinations are based on identification of a comparable set of publicly traded companies and determination of a public-to-private liquidity adjustment factor, generally through calibration to transaction prices in the subject investment instrument. This method generally produces a range of multiplier values and we generally select the midpoint of the range for fair value measures.

The following table illustrates the impact of our fair value measures if we selected the low or high end of the range for all investments at December 31, 2022, (in thousands):


	Fair Value at December 31, 2022		Range of Fair Value
Investment Type			Low-end		High-end
Debt investments:
Senior Secured	$	311,636	$	306,767	$	316,920
Subordinated	1,226		122		2,329

Structured Finance Securities:
Subordinated notes	53,807		51,027		56,590
Mezzanine debt	26,412		26,071		26,753
Loan accumulation facility	8,299		8,098		8,500

Equity investments:
Preferred equity	8,196		7,476		8,868
Common equity, warrants and other	91,000		84,355		96,944
	$	500,576	$	483,916	$	516,904

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—Management and Other Agreements” and “Item 8–Financial Statements and Supplementary Data–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–Management and Other Agreements” and “Item 8–Financial Statements and Supplementary Data–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 BDCs managed by OFS Advisor, so long as its services to us are not impaired. OFS Advisor also serves as the investment adviser to various clients, including HPCI and OCCI. Additionally, OFS Advisor provides sub-advisory services to 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 to 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.

The 1940 Act generally prohibits BDCs from knowingly participating in certain transactions with their affiliates without the prior approval of their independent directors and, in some cases, of the SEC. Those transactions include purchases and sales, and so-called “joint” transactions, in which a BDC and one or more of its affiliates engage in certain types of profit-making activities. Any person that owns, directly or indirectly, five percent or more of a BDC’s outstanding voting securities

will be considered an affiliate of the BDC for purposes of the 1940 Act, and a BDC generally is prohibited from engaging in purchases from, sales of assets to, or joint transactions with, such affiliates, absent the prior approval of the BDC’s independent directors. Additionally, without the approval of the SEC, a BDC is prohibited from engaging in purchases from, sales of assets to, or joint transactions with, the BDC’s officers, directors, and employees, and advisor (and its control affiliates).

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 the 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 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 and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

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. Questions arise as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced. See “Item 1. Business—Regulations—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”.

Portfolio Composition and Investment Activity

Our portfolio consists of debt and equity investments, as well as indirect investments in such securities through investment in other investment companies including Structured Finance Securities.

Portfolio Composition. As of December 31, 2022, the fair value of our debt investment portfolio totaled $312.9 million in 52 portfolio companies, of which 99.6% and 0.4% were senior secured loans and subordinated loans, respectively, and our equity investments in 16 portfolio companies totaled $99.2 million. We also have 23 investments in Structured Finance Securities with a fair value of $88.5 million.

The following table presents our investment portfolio by each wholly owned legal entity within the consolidated group as of December 31, 2022 and 2021 (in thousands):


	December 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
OFS Capital Corporation (Parent)	$	195,823	$	162,308	$	157,190	$	150,254
SBIC I LP	97,214		167,211		125,584		183,524
OFSCC-FS	178,460		168,050		171,101		170,132
OFSCC-MB	3,383		3,007		3,437		3,189
Total investments	$	474,880	$	500,576	$	457,312	$	507,099

Portfolio Yields. The following table presents weighted-average yield metrics for our portfolio:


	Year Ended December 31,
	2022		2021
Weighted-average performing income yield(1):
Debt investments	9.5	%	9.5	%
Structured Finance Securities	15.1	%	16.3	%
Interest-bearing investments	10.7	%	10.6	%

Weighted-average realized yield:
Interest-bearing investments(2)	10.0	%	9.7	%

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

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

For the year ended December 31, 2022, the increase in our weighted-average realized yields was primarily due to rising interest rates as floating rate loans comprised 94% of our loan investment portfolio at fair value.

The weighted average yield of our investments is 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 yield will remain at its current level.

Debt and Equity Investments. The following table summarizes the composition of our debt and equity investments by type as of December 31, 2022 and 2021 (dollar amounts in thousands):


	December 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Senior secured debt investments	$	335,558	$	311,636	$	336,132	$	326,704
Subordinated debt investments	13,890		1,226		22,071		17,943
Preferred equity	9,966		8,196		9,552		3,765
Common equity, warrants and other	12,989		91,000		14,606		83,486
Total debt and equity investments	$	372,403	$	412,058	$	382,361	$	431,898
Number of portfolio companies	63		63		70		70

Approximately 76% of our debt investments at fair value are senior securities of the borrower, rather than in the subordinated securities, preferred equity or common equity. 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 rising interest and inflation rates, the risk of recession and related market volatility, the continuing COVID-19 pandemic and the ongoing war between Russia and Ukraine.

As of December 31, 2022, our common equity in Pfanstiehl Holdings, Inc., based on its fair value of $85.5 million,$85.2 million of which represents unrealized appreciation, accounted for 17% of our total portfolio at fair value, or 47% of total

net assets. 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.

As of December 31, 2022, the three largest industries of our debt and equity investments by fair value, were (1) Manufacturing (27.9%), (2) Health Care and Social Assistance (16.0%) and (3) Wholesale Trade (13.5%) totaling approximately 57.4% of the investment portfolio. For a full summary of our investment portfolio by industry, see “Note 4, Investments” to the consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this report.

The following table presents our ten largest debt and equity investments by portfolio company based on fair value as of December 31, 2022 (dollar amounts in thousands):


Portfolio Company	Type	Amortized Cost		Fair Value		% of Total Portfolio, at Fair Value
Pfanstiehl Holdings, Inc.	Equity	$	217	$	85,456	17.1	%
All Star Auto Lights, Inc.	Debt	27,752		27,820		5.6	%
Milrose Consultants, LLC	Debt	27,621		27,148		5.4	%
The Escape Game, LLC	Debt	16,302		16,497		3.3	%
Tolemar Acquisition, Inc.	Debt	15,873		15,942		3.2	%
Kreg, LLC	Debt	16,444		15,604		3.1	%
Inergex Holdings, LLC	Debt	14,596		14,868		3.0	%
SSJA Bariatric Management, LLC	Debt	13,299		13,119		2.6	%
One GI, LLC	Debt	11,240		10,647		2.1	%
Boca Home Care Holdings, Inc.	Debt and Equity	10,748		10,252		2.0	%
Total		$	154,092	$	237,353	47.4	%

Structured Finance Securities. The following table summarizes our Structured Finance Securities as of December 31, 2022 and December 31, 2021, (dollar amounts in thousands):


	December 31, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Subordinated notes	$	65,870	$	53,807	$	63,791	$	63,922
Mezzanine debt	28,107		26,412		2,660		2,779
Loan accumulation facility	8,500		8,299		8,500		8,500
Total Structured Finance Securities	$	102,477	$	88,518	$	74,951	$	75,201
Number of Structured Finance Securities	23		23		17		17

During the year ended December 31, 2022, we increased our holdings in mezzanine debt securities to take advantage of attractive yields in the current rising interest rate environment, which we believe represents less risk than subordinated notes due to their more senior position in the CLO capital structure.

Investment Activity. The following is a summary of our cash investment activity for the years ended December 31, 2022 and 2021 (dollar amounts in millions):


	Year Ended December 31,
	2022		2021
Investments in debt and equity securities	$	111.0	$	238.5
Investments in Structured Finance Securities	43.2		30.4
Total investments	$	154.2	$	268.9
Proceeds from principal payments	$	88.7	$	200.7
Proceeds from investments sold or redeemed	46.6		52.8
Proceeds from distributions received from Structured Finance Securities	12.2		12.7
Total proceeds from principal payments, sales and distributions from Structured Finance Securities	$	147.5	$	266.2

Non-cash Investment Activity.

Year ended December 31, 2022

On October 3, 2022, we made an additional $1.0 million equity investment in Eblens Holdings, Inc. as part of its restructuring, which resulted in Eblens Holdings, Inc. becoming a control investment. As part of the restructuring, we wrote-off our $0.7 million initial 2017 common equity investment and bifurcated our $9.30 million non-accrual subordinated debt investment into two $4.65 million subordinated debt investments which remain on non-accrual status as of December 31, 2022.

Year ended December 31, 2021

On December 31, 2021, our debt and equity investments in Envocore Holdings, LLC were restructured, pursuant to which we converted our $17.2 million senior secured debt investment into two $6.4 million senior secured debt investments and preferred equity. Our Series B and Series C preferred equity investments in Envocore Holdings, LLC were subsequently cancelled in the restructuring; therefore, we recognized a realized loss of $0.3 million on the cancellation, of which $0.3 million was included as an unrealized loss as of December 31, 2020.

Our level of investment activity may vary substantially from period to period depending on various factors, including, but not limited to, the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

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.” The following table shows the classification of our debt investments portfolio by risk category as of December 31, 2022 and 2021 (dollar amounts in thousands):


	As of December 31,
	2022				2021
Risk Category	Debt Investments, at Fair Value		% of Debt Investments		Debt Investments, at Fair Value		% of Debt Investments
1 (Low Risk)	$	—	—	%	$	—	—	%
2 (Below Average Risk)	—		—		—		—
3 (Average)	288,170		92.2		324,370		94.2
4 (Special Mention)	17,218		5.5		12,550		3.6
5 (Substandard)	7,352		2.3		7,027		2.0
6 (Doubtful)	122		—		699		0.2
7 (Loss)	—		—		—		—
	$	312,862	100.0	%	$	344,646	100.0	%

Non-Accrual Loans

As of December 31, 2022

At December 31, 2022, we had five loans on non-accrual status with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $36.5 million and $11.2 million, respectively.

As of December 31, 2021

At December 31, 2021, we had two loans on non-accrual status with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $19.1 million and $7.7 million, respectively.

Results of Operations

Key Financial Measures. The following is a discussion of the key financial measures that management employs in reviewing the performance of our operations.

Net Investment Income. Total investment income less total expenses (“NII”) is a key performance metric in obtaining part of our investment objective of providing current income to stockholders. NII can be a general indicator of ICTI and the amount of distributions that will be required to be made due to RIC requirements. One of our main objectives is to increase NII, and, in turn, increase distributions to stockholders.

Net Gain (Loss) on Investments. Net gain (loss) on investments consists of the sum of: (a) realized gains and losses from the sale of debt or equity securities, or the redemption of equity securities; and (b) net unrealized appreciation or depreciation on debt and equity investments, net of applicable taxes to the extent the investments are held through taxable wholly owned subsidiaries. In the period in which a realized gain or loss is recognized, such gain or loss will generally be offset by the reversal of previously recognized unrealized appreciation or depreciation, and the net gain (loss) recognized in that period will generally be smaller. The unrealized appreciation or depreciation on debt securities is also reversed when those investments are redeemed or paid off prior to maturity. In such instances, the reversal of accumulated unrealized appreciation or depreciation will be reported as a net loss or gain, respectively, and may be partially offset by the acceleration of any premium or discount on the debt security, which is reported in interest income, and any prepayment fees on the debt security, which is reported in fee income.

Net Asset Value: NAV is a key performance metric related to our investment objective to provide our stockholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments. The 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.

Portfolio Yield: Portfolio yield is a key financial metric of our investment portfolio in order to achieve our investment objective of providing current income to stockholders. See “Portfolio Composition and Investment Activity—Portfolio Yields” for additional information.

We do not believe that our historical operating performance is necessarily indicative of our future results of operations that we expect to report in future periods. Our investment strategy is to maintain a leveraged credit investment portfolio, primarily focused on investments in middle-market companies in the United States, including debt investments and, to a lesser extent, equity investments, including warrants and other minority equity 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.

Comparison of years ended December 31, 2022, 2021 and 2020. Consolidated operating results for the years ended December 31, 2022, 2021 and 2020 are as follows (in thousands):


	Years Ended December 31,
	2022		2021		2020
Investment income
Interest income:
Cash interest income	$	33,270	$	28,321	$	33,987
PIK interest income	523		1,526		1,527
Net Loan Fee amortization	1,726		2,665		1,584
Accretion of interest income on CLO subordinated notes	10,656		9,861		5,877
Other interest income	83		11		69
Total interest income	46,258		42,384		43,044
Dividend income:
Cash dividends	947		2,024		450
Preferred equity PIK dividends	466		143		505
Total dividend income	1,413		2,167		955
Fee income:
Management and syndication	393		2,235		745
Prepayment and other fees	680		977		731
Total fee income	1,073		3,212		1,476
Total investment income	48,744		47,763		45,475
Total expenses, net of incentive fee waiver	30,392		34,313		33,180
Net investment income	18,352		13,450		12,295
Net gain (loss) on investments	(25,794)		48,005		(6,704)
Loss on extinguishment of debt	(144)		(4,591)		(820)
Loss on impairment of goodwill	—		—		(1,077)
Net increase (decrease) in net assets resulting from operations	$	(7,586)	$	56,864	$	3,694

Comparison of investment income for the years ended December 31, 2022 and 2021.

Total interest income increased approximately $3.9 million during the year ended December 31, 2022 compared to the prior year, primarily due to an increase in our portfolios’ weighted-average realized yield from 9.7% to 10.0%. Due to the current rising interest environment, our debt investments’ effective yield continually increased throughout 2022. We believe our loan portfolio will continue to produce strong results and perform well in the current interest rate environment.

During the year ended December 31, 2022, interest income on Structured Finance Securities increased $3.5 million compared to the prior year, primarily due to additional investments of $43.2 million during the year.

During the year ended December 31, 2022, we recognized total PIK income of $1.0 million, which represented only 2.0% of total investment income. During the year ended December 31, 2022, total PIK income decreased $0.7 million compared to the prior year.

During the year ended December 31, 2022, dividend income decreased $0.8 million compared to the prior year, primarily due to a $1.1 million decrease in cash dividends. The decrease in cash dividends was primarily due to a reduction in dividends received from Pfanstiehl Holdings, Inc.

Prepayment fees and syndication fees generally result from periodic transactions rather than from holding portfolio investments and are considered non-recurring. During the years ended December 31, 2022, total fee income decreased $2.1 million compared to the prior year, primarily due to a decrease of $1.8 million in syndication fees. We receive syndication fees on investments where OFS Advisor is the lead agent and is additionally compensated for structuring and arranging the lending group.

Comparison of investment income for the years ended December 31, 2021 and 2020.

Total interest income decreased approximately $0.7 million during the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to a $35.9 million decrease in the average outstanding loan balance, partially offset by a 42 basis point increase in the weighted-average yield in our debt portfolio.

Other than acceleration of Net Loan Fees recognized upon the repayment of a loan, we consider our interest income on debt investments and Structured Finance Securities to be recurring in nature. Acceleration of Net Loan Fees from the repayment

of loans prior to their scheduled due dates of $1.6 million and $0.2 million were included in interest income for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, accretion of interest income on Structured Finance Securities increased $4.0 million compared to the prior year primarily due to an increase in the weighted-average amount invested in subordinated notes from $35.0 million at December 31, 2020 to $59.1 million at December 31, 2021.

During the year ended December 31, 2021, total PIK income decreased $0.4 million compared to the prior year and remained under 5% of total investment income. For the year ended December 31, 2021, cash and PIK interest of $1.7 million and $2.1 million, respectively, was not recognized in income due to reasonable doubt whether it would be collected.

During the year ended December 31, 2021, dividend income increased $1.2 million primarily due to a $1.0 million dividend from Pfanstiehl Holdings, Inc.

Prepayment fees and syndication fees generally result from periodic transactions rather than from holding portfolio investments and are considered non-recurring. During the years ended December 31, 2021 and 2020, we recognized prepayment fees of $0.8 million and $0.6 million, respectively. We recognized syndication fees of $2.2 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively. We receive syndication fees on investments where OFS Advisor is the lead agent and is additionally compensated for structuring and arranging the lending group.

Expenses. Operating expenses for years ended December 31, 2022, 2021 and 2020, are presented below (in thousands):


	Years Ended December 31,
	2022		2021		2020

Interest expense	$	17,025	$	17,515	$	18,808
Management fees	7,979		7,669		7,605
Income Incentive Fee, net of waiver	2,276		2,352		1,584
Capital Gains Fee	(1,916)		1,916		—
Professional fees	1,608		1,670		1,993
Administration fee	1,742		1,758		1,855
Other expenses	1,678		1,433		1,335
Total expenses, net of waivers	$	30,392	$	34,313	$	33,180

Comparison of expenses for the years ended December 31, 2022 and 2021.

Interest expense decreased by $0.5 million during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to a decrease in the weighted-average interest costs from 5.1% to 4.8%. The decrease in our weighted-average interest costs was primarily due to the refinancing of certain Unsecured Notes during 2021. During the year ended December 31, 2021, we issued $180.0 million in Unsecured Notes with a weighted-average effective yield of 5.4%, and redeemed $177.9 million in Unsecured Notes with a weighted-average effective yield of 6.9%.

Management fee expense increased by $0.3 million due to an increase in our average total assets, primarily due to our average investment portfolio at fair value increasing from $485.2 million during the year ended December 31, 2021 to $525.8 million during the year ended December 31, 2022.

During the year ended December 31, 2022, the Capital Gains Fee decreased $3.8 million compared to the prior year due to the full reversal of the prior years accrued Capital Gains Fee. The previously accrued Capital Gains Fee during the year end December 31, 2021 was neither contractually due nor payable under the terms of the Investment Advisory Agreement.

During the year ended December 31, 2022, professional fees, administration fees and other expenses remained relatively steady compared to the prior year, increasing approximately $0.2 million.

Comparison of expenses for the years ended December 31, 2021 and 2020.

Interest expense decreased by $1.3 million during the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to a decrease in the weighted-average interest costs from 5.4% to 5.1%. During the year ended December 31, 2021, we reduced our weighted-average interest costs by redeeming Unsecured Notes with a weighted-average interest cost of 6.9% and issuing Unsecured Notes with a weighted-average interest cost of 5.4%. See “Item 8.–Financial Statements–Note 7” for details.

Management fee expense increased by $0.1 million due to an increase in our average total assets, primarily due to our investment portfolio at fair value increasing from $442.3 million at December 31, 2020 to $507.1 million at December 31, 2021.

During the year ended December 31, 2021, the Income Incentive Fee expense increased $0.8 million, or $0.4 million prior to the waiver in the first quarter of 2020, compared to the year ended December 31, 2020 due to an increase in net investment income. During the year ended December 31, 2021, net investment income increased, primarily due to additional dividend and syndication fee income, as well as a decrease in interest expense.

During the year ended December 31, 2021, the Capital Gains Fee increased $1.9 million compared to the prior year primarily due to net unrealized appreciation of $49.8 million on the investment portfolio at December 31, 2021, partially offset by cumulative net realized losses of $40.2 million.

During the year ended December 31, 2021, professional fees decreased $0.3 million primarily due to a decrease in external valuation costs.

Net realized and unrealized gain (loss) on investments. Net realized and unrealized gain (loss) on investments, by investment type, for the years ended December 31, 2022, 2021 and 2020, are presented below (in thousands):


	Years Ended December 31,
	2022		2021		2020
Senior secured debt	$	(16,418)	$	9,698	$	(16,134)
Subordinated debt	(8,536)		2,538		(16,388)
Preferred equity	3,945		5,202		(2,708)
Common equity, warrants and other	9,242		31,794		26,170
Structured Finance Securities	(14,209)		(314)		2,081
Income tax expense (benefit) on net realized investment gains (losses)	155		(1,027)		—
Deferred income tax benefit	27		114		275
Net gain (loss) on investments	$	(25,794)	$	48,005	$	(6,704)

Year ended December 31, 2022

During the year ended December 31, 2022, our portfolio experienced net losses of $25.8 million, primarily related to unrealized depreciation of $23.0 million and $14.2 million on our debt investments and Structured Finance Securities, respectively, offset by unrealized appreciation of $13.1 million on our equity investments. The unrealized depreciation on our debt investments and Structured Finance Securities was primarily due to the widening of liquid credit market spreads. Company specific performance factors on a few non-accrual investments also contributed to the unrealized depreciation on our debt investments. Our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized gains of $19.7 million during the year ended December 31, 2022. During the year ended December 31, 2022, we recognized realized losses of $1.9 million, primarily on the sale of $44.3 million of Broadly Syndicated Loans.

Year ended December 31, 2021

During the year ended December 31, 2021, our portfolio experienced net gains of $48.0 million, primarily due to unrealized appreciation of $32.7 million on our equity investments. Our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized gains of $29.5 million during the year ended December 31, 2021.

Year ended December 31, 2020

During the year ended December 31, 2020, our portfolio experienced net losses of $6.7 million, primarily related to unrealized depreciation on our loan portfolio of $22.5 million, offset by $23.8 million of unrealized appreciation on our equity investments. During the year ended December 31, 2020, we recognized realized losses of $10.0 million, primarily related to the $9.1 million loss on the restructuring of our debt investment in Constellis Holdings, LLC. Our common equity investment in Pfanstiehl Holdings, Inc. experienced unrealized gains of $24.2 million during the year ended December 31, 2020.

Loss on Impairment of Goodwill.

Year ended December 31, 2020

On December 4, 2013, in connection with the acquisition of the remaining ownership interests in SBIC I LP and SBIC I GP, LLC, making SBIC I LP a wholly owned subsidiary, we recorded goodwill of $1.1 million. The decline in the price of our common stock and the level at which it traded relative to the broader stock indices for the BDC industry, led us to conclude in the third quarter of 2020 that an impairment in the value of our goodwill was more likely than not. Moreover, due to the

discount at which our stock traded to its NAV we concluded it was appropriate that the impairment of goodwill equal the full amount of its carrying value of $1.1 million. The loss on impairment of goodwill did not impact our management or incentive fees.

Losses on Extinguishment of Debt.

Year ended December 31, 2022

During the year ended December 31, 2022, we redeemed $19.0 million of SBA debentures and, as a result, we recognized losses on extinguishment of debt of $0.1 million related to the acceleration of unamortized deferred borrowing costs on the redeemed debentures.

Year ended December 31, 2021

During the year ended December 31, 2021, we redeemed $35.4 million of SBA debentures that were contractually due September 1, 2022, September 1, 2024 and September 1, 2025. We recognized losses on extinguishment of debt of $0.3 million related to the charge-off of deferred borrowing costs on the redeemed debentures.

During the year ended December 31, 2021, we redeemed $177.9 million of Unsecured Notes that were contractually due in 2023, 2025 and 2026. We recognized losses on extinguishment of debt of $4.3 million related to the charge-off of deferred borrowing costs on the redeemed notes.

Year ended December 31, 2020

During the year ended December 31, 2020, we redeemed $44.6 million of SBA debentures that were contractually due September 1, 2023, March 1, 2024 and September 1, 2024. We recognized losses on extinguishment of debt of $0.7 million related to the charge-off of deferred borrowing costs on the redeemed debentures.

During the year ended December 31, 2020, the BLA with Pacific Western Bank was amended to reduce the total commitment under the PWB Credit Facility from $100.0 million to $20.0 million. We recognized a loss on extinguishment of debt of $0.1 million related to the charge-off of deferred borrowing costs on the commitment reduction.

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 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 years ended December 31, 2022 and December 31, 2021 (dollar amounts in thousands, except per share data):


	Years Ended December 31,
		2022	2021
			(000's)		Per Share		(000's)		Per Share
Net investment income			$	18,352	$	1.37	$	13,450	$	1.00
Capital Gains Fee			(1,916)		(0.14)		1,916		0.14
Adjusted NII			$	16,436	$	1.23	$	15,366	$	1.14

For the year ended December 31, 2021, the Capital Gains Fee of $1.9 million was primarily due to net unrealized appreciation of $49.8 million on the investment portfolio at December 31, 2021, partially offset by cumulative net realized losses of $40.2 million. During the year ended December 31, 2022, we reversed the previously accrued Capital Gains Fees of $1.9 million due to a reduction in net unrealized appreciation on the investment portfolio.

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.

Comparison of the three months ended December 31, 2022 and September 30, 2022. Consolidated operating results for the three months ended December 31, 2022 and September 30, 2022, are as follows (in thousands):


	Three Months Ended
	December 31, 2022		September 30, 2022
Investment income
Interest income:
Cash interest income	$	9,954	$	9,020
PIK interest income	92		104
Net Loan Fee amortization	408		541
Accretion of interest income on CLO subordinated notes	3,009		2,862
Other interest income	56		23
Total interest income	13,519		12,550
Dividend income:
Preferred equity PIK dividends	236		230
Cash dividends	136		49
Total dividend income	372		279
Fee income:
Management and syndication	—		136
Prepayment and other fees	107		403
Total fee income	107		539
Total investment income	13,998		13,368
Total expenses	9,272		8,996
Net investment income	4,726		4,372
Net loss on investments	(2,292)		(13,930)
Net increase (decrease) in net assets resulting from operations	$	2,434	$	(9,558)

During the three months ended December 31, 2022, total interest income increased $1.0 million compared to the three months ended September 30, 2022, primarily due to an increase in our weighted-average realized yield to 11.7% from 10.8% in the prior quarter. The increase in the weighted-average realized yield was primarily due to the increase in LIBOR and SOFR base rates on our debt investments.

Expenses. Operating expenses for the three months ended December 31, 2022 and September 30, 2022 are presented below (in thousands):


	Three Months Ended
	December 31, 2022		September 30, 2022
Interest expense	$	4,801	$	4,657
Management fees	1,918		1,986
Income Incentive Fee	1,183		1,093

Professional fees	453		396
Administration fees	433		435
Other expenses	484		429
Total expenses	$	9,272	$	8,996

During the three months ended December 31, 2022, total expenses increased $0.3 million compared to the prior quarter, primarily due to an increase in interest expense related to SOFR rate increases on our BNP Facility. During the three months ended December 31, 2022, other expenses increased primarily due to the accrual of excise taxes.

Net realized and unrealized gain (loss) on investments. Net gain (loss) by investment type for the three months ended December 31, 2022 and September 30, 2022 were as follows (in thousands):


	Three Months Ended
	December 31, 2022		September 30, 2022
Senior secured debt	$	(689)	$	(4,587)
Subordinated debt	(3,049)		(3,029)
Preferred equity	483		1,321
Common equity, warrants and other	2,779		(8,190)
Structured Finance Securities	(1,612)		115
Income tax (benefit) expense on net realized investment gains (losses)	(210)		413
Deferred income tax benefit	6		27
Net loss on investments	$	(2,292)	$	(13,930)

Net gain (loss) on investments for the three months ended December 31, 2022

During the three months ended December 31, 2022, our portfolio experienced net losses of $2.3 million, primarily related to unrealized depreciation of $4.0 million on our debt and equity investments in a non-accrual portfolio company.

Net gain (loss) on investments for the three months ended September 30, 2022

Our portfolio experienced net losses of $13.9 million in the third quarter of 2022, primarily as a result of unrealized depreciation of $13.5 million on our debt and equity investments, which includes unrealized depreciation of $7.2 million on our Southern Technical Institute, LLC equity appreciation right investment in the post-secondary, for-profit education sector. This equity investment became impaired during the quarter ended September 30, 2022 due to an unexpected decision by the U.S. Department of Education impacting a significant source of revenue for the company. This is our only investment in the post-secondary, for-profit education sector. As of September 30, 2022, the value of our equity appreciation right in this portfolio company investment was $-0-.

During the quarter ended September 30, 2022, our four non-accrual loans experienced unrealized depreciation of $5.6 million, primarily due to unrealized depreciation of $3.0 million and $2.5 million on our debt investments in Eblens Holdings, Inc. and Envocore Holdings, LLC, respectively.

Non-GAAP Financial Measure – Adjusted Net Investment Income

The following table provides a reconciliation from net investment income (the most comparable GAAP measure) to Adjusted NII for the three months ended December 31, 2022 and September 30, 2022 (dollar amounts in thousands, except per share data):


	Three Months Ended
	December 31, 2022				September 30, 2022
	(000's)		Per Share		(000's)		Per Share
Net investment income	$	4,726	$	0.35	$	4,372	$	0.33
Capital Gains Fee	—		—		—		—
Adjusted NII	$	4,726	$	0.35	$	4,372	$	0.33

Liquidity and Capital Resources

At December 31, 2022, we held cash and cash equivalents of $14.9 million, which includes cash and cash equivalents of $8.6 million held by SBIC I LP, our wholly owned SBIC, and $3.7 million held by OFSCC-FS. Our use of cash held by SBIC I LP is restricted by SBA regulation, including limitations on the amount of cash SBIC I LP can distribute to the Parent. Under SBA regulations, any such distributions to the Parent from SBIC I LP are generally restricted to a statutory measure of undistributed accumulated earnings or regulatory capital of SBIC I LP, and may require the prior approval of the SBA. During the year ended December 31, 2022, the Parent received income distributions of $9.5 million from SBIC I LP. During the year ended December 31, 2021, the Parent also received a return of capital distribution of $9.5 million related to the redemption of debentures. Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility. During

the year ended December 31, 2022, the Parent received $11.1 million in cash distributions from OFSCC-FS. At December 31, 2022, the Parent had $6.8 million of cash and cash equivalents available for general corporate activities, including approximately $4.2 million and $0 million held by SBIC I LP and OFSCC-FS, respectively, that was available for distribution to the Parent. The Parent may make unsecured loans to SBIC I LP, the aggregate of which 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 at December 31, 2022.

Additionally, at December 31, 2022, we had an unused commitment of $25.0 million under our PWB Credit Facility, as well as an unused commitment of $45.3 million under the BNP Facility, both of which are subject to borrowing base requirements and other covenants.

As of December 31, 2022, the aggregate amount outstanding of the senior securities issued by us was $335.6 million, for which our asset coverage was 163%. The SBA 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. Based on fair values and equity capital at December 31, 2022, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements.

We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies, selectively deploy capital in new investment opportunities in this challenging environment and satisfy our long-term cash requirements.

Sources and Uses of Cash and Cash Equivalents. We generate cash through operations from net investment income and the net liquidation of portfolio investments, and use cash in our operations in the net purchase of portfolio investments. 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 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 8. Financial Statements—Note 3”, we pay OFS Advisor a quarterly incentive fee with respect to our pre-incentive fee net investment income, which includes investment income that has not been received in cash. In addition, we must distribute substantially all our taxable income, which approximates, but will not always equal, the cash we generate from net investment income to maintain our RIC tax treatment. Historically, our distributions have been in excess of taxable income and we have a limited history of net taxable gains. 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):


	Years Ended December 31,
	2022		2021		2020
Cash from net investment income(1)	$	14,201	$	15,111	$	11,694
Net (purchases and originations) repayments of portfolio investments(1)	(11,255)		(27,120)		68,931
Net cash provided by (used in) operating activities	2,946		(12,009)		80,625
Proceeds from issuance of the Unsecured Notes, net of discounts	—		175,506		24,250
Redemptions of Unsecured Notes	—		(177,850)		—
Distributions paid to stockholders	(15,385)		(12,071)		(11,365)
Net borrowings (repayments) under revolving line of credits	4,700		67,950		(24,400)
Repayment of SBA debentures	(19,000)		(35,350)		(44,610)
Payment of debt issuance costs and other financing costs	(1,372)		(836)		(239)
Net cash provided (used) by financing activities	(31,057)		17,349		(56,364)
Net increase (decrease) in cash	$	(28,111)	$	5,340	$	24,261

(1) Net purchases and originations/repayments and sales of portfolio investments include 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 form 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.

During the year ended December 31, 2022, cash decreased $33.5 million compared to the prior year, primarily due to the use of $31.1 million in financing activities. Our net cash used by financing activities primarily related to the redemption of $19.0 million in SBA debentures and $15.4 million of distributions paid to stockholders, respectively.

During the year ended December 31, 2021, cash increased $5.3 million compared to the prior year, primarily due to additional debt borrowings, partially offset by an increase in purchases of portfolio investments.

Borrowings

SBA Debentures. SBIC I LP has a SBIC license that allowed it to obtain leverage by issuing SBA-guaranteed debentures. These debentures are non-recourse to us, and bear interest payable semi-annually. The following table shows our outstanding SBA debentures payable as of December 31, 2022 and 2021 (dollar amounts in thousands):


				SBA debentures outstanding
Pooling Date	Maturity Date	Fixed Interest Rate		December 31, 2022		December 31, 2021
March 25, 2015	March 1, 2025	2.872	%	$	50,920	$	65,920
September 23, 2015	September 1, 2025	3.184		—		4,000
SBA debentures outstanding				50,920		69,920
Unamortized debt issuance costs				(223)		(555)
SBA debentures outstanding, net of unamortized debt issuance costs				$	50,697	$	69,365

During the year ended December 31, 2022, SBIC I LP redeemed $19.0 million of SBA debentures that were contractually due March 1, 2025 and September 1, 2025. We recognized losses on extinguishment of debt of $0.1 million related to the charge-off of deferred borrowing costs on the prepaid debentures.

On March 1, 2023, SBIC I LP prepaid $5.0 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 new investments.

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 PWB Credit Facility. The PWB Credit Facility 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 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.

At December 31, 2022, the BLA contained customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, a minimum tangible NAV, a minimum quarterly net investment income after incentive fees, and a maximum ratio of total liabilities divided by NAV. The BLA also contained 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 December 31, 2022, we were in compliance with the applicable covenants.

As of December 31, 2022, the terms of the PWB Credit Facility were as follows (dollar amounts in thousands):

Maximum Availability

Floor Rate

Interest Rate

Unused Fee

Maturity Date

PWB Credit Facility

$25,000

4.00%

Prime + 0.25%

0.50%

February 28, 2024

As of December 31, 2022, availability under the PWB Credit Facility was $25.0 million, based on the stated advance rate of 50% under the borrowing base, and a $0 outstanding balance.

On February 17, 2021, we executed an amendment to the BLA with Pacific Western Bank. The amendment, among other things: (i) increased the maximum amount available under the PWB Credit Facility from $20.0 million to $25.0 million; (ii) decreased the interest rate floor from 5.25% per annum to 5.00% per annum; (iii) modified certain financial performance covenants; and (iv) extended the maturity date from February 28, 2021 to February 28, 2023.

On November 15, 2021, we executed an amendment to the BLA with Pacific Western Bank to decrease the interest rate floor from 5.0% to 4.0%, effective as of November 1, 2021.

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.

BNP Facility. On June 20, 2019, we entered into the a revolving credit and security agreement 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, which provides for borrowings in an aggregate principal amount up to $150.0 million. Borrowings under the BNP Facility bear interest of SOFR plus an applicable spread, which is determined on the basis of industry-recognized portfolio company metrics at the time of funding. The BNP Facility also contains customary events of default, including, without limitation, nonpayment, failure to maintain valid ownership interest in all of the collateral and bankruptcy. Borrowings under the BNP Facility are secured by substantially all of the assets held by OFSCC-FS.

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%.

As of December 31, 2022, the BNP Facility had the following terms and balances (dollar amounts in thousands):

Principal

Unused Commitment

Interest Rate

Maturity

BNP Facility

$104,700

$45,300

SOFR + 2.65%

June 20, 2027

Unsecured Notes. The Unsecured Notes totaled $180.0 million and $180.0 million in aggregate principal debt at December 31, 2022 and 2021, respectively.

Issuances

On February 10, 2021, we closed the public offering of $100.0 million aggregate principal amount of our Unsecured Notes Due February 2026, and on March 18, 2021, we closed an additional public offering of $25.0 million aggregate principal amount of our Unsecured Notes Due February 2026. The total net proceeds to us from the Unsecured Notes Due February 2026, after deducting underwriting discounts and offering expenses of $3.9 million, was approximately $121.1 million.

On October 28, 2021 and November 1, 2021, we closed the public offering of $55.0 aggregate principal amount of our Unsecured Notes Due October 2028, which included a full exercise of the underwriters overallotment option. The total net proceeds to us, after deducting underwriting discounts and offering expenses of $1.4 million, was approximately $53.6 million.

Redemptions

On March 12, 2021, we redeemed all of our $50.0 million aggregate principal amount of Unsecured Notes Due April 2025 and $48.5 million aggregate principal amount of Unsecured Notes Due October 2025.

On November 1, 2021, we redeemed all of our $25.0 million aggregate principal amount of Unsecured Notes Due September 2023.

On November 22, 2021, we redeemed all of our $54.3 million aggregate principal amount of Unsecured Notes Due October 2026.

During the year ended December 31, 2021, we recognized a loss on extinguishment of $4.3 million related to the charge-off of deferred borrowing costs on the redemption of 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 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. No shares of Unsecured Notes were repurchased during the years ended December 31, 2022 and 2021.

As of December 31, 2022, the Unsecured Notes had the following terms and balances (dollar amounts in thousands):


Unsecured Notes	Principal		Stated Interest Rate(1)		Effective Interest Rate(2) (%)		Maturity(3)
Unsecured Notes Due February 2026	$	125,000	4.75	%	5.39	%	2/10/2026
Unsecured Notes Due October 2028	55,000		4.95		5.32		10/31/2028
Total	$	180,000

(1) The weighted-average fixed cash interest rate on the Unsecured Notes as of December 31, 2022 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, at our option at par plus a “make-whole” premium, if applicable. We may redeem the Unsecured Notes Due October 2028 in whole or in part at any time, or from time to time, at our option on or after October 31, 2023.

The average dollar borrowings and average interest rate for all debt the years ended December 31, 2022, 2021 and 2020, were as follows (dollar amounts in thousands):


Year ended	Average Dollar Borrowings		Weighted Average Interest Rate
December 31, 2022	$	358,337	4.75	%
December 31, 2021	344,241		5.09
December 31, 2020	347,229		5.42

Other Liquidity Matters. We expect to fund the growth of our investment portfolio utilizing future equity offerings, and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act. On July 13, 2022, 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 NAV 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 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 certain 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.

its non-interested directors who have no financial interest in the proposal, which would become effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meeting in which quorum is present), which would become effective on the first day after the date of such stockholder approval.

This requirement limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate needing 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.

Contractual Obligations and Off-Balance Sheet Arrangements

At December 31, 2022, we had $14.9 million of cash and cash equivalents, as well as $25.0 million and $45.3 million of unfunded commitments under our PWB Credit Facility and BNP Facility, respectively, to meet our short-term contractual obligations. At December 31, 2022, we had $32.2 million of outstanding commitments to fund portfolio investments that can be funded with our current cash or credit facilities. Long-term contractual obligations, such as our BNP Facility that matures in 2027 and has $104.7 million outstanding at December 31, 2022, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $168.0 million at December 31, 2022. The OFSCC-FS portfolio is primarily comprised of 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.

At December 31, 2022, we have $50.9 million of outstanding SBA debentures that mature in 2025, which we may repay prior to their maturity dates by using proceeds from investment repayments. The SBIC I LP investment portfolio has a fair value of $167.2 million at December 31, 2022.

We have entered into contracts with affiliates under which we will incur 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 in 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.

Distributions

We are taxed as a RIC under the Code. 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. For the years ended

December 31, 2022, 2021 and 2020, we accrued U.S. federal excise taxes of $0.1 million, $0, and $0, respectively. Each year, a statement on Form 1099-DIV identifying the source of the distribution is distributed to the Company’s stockholders.

For a detailed description of our distributions paid for the years ended December 31, 2022, 2021 and 2020, see “Item 8.—Financial Statements–Note 10.”

Recent Developments

On February 28, 2023, our Board declared a distribution of $0.33 per share for the first quarter of 2022, payable on March 31, 2023 to stockholders of record as of March 24, 2023.

Item 7A. 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, rising interest rates and the risk of recession 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 - 1A. Risk Factors”.

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 “Part II - Item 7. 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 year ended December 31, 2022 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 rising inflation rates may affect both our cost of funding and the valuation of our investment portfolio. As of December 31, 2022, 94% of our debt investments, at fair value, bore interest at floating interest rates. Historically, the interest rates on our debt investments bearing floating interest rates have been based on a floating LIBOR, but will continue to transition away from LIBOR to SOFR, and typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis.

As of December 31, 2022, our outstanding SBA debentures and Unsecured Notes bore interest at a fixed rate. Our PWB Credit Facility and BNP Facility had floating interest rate provisions based on the Prime Rate and SOFR, respectively.

Interest rate sensitivity refers to the change in interest income and interest expense that may result from changes in the level of interest rates. Assuming that the consolidated balance sheet as of December 31, 2022, 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 base rate changes in interest rates (in thousands):


Basis point increase	Interest income		Interest expense		Net change
25	$	2,141	$	(159)	$	1,982
50	3,043		(421)		2,622
75	3,945		(683)		3,262
100	4,848		(944)		3,904
125	5,750		(1,206)		4,544


Basis point decrease	Interest income		Interest expense		Net change
25	$	(760)	$	364	$	(396)
50	(1,441)		626		(815)
75	(2,113)		888		(1,225)
100	(2,973)		1,150		(1,823)
125	(3,834)		1,411		(2,423)

Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes as of December 31, 2022, 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. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

We are subject to financial market risks, including changes in interest rates. Changes in interest rates affect both our cost of funding and the valuation of our investment portfolio. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment portfolio and investment income may be affected by changes in various interest rates, including the transition away from LIBOR to any one the various alternative reference rates.

ITEM 8. Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

OFS Capital Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of assets and liabilities of OFS Capital Corporation and subsidiaries (the Company), including the consolidated schedules of investments, as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three‑year period ended December 31, 2022 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Such procedures also included confirmation of investments owned as of December 31, 2022, by correspondence with custodians, agents, or portfolio companies, or by other appropriate auditing procedures where replies were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the fair value of Portfolio Company Investments using unobservable inputs

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company measures its investments at fair value. For those investments where the valuation is based on less observable or unobservable inputs, the Company’s determination of fair value requires more judgment. The majority of the Company’s investments are debt or equity investments in a portfolio company, excluding Structured Finance Securities, (collectively, Portfolio Company Investments), valued using unobservable inputs which the Company measures using either the income approach or market approach. As of December 31, 2022, the fair value of such investments was $381.2 million.

We identified the evaluation of the fair value of Portfolio Company Investments valued using unobservable inputs as a critical audit matter. In particular, assessing the discount rates used in the discounted cash flows valuation technique and the earnings metric multiples used in the market approach valuation technique required a high degree of subjective auditor judgment and the involvement of valuation professionals.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the fair value of Portfolio Company Investments using unobservable inputs. This included controls related to the development of the discount rates and earnings metric multiples used in the discounted cash flows and market approach valuation techniques, respectively. For a selection of Portfolio Company Investments,

we compared relevant data elements used by the Company to derive the discount rates and earnings metric multiples to underlying documentation. We involved valuation professionals with specialized skills and knowledge who assisted in evaluating a selection of Portfolio Company Investments by developing:

- a market yield analysis that assessed publicly available market information such as observable market yields of comparable companies of similar credit quality for selected Portfolio Company Investments fair valued by the Company using the income approach

- a set of guideline public companies that assessed market information from publicly available sources, including earnings metric multiples of publicly traded comparable companies for selected Portfolio Company Investments fair valued by the Company using the market approach

- a fair value range for the selected Portfolio Company Investments, based upon the independent market research performed and compared the results to the Company’s fair value estimates.

Accompanying Supplementary Information

We have also previously audited, in accordance with the standards of the PCAOB, the statements of assets and liabilities of the Company, including the schedules of investments, as of December 31, 2020 and 2019, and the related statements of operations and cash flows for the years then ended and the related statements of changes in net assets for each of the years in the two-year period ended December 31, 2020 (none of which is presented herein), and we expressed unqualified opinions on those financial statements. The senior securities information as of December 31, 2022, 2021, 2020 and 2019 included in Part II, Item 5 of the Annual Report on Form 10-K of the Company under the caption “Senior Securities” (the senior securities table) has been subjected to audit procedures performed in conjunction with the audits of the Company’s consolidated financial statements. The senior securities table is the responsibility of the Company’s management. Our audit procedures included determining whether the senior securities table reconciles to the consolidated financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the senior securities table. In forming our opinion on the senior securities table, we evaluated whether the senior securities table, including its form and content, is presented in conformity with the instructions to Form N-2. In our opinion, the senior securities table as of December 31, 2022, 2021, 2020 and 2019 is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

/s/ i KPMG LLP

We have served as the Company’s auditor since 2019.

i Chicago, Illinois

March 3, 2023

100

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except per share data)


	December 31,
	2022		2021
Assets
Investments, at fair value
Non-control/non-affiliate investments (amortized cost of $ i 446,620 and $ i 428,398 respectively)	$	i 402,771	$	i 421,567
Affiliate investments (amortized cost of $ i 18,100 and $ i 17,650, respectively)	i 96,701		i 72,584
Control investments (amortized cost of $ i 10,160 and $ i 11,264, respectively)	i 1,104		i 12,948
Total investments, at fair value (amortized cost of $ i 474,880 and $ i 457,312, respectively)	i 500,576		i 507,099
Cash	i 14,937		i 43,048
Receivable for investments sold	i —		i 14,893
Interest receivable	i 2,202		i 1,475
Prepaid expenses and other assets	i 3,002		i 2,533
Total assets	$	i 520,717	$	i 569,048

Liabilities
Revolving lines of credit	$	i 104,700	$	i 100,000
SBA debentures (net of deferred debt issuance costs of $ i 223 and $ i 555, respectively)	i 50,697		i 69,365
Unsecured Notes (net of discounts and deferred debt issuance costs of $ i 3,647 and $ i 4,554, respectively)	i 176,353		i 175,446
Interest payable	i 3,947		i 3,685
Payable to investment adviser and affiliates (Note 3)	i 3,909		i 6,217
Payable for investments purchased	i —		i 8,788
Accrued professional fees	i 444		i 452
Other liabilities	i 244		i 1,351
Total liabilities	$	i 340,294	$	i 365,304

Commitments and contingencies (Note 6)	i		i

Net Assets
Preferred stock, par value of $ i i 0.01 / per share, i i 2,000,000 / shares authorized, i i i i 0 / / / shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively	$	i —	$	i —
Common stock, par value of $ i i 0.01 / per share, i i 100,000,000 / shares authorized, i i 13,398,078 / and i i 13,422,413 / shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively	i 134		i 134
Paid-in capital in excess of par	i 184,841		i 185,113
Total distributable earnings (accumulated losses)	( i 4,552)		i 18,497
Total net assets	$	i 180,423	$	i 203,744

Total liabilities and net assets	$	i 520,717	$	i 569,048

Number of shares outstanding	i 13,398,078		i 13,422,413
Net asset value per share	$	i 13.47	$	i 15.18

See Notes to Consolidated Financial Statements.

101

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Dollar amounts in thousands, except per share data)

Years Ended December 31,

2022

2021

2020

Investment income

Interest income:

Non-control/non-affiliate investments

i 46,117

i 37,350

i 34,278

Affiliate investments

i —

i 3,686

i 7,549

Control investments

i 141

i 1,348

i 1,217

Total interest income

i 46,258

i 42,384

i 43,044

Dividend income:

Non-control/non-affiliate investments

i 800

i 888

i —

Affiliate investments

i 568

i 1,143

i 955

Control investments

i 45

i 136

i —

Total dividend income

i 1,413

i 2,167

i 955

Fee income:

Non-control/non-affiliate investments

i 1,067

i 2,485

i 945

Affiliate investments

i —

i 653

i 465

Control investments

i 6

i 74

i 66

Total fee income

i 1,073

i 3,212

i 1,476

Total investment income

i 48,744

i 47,763

i 45,475

Expenses

Interest and financing expense

i 17,025

i 17,515

i 18,808

Management fees

i 7,979

i 7,669

i 7,605

Income Incentive Fee

i 2,276

i 2,352

i 2,025

Capital Gains Fee

( i 1,916)

i 1,916

i —

Professional fees

i 1,608

i 1,670

i 1,993

Administration fees

i 1,742

i 1,758

i 1,855

Other expenses

i 1,678

i 1,433

i 1,335

Total expenses before Income Incentive Fee waiver

i 30,392

i 34,313

i 33,621

Income Incentive Fee waiver (Note 3)

i —

( i 441)

Total expenses, net of Income Incentive Fee waiver

i 30,392

i 34,313

i 33,180

Net investment income

i 18,352

i 13,450

i 12,295

Net realized and unrealized gain (loss) on investments

Net realized loss on non-control/non-affiliate investments

( i 2,163)

( i 27,114)

( i 10,021)

Net realized gain on affiliate investments

i —

i 7,545

i —

Net realized gain on control investment

i 278

i —

Income tax benefit (expense) on net realized investment gains

i 155

( i 1,027)

i —

Net unrealized appreciation (depreciation) on non-control/non-affiliate investments

( i 42,110)

i 38,551

( i 11,295)

Net unrealized appreciation on affiliate investments

i 23,667

i 28,153

i 12,633

Net unrealized appreciation (depreciation) on control investment

( i 5,648)

i 1,783

i 1,704

Deferred tax benefit on net unrealized appreciation/depreciation

i 27

i 114

i 275

Net gain (loss) on investments

( i 25,794)

i 48,005

( i 6,704)

Loss on extinguishment of debts

( i 144)

( i 4,591)

( i 820)

Loss on impairment of goodwill

i —

( i 1,077)

Net increase (decrease) in net assets resulting from operations

( i 7,586)

i 56,864

i 3,694

Net investment income per common share - basic and diluted

i i 1.37 /

i i 1.00 /

i i 0.92 /

Net increase (decrease) in net assets resulting from operations per common share - basic and diluted

( i 0.57)

i 4.24

i 0.28

Distributions declared per common share

i 1.16

i 0.91

i 0.86

Basic and diluted weighted average common shares outstanding

i i 13,417,410 /

i i 13,413,861 /

i i 13,394,005 /

See Notes to Consolidated Financial Statements.

102

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Dollar amounts in thousands, except per share data)

Preferred Stock

Common Stock

Number of shares

Par value

Number of shares

Par value

Paid-in capital in excess of par

Total distributable earnings (accumulated losses)

Total net assets

Balances at December 31, 2019

—

i 13,376,836

i 134

i 187,305

( i 20,812)

i 166,627

Net increase (decrease) in net assets resulting from operations:

Net investment income

—

i 12,295

Net realized losses on investments, net of taxes

—

( i 10,022)

Unrealized appreciation on investments, net of deferred taxes

—

i 3,318

Loss on extinguishment of debts

—

( i 820)

Loss on impairment of goodwill

—

( i 1,077)

Tax reclassifications of permanent differences

—

( i 331)

i 331

i —

Distributions to stockholders:

Common stock issued from reinvestment of stockholder distributions, net of repurchases

—

i 32,723

—

i 150

—

i 150

Dividends declared

—

( i 11,515)

Net increase (decrease) for the year ended December 31, 2020

—

i 32,723

—

( i 181)

( i 7,490)

( i 7,671)

Balances at December 31, 2020

—

i 13,409,559

i 134

i 187,124

( i 28,302)

i 158,956

Net increase (decrease) in net assets resulting from operations:

Net investment income

—

i 13,450

Net realized losses on investments, net of taxes

—

( i 20,596)

Unrealized appreciation on investments, net of deferred taxes

—

i 68,601

Loss on extinguishment of debts

—

( i 4,591)

Tax reclassifications of permanent differences

—

( i 2,142)

i 2,142

i —

Distributions to stockholders:

Common stock issued from reinvestment of stockholder distributions

—

i 13,554

—

i 136

—

i 136

Dividends declared

—

( i 12,207)

Repurchase of common stock

—

( i 700)

—

( i 5)

—

( i 5)

Net increase (decrease) for the year ended December 31, 2021

—

i 12,854

—

( i 2,011)

i 46,799

i 44,788

Balances at December 31, 2021

—

i 13,422,413

i 134

i 185,113

i 18,497

i 203,744

Net increase (decrease) in net assets resulting from operations:

Net investment income

—

i 18,352

Net realized losses on investments, net of taxes

—

( i 1,730)

Unrealized depreciation on investments, net of deferred taxes

—

( i 24,064)

Loss on extinguishment of debts

—

( i 144)

Tax reclassifications of permanent differences

—

( i 101)

i 101

i —

Distributions to stockholders:

Common stock issued from reinvestment of stockholder distributions

—

i 17,919

—

i 179

—

i 179

Dividends declared

—

( i 15,564)

Repurchase of common stock

—

( i 42,254)

—

( i 350)

—

( i 350)

Net decrease for the year ended December 31, 2022

—

( i 24,335)

—

( i 272)

( i 23,049)

( i 23,321)

Balances at December 31, 2022

—

i 13,398,078

i 134

i 184,841

( i 4,552)

i 180,423

See Notes to Consolidated Financial Statements.

103

OFS Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)

Years Ended December 31,

2022

2021

2020

Cash flows from operating activities

Net increase (decrease) in net assets resulting from operations

( i 7,586)

i 56,864

i 3,694

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

i 1,885

i 19,568

i 10,022

Net unrealized (appreciation) depreciation on investments, net of deferred taxes

i 24,064

( i 68,601)

( i 3,318)

Income tax (benefit) expense from realized gains on investments

( i 155)

i 1,027

i —

Loss on extinguishment of debts

i 144

i 4,591

i 820

Loss on impairment of goodwill

i —

i 1,077

Amortization and write-off of deferred offering costs

i 1,549

i 1,969

i 1,690

Amortization of intangible asset

i 409

i 222

i 206

Amortization of Net Loan Fees

( i 1,738)

( i 2,442)

( i 1,640)

Amendment fees collected

i 206

i 265

i 106

Payment-in-kind interest and dividend income

( i 976)

( i 2,141)

( i 1,971)

Accretion of interest income on Structured Finance Securities

( i 10,656)

( i 9,861)

( i 5,877)

Purchase and origination of portfolio investments

( i 154,167)

( i 268,901)

( i 130,399)

Proceeds from principal payments on portfolio investments

i 88,673

i 200,713

i 129,580

Proceeds from sale or redemption of portfolio investments

i 46,617

i 52,789

i 70,771

Distributions received from Structured Finance Securities

i 12,173

i 12,656

i 6,709

Changes in operating assets and liabilities:

Interest receivable

( i 727)

( i 177)

i 2,051

Interest payable

i 262

i 509

( i 523)

Receivable for investments sold

i 14,893

( i 14,893)

i —

Payable to investment adviser and affiliates

( i 2,308)

i 2,965

( i 854)

Payable for investments purchased

( i 8,788)

i 377

( i 1,853)

Other assets and liabilities

( i 828)

i 492

i 334

Net cash provided by (used in) operating activities

i 2,946

( i 12,009)

i 80,625

Cash flows from financing activities

Proceeds from offerings of Unsecured Notes, net of discounts

i —

i 175,506

i 24,250

Redemptions of Unsecured Notes

i —

( i 177,850)

i —

Distributions paid to stockholders

( i 15,385)

( i 12,071)

( i 11,365)

Borrowings under revolving lines of credit

i 59,450

i 145,350

i 86,200

Repayments under revolving lines of credit

( i 54,750)

( i 77,400)

( i 110,600)

Repayments of SBA debentures

( i 19,000)

( i 35,350)

( i 44,610)

Payments of deferred debt issuance costs and other financing costs

( i 1,372)

( i 836)

( i 239)

Net cash provided by (used in) financing activities

( i 31,057)

i 17,349

( i 56,364)

Net increase (decrease) in cash

( i 28,111)

i 5,340

i 24,261

Cash — beginning of year

i 43,048

i 37,708

i 13,447

Cash — end of year

i 14,937

i 43,048

i 37,708

Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for interest

i 15,214

i 15,037

i 17,641

Reinvestment of stockholder distributions

i 179

i 136

i 150

See Notes to Consolidated Financial Statements.

104

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 10.39%

L+

i 6.00%

1/28/2022

11/16/2027

i 8,910

i 8,854

i 8,821

i 4.9

AIDC Intermediateco 2, LLC (15)

Computer Systems Design Services

Senior Secured Loan

i 10.44%

SOFR+

i 6.25%

7/22/2022

7/22/2027

i 2,000

i 1,959

i 1,943

i 1.1

Allen Media, LLC (14) (15)

Cable and Other Subscription Programming

Senior Secured Loan

i 10.23%

SOFR+

i 5.50%

3/2/2021

2/10/2027

i 3,768

i 3,763

i 3,103

i 1.7

All Star Auto Lights, Inc. (4) (15) (21)

Motor Vehicle Parts (Used) Merchant Wholesalers

Senior Secured Loan

i 12.00%

L+

i 7.25%

12/19/2019

8/20/2025

i 23,098

i 22,863

i 22,890

i 12.7

Senior Secured Loan

i 11.76%

L+

i 7.25%

8/4/2022

8/20/2025

i 4,975

i 4,889

i 4,930

i 2.7

i 28,073

i 27,752

i 27,820

i 15.4

Astro One Acquisition Corporation

Other Miscellaneous Nondurable Goods Merchant Wholesalers

Senior Secured Loan

i 13.23%

L+

i 8.50%

1/31/2022

9/14/2029

i 3,000

i 2,680

i 2,246

i 1.2

Asurion, LLC (14)

Communication Equipment Repair and Maintenance

Senior Secured Loan

i 9.63%

L+

i 5.25%

6/28/2022

1/31/2028

i 2,000

i 1,766

i 1,572

i 0.9

Atlantis Holding, LLC (14) (15)

Electronics and Appliance Stores

Senior Secured Loan

i 11.83%

SOFR+

i 7.25%

3/29/2022

3/31/2029

i 8,316

i 8,037

i 8,102

i 4.5

Avison Young (22)

Nonresidential Property Managers

Senior Secured Loan

i 10.19%

SOFR+

i 5.75%

11/25/2021

1/31/2026

i 3,946

i 3,926

i 3,475

i 1.9

Senior Secured Loan (15)

i 11.44%

SOFR+

i 7.00%

8/19/2022

1/31/2026

i 798

i 755

i 732

i 0.4

i 4,744

i 4,681

i 4,207

i 2.3

105

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 13.23%

L+

i 8.50%

6/10/2021

6/11/2028

i 4,962

i 4,904

i 4,861

i 2.7

Senior Secured Loan (Delayed Draw) (5)

i 13.23%

L+

i 8.50%

6/10/2021

6/11/2028

i 3,988

i 3,883

i 3,814

i 2.1

i 8,950

i 8,787

i 8,675

i 4.8

BCPE North Star US Holdco 2, Inc. (F/K/A Dessert Holdings)

Ice Cream and Frozen Dessert Manufacturing

Senior Secured Loan

i 11.98%

L+

i 7.25%

2/2/2022

6/8/2029

i 1,667

i 1,641

i 1,540

i 0.9

Boca Home Care Holdings, Inc. (20)

Services for the Elderly and Persons with Disabilities

Senior Secured Loan (15)

i 11.33%

SOFR+

i 6.50%

2/25/2022

2/25/2027

i 9,548

i 9,469

i 9,201

i 5.1

Senior Secured Loan (Revolver) (5)

n/m (18)

SOFR+

i 1.00%

2/25/2022

2/25/2027

i —

( i 11)

( i 47)

i —

Common Equity ( i 1,290 Class A units) (10) (13)

2/25/2022

i 1,290

i 1,098

i 0.6

i 9,548

i 10,748

i 10,252

i 5.7

Constellis Holdings, LLC (10)

Other Justice, Public Order, and Safety Activities

Common Equity ( i 20,628 common shares)

3/27/2020

i 703

i 32

i —

Convergint Technologies Holdings, LLC

Security Systems Services (except Locksmiths)

Senior Secured Loan

i 11.07%

SOFR+

i 6.75%

9/28/2018

3/30/2029

i 5,938

i 5,849

i 5,767

i 3.2

Creation Technologies (15) (22)

Bare Printed Circuit Board Manufacturing

Senior Secured Loan

i 9.25%

L+

i 5.50%

9/24/2021

10/5/2028

i 1,990

i 1,977

i 1,854

i 1.0

Diamond Sports Group, LLC (14) (15)

Television Broadcasting

Senior Secured Loan

i 12.32%

SOFR+

i 8.00%

3/9/2022

5/25/2026

i 252

i 246

i 240

i 0.1

Senior Secured Loan (6)

i 7.57%

SOFR+

i 3.25%

11/19/2019

8/24/2026

i 1,935

i 248

i 0.1

i 2,187

i 2,181

i 488

i 0.2

106

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 10.07%

SOFR+

i 5.75%

2/11/2022

12/22/2028

i 1,950

i 1,933

i 1,873

i 1.0

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

SOFR+

i 2.88%

2/11/2022

12/22/2028

i —

( i 3)

( i 11)

i —

i 1,950

i 1,930

i 1,862

i 1.0

Electrical Components International, Inc.

Current-Carrying Wiring Device Manufacturing

Senior Secured Loan

i 12.88%

L+

i 8.50%

4/8/2021

6/26/2026

i 3,679

i 3,360

i 3,468

i 1.9

EnergySolutions, LLC (15)

Hazardous Waste Treatment and Disposal

Senior Secured Loan

i 8.48%

L+

i 3.75%

7/8/2021

5/9/2025

i 1,768

i 1,765

i 1,652

i 0.9

Envocore Holding, LLC (F/K/A LRI Holding, LLC) (4) (19)

Electrical Contractors and Other Wiring Installation Contractors

Senior Secured Loan

i 7.50%

N/A

6/30/2017

12/31/2025

i 6,359

i 3.5

Senior Secured Loan (6) (10)

i 10.00% PIK

N/A

6/30/2017

12/31/2026

i 7,098

i 6,584

i 2,887

i 1.6

Senior Secured Loan (Revolver) (5)

n/m (18)

N/A

11/29/2021

12/31/2025

i —

Equity Participation Rights (10) (23)

12/31/2021

i 4,722

i —

i 13,457

i 17,665

i 9,246

i 5.1

Excelin Home Health, LLC (4)

Home Health Care Services

Senior Secured Loan

i 14.23% cash / i 1.25% PIK

L+

i 9.50%

10/25/2018

9/30/2025

i 4,277

i 4,210

i 3,987

i 2.2

GGC Aerospace Topco L.P.

Other Aircraft Parts and Auxiliary Equipment Manufacturing

Common Equity ( i 368,852 Class A units) (10)

12/29/2017

i 450

i —

Common Equity ( i 40,984 Class B units) (10)

12/29/2017

i 50

i —

i 500

i —

Honor HN Buyer Inc (15)

Services for the Elderly and Persons with Disabilities

Senior Secured Loan

i 10.48%

SOFR+

i 5.75%

10/15/2021

10/15/2027

i 6,532

i 6,428

i 6,426

i 3.6

Senior Secured Loan (Delayed Draw) (5)

i 10.48%

SOFR+

i 5.75%

10/15/2021

10/15/2027

i 1,904

i 1,812

i 1,762

i 1.0

Senior Secured Loan (Revolver) (5)

n/m (18)

SOFR+

i 5.75%

10/15/2021

10/15/2027

i —

( i 12)

i —

i 8,436

i 8,228

i 8,176

i 4.6

107

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 10.50%

L+

i 6.75%

1/27/2022

3/2/2029

i 4,000

i 3,732

i 2.1

Inergex Holdings, LLC

Other Computer Related Services

Senior Secured Loan (11)

i 12.15% cash / i 2.00% PIK

L+

i 7.00%

10/1/2018

10/1/2024

i 14,868

i 14,669

i 14,868

i 8.2

Senior Secured Loan (Revolver) (5)

n/m (18)

L+

i 7.00%

10/1/2018

10/1/2024

i —

( i 73)

i —

i 14,868

i 14,596

i 14,868

i 8.2

Ivanti Software, Inc. (14) (15)

Software Publishers

Senior Secured Loan

i 9.01%

L+

i 4.25%

3/26/2021

12/1/2027

i 2,963

i 2,972

i 2,359

i 1.3

JP Intermediate B, LLC (15)

Drugs and Druggists' Sundries Merchant Wholesalers

Senior Secured Loan

i 9.91%

L+

i 5.50%

1/14/2021

11/15/2025

i 5,369

i 5,227

i 4,622

i 2.6

Karman Buyer Corp (14) (15)

Advertising Agencies

Senior Secured Loan

i 8.28%

L+

i 4.50%

3/2/2022

10/28/2027

i 2,284

i 2,256

i 1,898

i 1.1

KNS Acquisition Corp. (15)

Electronic Shopping and Mail-Order Houses

Senior Secured Loan

i 10.42%

L+

i 6.25%

4/16/2021

4/21/2027

i 6,781

i 6,747

i 6,515

i 3.6

Kreg LLC (15)

Other Ambulatory Health Care Services

Senior Secured Loan

i 10.98% cash / i 0.50% PIK

SOFR+

i 6.25%

12/20/2021

12/20/2026

i 16,550

i 16,452

i 15,675

i 8.7

Senior Secured Loan (Revolver) (5)

n/m (18)

SOFR+

i 6.25%

12/20/2021

12/20/2026

i —

( i 8)

( i 71)

i —

i 16,550

i 16,444

i 15,604

i 8.7

LogMeIn, Inc. (14) (15)

Data Processing, Hosting, and Related Services

Senior Secured Loan

i 9.14%

L+

i 4.75%

3/26/2021

8/31/2027

i 2,946

i 2,945

i 1,909

i 1.1

108

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 10.69%

SOFR+

i 6.25%

5/17/2022

5/17/2027

i 2,779

i 2,754

i 2,592

i 1.4

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

SOFR+

i 6.25%

5/17/2022

5/17/2027

i —

( i 8)

( i 81)

i —

i 2,779

i 2,746

i 2,511

i 1.4

Milrose Consultants, LLC (4) (21)

Administrative Management and General Management Consulting Services

Senior Secured Loan (15)

i 11.33%

SOFR+

i 6.50%

7/16/2019

7/16/2025

i 27,172

i 27,151

i 26,700

i 14.8

Senior Secured Loan (Revolver) (5)

i 11.33%

SOFR+

i 6.50%

7/16/2019

7/16/2025

i 476

i 470

i 448

i 0.2

i 27,648

i 27,621

i 27,148

i 15.0

One GI LLC

Offices of Other Holding Companies

Senior Secured Loan (15)

i 11.13%

L+

i 6.75%

12/13/2021

12/22/2025

i 7,508

i 7,395

i 7,039

i 3.9

Senior Secured Loan (Delayed Draw) (5) (15)

i 11.14%

L+

i 6.75%

12/13/2021

12/22/2025

i 3,946

i 3,866

i 3,698

i 2.0

Senior Secured Loan (Revolver) (5)

n/m (18)

L+

i 6.75%

12/13/2021

12/22/2025

i —

( i 21)

( i 90)

i —

i 11,454

i 11,240

i 10,647

i 5.9

Planet Bingo, LLC (F/K/A 3rd Rock Gaming Holdings, LLC)

Software Publishers

Senior Secured Loan (6)

i 4.00%

N/A

3/13/2018

1/1/2024

i 16,648

i 14,113

i 6,864

i 3.8

PM Acquisition LLC

All Other General Merchandise Stores

Common Equity ( i 499 units) (10) (13)

9/30/2017

i 499

i 967

i 0.5

RC Buyer, Inc.

Other Automotive Mechanical and Electrical Repair and Maintenance

Senior Secured Loan

i 11.23%

L+

i 6.50%

6/24/2022

7/30/2029

i 1,125

i 1,083

i 1,064

i 0.6

Reception Purchaser LLC (15)

Transportation and Warehousing

Senior Secured Loan

i 10.42%

SOFR+

i 6.00%

4/28/2022

3/24/2028

i 2,548

i 2,514

i 2,501

i 1.4

RPLF Holdings, LLC (10) (13)

Software Publishers

Common Equity ( i 345,339 Class A units)

1/17/2018

i 492

i 406

i 0.2

109

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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)

i 9.11%

L+

i 4.75%

4/16/2021

4/27/2028

i 2,769

i 2,756

i 1,931

i 1.1

Senior Secured Loan

i 12.11%

L+

i 7.75%

4/16/2021

4/27/2029

i 4,450

i 4,400

i 3,350

i 1.9

i 7,219

i 7,156

i 5,281

i 3.0

RumbleOn, Inc. (15) (22)

Other Industrial Machinery Manufacturing

Senior Secured Loan

i 12.98%

L+

i 8.25%

8/31/2021

8/31/2026

i 3,985

i 3,817

i 3,617

i 2.0

Senior Secured Loan (Delayed Draw) (5)

i 12.98%

L+

i 8.25%

8/31/2021

8/31/2026

i 1,202

i 1,186

i 1,042

i 0.6

Warrants (warrants to purchase up to $ i 600,000 in common stock)

8/31/2021

7/25/2023 (12)

i 200

i —

i 5,187

i 5,203

i 4,659

i 2.6

Sentry Centers Holdings, LLC (10) (13)

Other Professional, Scientific, and Technical Services

Preferred Equity ( i 1,603 Series B units)

9/4/2020

i 160

i 80

i —

Signal Parent, Inc. (14) (15)

New Single-Family Housing Construction (except For-Sale Builders)

Senior Secured Loan

i 7.89%

L+

i 3.50%

3/25/2021

4/3/2028

i 1,822

i 1,807

i 1,566

i 0.9

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) (15)

Child Day Care Services

Senior Secured Loan

i 12.98%

L+

i 8.25%

7/26/2018

7/30/2026

i 6,399

i 6,375

i 6,182

i 3.4

SSJA Bariatric Management LLC (15)

Offices of Physicians, Mental Health Specialists

Senior Secured Loan

i 9.98%

SOFR+

i 5.25%

8/26/2019

8/26/2024

i 9,675

i 9,643

i 9,513

i 5.3

Senior Secured Loan

i 9.98%

SOFR+

i 5.25%

12/31/2020

8/26/2024

i 1,045

i 1,041

i 1,028

i 0.6

Senior Secured Loan

i 9.98%

SOFR+

i 5.25%

12/8/2021

8/26/2024

i 2,633

i 2,617

i 2,589

i 1.4

Senior Secured Loan (Revolver) (5)

n/m (18)

SOFR+

i 5.25%

8/26/2019

8/26/2024

i —

( i 2)

( i 11)

i —

i 13,353

i 13,299

i 13,119

i 7.3

SS Acquisition, LLC (15)

Sports and Recreation Instruction

Senior Secured Loan (8)

i 11.10%

SOFR+

i 6.85%

12/30/2021

12/30/2026

i 3,042

i 3,017

i 2,988

i 1.7

Senior Secured Loan (Delayed Draw) (5)

i 11.84%

SOFR+

i 7.59%

12/30/2021

12/30/2026

i 1,217

i 1,205

i 1,184

i 0.7

i 4,259

i 4,222

i 4,172

i 2.4

110

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 9.44%

L+

i 5.00%

6/24/2019

4/16/2026

i 2,900

i 2,858

i 2,689

i 1.5

STS Operating, Inc.

Industrial Machinery and Equipment Merchant Wholesalers

Senior Secured Loan

i 12.38%

L+

i 8.00%

5/15/2018

4/30/2026

i 9,073

i 9,071

i 9,073

i 5.0

The Escape Game, LLC (4)

Other amusement and recreation industries

Senior Secured Loan

i 11.38%

L+

i 7.00%

12/21/2021

12/22/2024

i 16,333

i 16,497

i 9.1

Senior Secured Loan (Revolver) (5)

n/m (18)

L+

i 7.00%

12/21/2021

12/22/2024

i —

( i 31)

i —

i 16,333

i 16,302

i 16,497

i 9.1

Thryv, Inc. (14) (15)

Directory and Mailing List Publishers

Senior Secured Loan

i 12.88%

L+

i 8.50%

2/18/2021

3/1/2026

i 3,978

i 3,910

i 3,930

i 2.2

Tolemar Acquisition, INC. (15)

Motorcycle, Bicycle, and Parts Manufacturing

Senior Secured Loan

i 9.32%

L+

i 5.75%

10/14/2021

10/14/2026

i 15,504

i 15,445

i 15,504

i 8.6

Senior Secured Loan (Revolver) (5)

i 12.25%

Prime +

i 4.75%

10/14/2021

10/14/2026

i 438

i 428

i 438

i 0.2

i 15,942

i 15,873

i 15,942

i 8.8

Tony's Fresh Market / Cardenas Markets (15)

Supermarkets and Other Grocery (except Convenience) Stores

Senior Secured Loan

i 11.44%

SOFR+

i 6.75%

7/20/2022

8/1/2029

i 5,985

i 5,647

i 5,532

i 3.1

TruGreen Limited Partnership

Landscaping Services

Senior Secured Loan

i 12.91%

L+

i 8.50%

5/13/2021

11/2/2028

i 4,500

i 4,611

i 4,226

i 2.3

United Biologics Holdings, LLC (4) (10)

Medical Laboratories

Preferred Equity ( i 4,701 units)

4/16/2013

i 8

i 24

i —

Warrants ( i 3,976 units)

7/26/2012

4/16/2023 (12)

i 9

i 11

i —

i 17

i 35

i —

111

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 9.88%

L+

i 5.50%

7/21/2021

9/1/2027

i 3,127

i 3,100

i 2,843

i 1.6

Total Debt and Equity Investments

i 342,699

i 344,143

i 314,253

i 174.2

Structured Finance Securities (22)

Apex Credit CLO 2020 (9) (16)

Subordinated Notes

i 19.26%

11/16/2020

10/20/2031

i 11,080

i 9,915

i 7,996

i 4.4

Apex Credit CLO 2021 Ltd (9) (16)

Subordinated Notes

i 18.54%

5/28/2021

7/18/2034

i 8,630

i 7,198

i 6,141

i 3.4

Apex Credit CLO 2022-1A (9) (16)

Subordinated Notes

i 16.48%

4/28/2022

4/22/2033

i 10,726

i 8,389

i 8,611

i 4.8

Ares L CLO

Mezzanine Debt - Class E

i 9.73%

L+

i 5.65%

2/17/2022

1/15/2032

i 6,000

i 5,749

i 5,272

i 2.9

Barings CLO 2019-I Ltd.

Mezzanine Debt - Class E

i 10.94%

L+

i 6.86%

2/23/2022

4/15/2035

i 8,000

i 7,899

i 7,308

i 4.1

Battalion CLO XI, Ltd.

Mezzanine Debt - Class E

i 11.17%

L+

i 6.85%

4/24/2022

4/24/2034

i 6,000

i 5,855

i 5,445

i 3.0

Brightwood Capital MM CLO 2022-1, LTD (17)

Loan accumulation facility

i 14.50%

1/5/2022

12/31/2032

i 8,500

i 8,299

i 4.6

Dryden 53 CLO, LTD. (9) (16)

112

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Subordinated Notes - Income

i 23.00%

10/26/2020

1/15/2031

i 2,700

i 1,499

i 1,029

i 0.5

Subordinated Notes

i 22.97%

10/26/2020

1/15/2031

i 2,159

i 1,199

i 823

i 0.5

i 4,859

i 2,698

i 1,852

i 1.0

Dryden 76 CLO, Ltd. (9) (16)

Subordinated Notes

i 19.75%

9/27/2019

10/20/2032

i 2,750

i 2,266

i 2,030

i 1.1

Elevation CLO 2017-7, Ltd. (7) (9) (16)

Subordinated Notes

i 0.00%

2/6/2019

7/15/2030

i 5,449

i 1,311

i 118

i 0.1

Flatiron CLO 18, Ltd. (9) (16)

Subordinated Notes

i 20.94%

1/2/2019

4/17/2031

i 9,680

i 6,907

i 5,587

i 3.1

Madison Park Funding XXIII, Ltd. (9) (16)

Subordinated Notes

i 23.69%

1/8/2020

7/27/2047

i 10,000

i 6,112

i 5,319

i 2.9

Madison Park Funding XXIX, Ltd. (9) (16)

Subordinated Notes

i 19.83%

12/22/2020

10/18/2047

i 9,500

i 6,459

i 5,645

i 3.1

Monroe Capital MML CLO X, Ltd.

Mezzanine Debt - Class E-R

i 13.03%

SOFR+

i 8.75%

4/22/2022

5/20/2034

i 1,000

i 945

i 874

i 0.5

Octagon Investment Partners 39, Ltd. (9) (16)

Subordinated Notes

i 18.97%

1/23/2020

10/20/2030

i 7,000

i 4,504

i 3,202

i 1.8

Park Avenue Institutional Advisers CLO Ltd 2021-1

Mezzanine Debt - Class E

i 11.54%

L+

i 7.30%

1/26/2021

1/20/2034

i 1,000

i 978

i 910

i 0.5

Redding Ridge 4 (9) (16)

Subordinated Notes

i 17.49%

3/4/2021

4/15/2030

i 1,300

i 1,034

i 695

i 0.4

Regatta II Funding

113

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Mezzanine Debt - Class DR2

i 11.03%

L+

i 6.95%

6/5/2020

1/15/2029

i 800

i 778

i 738

i 0.4

Regatta XXII Funding Ltd

Mezzanine Debt - Class E

i 11.24%

SOFR+

i 7.19%

5/6/2022

7/20/2035

i 3,000

i 2,971

i 2,990

i 1.7

THL Credit Wind River 2019‐3 CLO Ltd. (9) (16)

Subordinated Notes

i 14.24%

4/5/2019

4/15/2031

i 7,000

i 5,347

i 3,926

i 2.2

Trinitas CLO VIII (9) (16)

Subordinated Notes

i 23.02%

3/4/2021

7/20/2117

i 5,200

i 3,060

i 2,216

i 1.2

Venture 45 CLO Ltd.

Mezzanine Debt - Class E

i 11.66%

SOFR+

i 7.70%

4/18/2022

7/20/2035

i 3,000

i 2,931

i 2,876

i 1.6

Wellfleet CLO 2018-2 (9) (16)

Subordinated Notes

i 23.88%

3/4/2021

10/20/2031

i 1,000

i 670

i 471

i 0.3

Total Structured Finance Securities

i 131,474

i 102,477

i 88,518

i 49.1

Total Non-control/Non-affiliate Investments

i 474,173

i 446,620

i 402,771

i 223.2

Affiliate Investments

Contract Datascan Holdings, Inc. (4) (20)

Office Machinery and Equipment Rental and Leasing

Preferred Equity ( i 3,061 Series A shares) i 10% PIK

8/5/2015

i 6,315

i 6,202

i 3.4

Common Equity ( i 11,273 shares) (10)

6/28/2016

i 104

i 510

i 0.3

i 6,419

i 6,712

i 3.7

DRS Imaging Services, LLC (10) (13) (20)

Data Processing, Hosting, and Related Services

Common Equity ( i 1,135 units)

3/8/2018

i 1,135

i 1,568

i 0.9

Master Cutlery, LLC (4) (10) (20)

Sporting and Recreational Goods and Supplies Merchant Wholesalers

114

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Subordinated Loan (6) (11)

i 13.00% PIK

N/A

4/17/2015

7/20/2023

i 8,578

i 4,680

i 122

i 0.1

Preferred Equity ( i 3,723 Series A units), i 8% PIK

4/17/2015

i 3,483

i —

Common Equity ( i 15,564 units)

4/17/2015

i —

i 8,578

i 8,163

i 122

i 0.1

Pfanstiehl Holdings, Inc. (4) (10) (20) (21)

Pharmaceutical Preparation Manufacturing

Common Equity ( i 400 Class A shares)

1/1/2014

i 217

i 85,456

i 47.4

TalentSmart Holdings, LLC (10) (13) (20)

Professional and Management Development Training

Common Equity ( i 1,595,238 Class A shares)

10/11/2019

i 1,595

i 953

i 0.5

TRS Services, LLC (4) (20)

Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance

Preferred Equity ( i 1,937,191 Class A units), i 11% PIK

12/10/2014

i —

i 1,890

i 1.0

Common Equity ( i 3,000,000 units)

12/10/2014

i 572

i —

i 572

i 1,890

i 1.0

Total Affiliate Investments

i 8,578

i 18,101

i 96,701

i 53.6

Control Investment

Eblens Holdings, Inc. (20)

Shoe Store

Subordinated Loan (6)

i 13.00% PIK

N/A

7/13/2017

10/3/2025

i 4,945

i 4,605

i 1,104

i 0.6

Subordinated Loan (6)

i 13.00% PIK

N/A

7/13/2017

10/3/2025

i 4,945

i 4,605

i —

Common Equity ( i 356 Class A units) (10)

10/3/2022

i 950

i —

i 9,890

i 10,160

i 1,104

i 0.6

Total Control Investment

i 9,890

i 10,160

i 1,104

i 0.6

Total Investments

i 492,641

i 474,880

i 500,576

i 277.4

(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.

(2)At December 31, 2022, the Company held loans with an aggregate principal amount of $ i 312,595, or i 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.

115

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(Dollar amounts in thousands)

(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.

(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.

(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 December 31, 2022:

Portfolio Company

Reported Interest Rate

Interest Rate per Credit Agreement

Additional Interest per Annum

SS Acquisition, LLC

i 11.10%

i 10.49%

i 0.61%

SS Acquisition, LLC (Delayed Draw)

i 11.84%

i 10.49%

i 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 amount 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

i 0% to i 2.00%

i 12.15% to i 14.15%

i 2.00%

Master Cutlery, LLC

Senior Secured Loan

i 0% to i 13.00%

i 13.00%

(12)Represents expiration date of the warrants.

(13)All or 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 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 i 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.

116

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

3rd Rock Gaming Holdings, LLC (6) (10)

Software Publishers

Senior Secured Loan

i 4.00%

N/A

3/13/2018

3/12/2023

i 16,728

i 14,358

i 7,027

i 3.3

AAdvantage Loyalty IP Ltd. and American Airlines, Inc. (14) (15) (22)

Scheduled Passenger Air Transportation

Senior Secured Loan

i 5.50%

(L + i 4.75%)

3/10/2021

4/20/2028

i 364

i 360

i 377

i 0.2

Aegion Corporation (15) (22)

Water and Sewer Line and Related Structures Construction

Senior Secured Loan

i 5.50%

(L + i 4.75%)

4/1/2021

5/17/2028

i 630

i 627

i 628

i 0.3

Allen Media, LLC (14) (15)

Cable and Other Subscription Programming

Senior Secured Loan

i 5.72%

(L + i 5.50%)

3/2/2021

2/10/2027

i 3,807

i 3,801

i 3,810

i 1.8

All Star Auto Lights, Inc. (4) (15)

Motor Vehicle Parts (Used) Merchant Wholesalers

Senior Secured Loan

i 8.25%

(L + i 7.25%)

12/19/2019

8/20/2025

i 23,335

i 23,005

i 23,052

i 11.3

Autokiniton US Holdings, Inc. (14) (15)

Automotive Parts and Accessories Stores

Senior Secured Loan

i 5.00%

(L + i 4.50%)

3/26/2021

4/6/2028

i 2,696

i 2,688

i 2,704

i 1.3

Avison Young (15)

Nonresidential Property Managers

Senior Secured Loan

i 5.97%

(L + i 5.75%)

11/25/2021

1/31/2026

i 2,987

i 2,972

i 1.5

Ball Metalpack

Metal Can Manufacturing

Senior Secured Loan

i 9.75%

(L + i 8.75%)

6/8/2021

7/31/2026

i 2,167

i 2,143

i 2,167

i 1.1

Bass Pro Group, LLC (14) (15)

Sporting Goods Stores

Senior Secured Loan

i 4.50%

(L + i 3.75%)

2/26/2021

3/6/2028

i 1,967

i 1,958

i 1,972

i 1.0

117

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

i 9.50%

(L + i 8.50%)

6/10/2021

6/11/2028

i 4,962

i 4,893

i 5,061

i 2.5

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(L + i 8.50%)

6/10/2021

6/11/2028

i —

( i 124)

i 170

i 0.1

i 4,962

i 4,769

i 5,231

i 2.6

Constellis Holdings, LLC (10)

Other Justice, Public Order, and Safety Activities

Common Equity ( i 20,628 common shares)

3/27/2020

i 703

i 29

i —

Convergint Technologies Holdings, LLC

Security Systems Services (except Locksmiths)

Senior Secured Loan

i 7.50%

(L + i 6.75%)

9/28/2018

3/30/2029

i 4,838

i 4,827

i 4,887

i 2.4

Corel Inc. (14) (15)

Software Publishers

Senior Secured Loan

i 5.18%

(L + i 5.00%)

3/2/2021

7/2/2026

i 2,271

i 2,265

i 2,270

i 1.1

Creation Technologies (15) (22)

Bare Printed Circuit Board Manufacturing

Senior Secured Loan

i 6.00%

(L + i 5.50%)

9/24/2021

10/5/2028

i 2,000

i 1,985

i 1,977

i 1.0

DHX Media Ltd. (14) (15) (22)

Motion Picture and Video Production

Senior Secured Loan

i 5.00%

(L + i 4.25%)

3/19/2021

3/18/2028

i 3,974

i 3,929

i 3,970

i 1.9

Diamond Sports Group, LLC (14) (15)

Television Broadcasting

Senior Secured Loan

i 3.36%

(L + i 3.25%)

11/19/2019

8/24/2026

i 1,955

i 1,957

i 918

i 0.5

DIRECTV Financing, LLC (14) (15)

Wired Telecommunications Carriers

Senior Secured Loan

i 5.75%

(L + i 5.00%)

7/22/2021

8/2/2027

i 4,395

i 4,388

i 4,405

i 2.2

Eblens Holdings, Inc. (20)

Shoe Store

Subordinated Loan (11)

i 12.00% cash / i 1.00% PIK

N/A

7/13/2017

1/13/2023

i 9,207

i 9,181

i 9,049

i 4.4

Common Equity ( i 71,250 Class A units) (10)

7/13/2017

i 713

i 292

i 0.1

i 9,207

i 9,894

i 9,341

i 4.5

Electrical Components International, Inc.

Current-Carrying Wiring Device Manufacturing

Senior Secured Loan

i 8.60%

(L + i 8.50%)

4/8/2021

6/26/2026

i 3,000

i 2,653

i 2,954

i 1.4

118

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

EnergySolutions, LLC (14) (15)

Hazardous Waste Treatment and Disposal

Senior Secured Loan

i 4.75%

(L + i 3.75%)

7/8/2021

5/9/2025

i 1,837

i 1,833

i 1,837

i 0.9

Envocore Holding, LLC (F/K/A LRI Holding, LLC) (4)

Electrical Contractors and Other Wiring Installation Contractors

Senior Secured Loan

i 7.50%

N/A

12/31/2021

12/31/2025

i 6,424

i 3.2

Senior Secured Loan

i 10.00% PIK

N/A

12/31/2021

12/31/2026

i 6,424

i 4,645

i 2.3

Senior Secured Loan (Revolver) (5)

i 7.50%

N/A

11/29/2021

12/31/2025

i 563

i 0.3

Equity Participation Rights (23)

12/31/2021

i 4,722

i —

i 13,411

i 18,133

i 11,632

i 5.8

Excelin Home Health, LLC (4)

Home Health Care Services

Senior Secured Loan

i 11.50%

(L + i 9.50%)

10/25/2018

9/30/2025

i 4,250

i 4,182

i 4,250

i 2.1

GGC Aerospace Topco L.P.

Other Aircraft Parts and Auxiliary Equipment Manufacturing

Common Equity ( i 368,852 Class A units) (10)

12/29/2017

i 450

i 77

i —

Common Equity ( i 40,984 Class B units) (10)

12/29/2017

i 50

i 3

i —

i 500

i 80

i —

Honor HN Buyer Inc (15)

Services for the Elderly and Persons with Disabilities

Senior Secured Loan

i 7.00%

(L + i 6.00%)

10/15/2021

10/15/2027

i 6,598

i 6,471

i 3.2

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(L + i 6.00%)

10/15/2021

10/15/2027

i —

( i 40)

i —

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 6.00%)

10/15/2021

10/15/2027

i —

( i 15)

i —

i 6,598

i 6,416

i 3.2

Hunter Fan Company (14) (15)

Small Electrical Appliance Manufacturing

Senior Secured Loan

i 5.75%

(L + i 5.00%)

8/10/2021

5/8/2028

i 4,988

i 4,997

i 2.5

Inergex Holdings, LLC

Other Computer Related Services

Senior Secured Loan

i 8.00% cash / i 1.00% PIK

(L + i 8.00%)

10/1/2018

10/1/2024

i 15,260

i 15,030

i 15,260

i 7.5

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 7.00%)

10/1/2018

10/1/2024

i —

( i 13)

i —

i 15,260

i 15,017

i 15,260

i 7.5

Intouch Midco Inc. (15) (22)

All Other Professional, Scientific, and Technical Services

Senior Secured Loan

i 4.85%

(L + i 4.75%)

12/20/2019

8/24/2025

i 2,909

i 2,872

i 2,865

i 1.4

119

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Ivanti Software, Inc. (14) (15)

Software Publishers

Senior Secured Loan

i 5.00%

(L + i 4.25%)

3/26/2021

12/1/2027

i 2,985

i 2,996

i 2,993

i 1.5

JP Intermediate B, LLC (15)

Drugs and Druggists' Sundries Merchant Wholesalers

Senior Secured Loan

i 6.50%

(L + i 5.50%)

1/14/2021

11/15/2025

i 5,736

i 5,529

i 5,550

i 2.7

KNS Acquisition Corp. (14) (15)

Electronic Shopping and Mail-Order Houses

Senior Secured Loan

i 7.00%

(L + i 6.25%)

4/16/2021

4/21/2027

i 6,956

i 6,913

i 6,870

i 3.4

Kreg LLC (15)

Other Ambulatory Health Care Services

Senior Secured Loan

i 7.25%

(L + i 6.25%)

12/20/2021

12/20/2026

i 20,500

i 20,347

i 10.0

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 6.25%)

12/20/2021

12/20/2026

i —

( i 17)

i —

i 20,500

i 20,330

i 10.0

LogMeIn, Inc. (14) (15)

Data Processing, Hosting, and Related Services

Senior Secured Loan

i 4.86%

(L + i 4.75%)

3/26/2021

8/31/2027

i 2,979

i 2,977

i 2,966

i 1.5

Magenta Buyer LLC (14) (15)

Software Publishers

Senior Secured Loan

i 5.75%

(L + i 5.00%)

7/28/2021

7/27/2028

i 4,850

i 4,836

i 4,845

i 2.4

McGraw Hill Global Education Holdings, LLC (14) (15)

All Other Publishers

Senior Secured Loan

i 4.85%

(L + i 4.75%)

4/1/2021

7/28/2028

i 2,310

i 2,288

i 2,303

i 1.1

Milrose Consultants, LLC (4)

Administrative Management and General Management Consulting Services

Senior Secured Loan (15)

i 7.50%

(L + i 6.50%)

7/16/2019

7/16/2025

i 22,364

i 22,024

i 10.8

Senior Secured Loan (Revolver)

i 7.50%

(L + i 6.50%)

7/16/2019

7/16/2025

i 634

i 626

i 610

i 0.3

i 22,998

i 22,990

i 22,634

i 11.1

120

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Molded Devices, Inc. (15)

Other Industrial Machinery Manufacturing

Senior Secured Loan

i 8.25%

(Prime + i 5.00%)

11/1/2021

11/1/2026

i 8,069

i 7,991

i 3.9

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(Prime + i 5.00%)

11/1/2021

11/1/2026

i —

( i 7)

i —

Senior Secured Loan (Revolver) (5)

n/m (18)

(Prime + i 5.00%)

11/1/2021

11/1/2026

i —

( i 9)

i —

i 8,069

i 7,975

i 3.9

Odyssey Logistics and Technology Corporation (14) (15)

Freight Transportation Arrangement

Senior Secured Loan

i 5.00%

(L + i 4.00%)

4/5/2021

10/12/2024

i 1,985

i 1,960

i 1,970

i 1.0

One GI LLC (15)

Offices of Other Holding Companies

Senior Secured Loan (Delayed Draw)

i 7.75%

(L + i 6.75%)

12/13/2021

3/13/2022

i 5,515

i 5,403

i 2.7

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(L + i 6.75%)

12/13/2021

12/13/2023

i —

( i 39)

i —

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 6.75%)

12/13/2021

12/22/2025

i —

( i 29)

i —

i 5,515

i 5,335

i 2.7

Parfums Holding Company, Inc. (14) (15)

Cosmetics, Beauty Supplies, and Perfume Stores

Senior Secured Loan

i 4.10%

(L + i 4.00%)

6/25/2019

6/30/2024

i 1,534

i 1,533

i 1,531

i 0.8

Peraton Inc. (14) (15)

Management Consulting Services

Senior Secured Loan

i 4.50%

(L + i 3.75%)

4/2/2021

2/1/2028

i 835

i 836

i 837

i 0.4

PM Acquisition LLC (20)

All Other General Merchandise Stores

Common Equity ( i 499 units) (10) (13)

9/30/2017

i 499

i 1,698

i 0.8

Professional Pipe Holdings, LLC

Plumbing, Heating, and Air-Conditioning Contractors

Senior Secured Loan

i 9.75% cash / i 1.00% PIK

(L + i 9.75%)

3/23/2018

3/24/2025

i 5,367

i 5,344

i 5,378

i 2.6

Resource Label Group, LLC (14) (15)

Commercial Printing (except Screen and Books)

Senior Secured Loan

i 5.00%

(L + i 4.25%)

7/2/2021

7/7/2028

i 694

i 692

i 694

i 0.3

Senior Secured Loan (Delayed Draw)

i 5.00%

(L + i 4.25%)

7/2/2021

7/2/2028

i 2,743

i 2,735

i 2,742

i 1.3

i 3,437

i 3,427

i 3,436

i 1.6

121

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

RPLF Holdings, LLC (10) (13)

Software Publishers

Common Equity ( i 345,339 Class A units)

1/17/2018

i 492

i 794

i 0.4

RSA Security (15)

Computer and Computer Peripheral Equipment and Software Merchant Wholesalers

Senior Secured Loan (14)

i 5.50%

(L + i 4.75%)

4/16/2021

4/27/2028

i 2,797

i 2,782

i 2,680

i 1.3

Senior Secured Loan

i 8.50%

(L + i 7.75%)

4/16/2021

4/27/2029

i 4,450

i 4,392

i 4,223

i 2.1

i 7,247

i 7,174

i 6,903

i 3.4

RumbleOn, Inc. (15) (22)

Other Industrial Machinery Manufacturing

Senior Secured Loan

i 9.25%

(L + i 8.25%)

8/31/2021

8/31/2026

i 4,190

i 3,964

i 4,006

i 2.0

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(L + i 8.25%)

8/31/2021

2/23/2023

i —

( i 18)

( i 79)

i —

Warrants (warrants to purchase up to $ i 600,000 in common stock)

8/31/2021

2/28/2023 (12)

—

i 200

i 274

i 0.1

i 4,190

i 4,146

i 4,201

i 2.1

Sentry Centers Holdings, LLC (10) (13)

Other Professional, Scientific, and Technical Services

Preferred Equity ( i 2,248 Series A units)

9/4/2020

i 51

i —

Preferred Equity ( i 1,603 Series B units)

9/4/2020

i 160

i 12

i —

Common Equity ( i 269 units)

9/4/2020

i 3

i —

i 214

i 12

i —

Signal Parent, Inc. (14) (15)

New Single-Family Housing Construction (except For-Sale Builders)

Senior Secured Loan

i 4.25%

(L + i 3.50%)

3/25/2021

4/3/2028

i 1,840

i 1,823

i 1,794

i 0.9

SourceHOV Tax, Inc. (4)

Other Accounting Services

Senior Secured Loan

i 7.50%

(L + i 6.50%)

3/16/2020

3/16/2025

i 19,790

i 19,648

i 19,935

i 9.8

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 6.50%)

5/17/2021

3/17/2025

i —

( i 15)

i —

i 19,790

i 19,633

i 19,935

i 9.8

Southern Technical Institute, LLC (4) (10)(23)

Colleges, Universities, and Professional Schools

Equity Participation Rights

6/27/2018

i —

i 7,408

i 3.6

Spring Education Group, Inc. (F/K/A SSH Group Holdings, Inc.) (15)

Child Day Care Services

Senior Secured Loan

i 8.47%

(L + i 8.25%)

7/26/2018

7/30/2026

i 6,399

i 6,336

i 5,916

i 2.9

122

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

SSJA Bariatric Management LLC (15)

Offices of Physicians, Mental Health Specialists

Senior Secured Loan

i 6.00%

(L + i 5.00%)

8/26/2019

8/26/2024

i 9,775

i 9,723

i 9,775

i 4.8

Senior Secured Loan

i 6.00%

(L + i 5.00%)

12/31/2020

8/26/2024

i 1,056

i 1,048

i 1,056

i 0.5

Senior Secured Loan

i 6.00%

(L + i 5.00%)

12/8/2021

8/26/2024

i 2,660

i 2,634

i 2,660

i 1.3

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 5.00%)

8/26/2019

8/26/2024

i —

( i 4)

i —

i 13,491

i 13,401

i 13,491

i 6.6

SS Acquisition, LLC (15)

Sports and Recreation Instruction

Senior Secured Loan (8)

i 7.88%

(L + i 6.88%)

12/30/2021

12/30/2026

i 3,042

i 3,011

i 1.5

Senior Secured Loan (Delayed Draw) (5)

n/m (18)

(L + i 6.88%)

12/30/2021

12/30/2026

i —

i 3,042

i 3,011

i 1.5

Staples, Inc. (14) (15) (22)

Business to Business Electronic Markets

Senior Secured Loan

i 5.13%

(L + i 5.00%)

6/24/2019

4/16/2026

i 2,930

i 2,875

i 2,838

i 1.4

STS Operating, Inc.

Industrial Machinery and Equipment Merchant Wholesalers

Senior Secured Loan

i 9.00%

(L + i 8.00%)

5/15/2018

4/30/2026

i 9,073

i 9,071

i 9,073

i 4.5

Teneo Global LLC (14) (15)

Management Consulting Services

Senior Secured Loan

i 6.25%

(L + i 5.25%)

9/10/2021

7/11/2025

i 1,421

i 1,415

i 1,427

i 0.7

The Escape Game, LLC (4)

Other amusement and recreation industries

Senior Secured Loan

i 8.00%

(L + i 7.00%)

12/21/2021

12/22/2024

i 16,333

i 16,382

i 8.0

Senior Secured Loan (Revolver) (5)

n/m (18)

(L + i 7.00%)

12/21/2021

i —

( i 46)

i 14

i —

i 16,333

i 16,287

i 16,396

i 8.0

Thryv, Inc. (14) (15)

Directory and Mailing List Publishers

Senior Secured Loan

i 9.50%

(L + i 8.50%)

2/18/2021

3/1/2026

i 2,050

i 2,004

i 2,085

i 1.0

Tolemar Acquisition, INC. (15)

Motorcycle, Bicycle, and Parts Manufacturing

Senior Secured Loan

i 7.00%

(L + i 6.00%)

10/14/2021

10/14/2026

i 14,889

i 14,818

i 7.3

Senior Secured Loan (Revolver) (5)

i 7.00%

(L + i 6.00%)

10/14/2021

10/14/2026

i 360

i 348

i 0.2

i 15,249

i 15,166

i 7.5

TruGreen Limited Partnership

Landscaping Services

Senior Secured Loan

i 9.25%

(L + i 8.50%)

5/13/2021

11/2/2028

i 4,500

i 4,630

i 4,590

i 2.3

123

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

United Biologics Holdings, LLC (4) (10)

Medical Laboratories

Preferred Equity ( i 151,787 units)

4/16/2013

i 9

i 17

i —

Warrants ( i 29,374 units)

7/26/2012

3/5/2022 (12)

i 82

i 8

i —

i 91

i 25

i —

West Corporation (14) (15)

All Other Telecommunications

Senior Secured Loan

i 4.50%

(L + i 3.50%)

2/26/2021

10/10/2024

i 887

i 874

i 838

i 0.4

Senior Secured Loan

i 5.00%

(L + i 4.00%)

7/29/2021

10/10/2024

i 2,611

i 2,555

i 2,485

i 1.2

i 3,498

i 3,429

i 3,323

i 1.6

Yahoo / Verizon Media (14) (15)

Internet Publishing and Broadcasting and Web Search Portals

Senior Secured Loan

i 6.25%

(L + i 5.50%)

7/21/2021

9/1/2027

i 3,294

i 3,249

i 3,299

i 1.6

Total Debt and Equity Investments

i 350,939

i 353,447

i 346,366

i 170.1

Structured Finance Securities (22)

Subordinated Notes and Mezzanine Debt (9) (16)

Apex Credit CLO 2020 (7)

Subordinated Notes

i 10.20%

11/16/2020

10/20/2031

i 11,080

i 9,297

i 9,090

i 4.5

Apex Credit CLO 2021 Ltd (7)

Subordinated Notes

i 14.53%

5/28/2021

7/18/2034

i 8,630

i 7,797

i 7,442

i 3.7

Dryden 53 CLO, LTD. (7)

Subordinated Notes - Income

i 23.72%

10/26/2020

1/15/2031

i 2,700

i 1,611

i 1,672

i 0.8

Subordinated Notes

i 23.69%

10/26/2020

1/15/2031

i 2,159

i 1,289

i 1,337

i 0.7

i 4,859

i 2,900

i 3,009

i 1.5

Dryden 76 CLO, Ltd. (7)

Subordinated Notes

i 15.73%

9/27/2019

10/20/2032

i 2,750

i 2,119

i 2,374

i 1.2

Elevation CLO 2017-7, Ltd. (7)

Subordinated Notes

i 11.96%

2/6/2019

7/15/2030

i 10,000

i 6,137

i 5,357

i 2.6

124

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Flatiron CLO 18, Ltd. (7)

Subordinated Notes

i 19.09%

1/2/2019

4/17/2031

i 9,680

i 6,942

i 7,331

i 3.6

Madison Park Funding XXIII, Ltd. (7)

Subordinated Notes

i 24.21%

1/8/2020

7/27/2047

i 10,000

i 6,370

i 7,211

i 3.5

Madison Park Funding XXIX, Ltd. (7)

Subordinated Notes

i 15.88%

12/22/2020

10/18/2047

i 9,500

i 6,899

i 7,001

i 3.4

Monroe Capital MML CLO X, LTD.

Mezzanine Debt - Class E

i 10.92%

(L + i 8.85%)

8/7/2020

8/20/2031

i 1,000

i 949

i 996

i 0.5

Octagon Investment Partners 39, Ltd. (7)

Subordinated Notes

i 17.69%

1/23/2020

10/20/2030

i 7,000

i 4,733

i 4,845

i 2.4

Park Avenue Institutional Advisers CLO Ltd 2021-1

Mezzanine Debt - Class E

i 8.63%

(L + i 7.30%)

1/26/2021

1/20/2034

i 1,000

i 974

i 988

i 0.5

Redding Ridge 4 (7)

Subordinated Notes

i 18.02%

3/4/2021

4/15/2030

i 1,300

i 1,104

i 1,106

i 0.5

Regatta II Funding

Mezzanine Debt - Class DR2

i 13.42%

(L + i 6.95%)

6/5/2020

1/15/2029

i 800

i 737

i 795

i 0.4

THL Credit Wind River 2019‐3 CLO Ltd. (7)

Subordinated Notes

i 13.09%

4/5/2019

4/15/2031

i 7,000

i 5,710

i 5,231

i 2.6

Trinitas CLO VIII (7)

125

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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

Subordinated Notes

i 21.34%

3/4/2021

7/20/2117

i 5,200

i 3,128

i 3,229

i 1.6

Wellfleet CLO 2018-2 (7)

Subordinated Notes

i 19.74%

3/4/2021

10/20/2031

i 1,000

i 655

i 696

i 0.3

Total Subordinated Notes and Mezzanine Debt Investments

i 90,799

i 66,451

i 66,701

i 32.8

Loan Accumulation Facility (17) (22)

Apex Credit CLO 2021-II Ltd

Loan Accumulation Facility

i 13.50%

7/14/2021

7/14/2022

i 8,500

i 4.2

Total Structured Finance Securities

i 99,299

i 74,951

i 75,201

i 37.0

Total Non-control/Non-affiliate Investments

i 450,238

i 428,398

i 421,567

i 207.1

Affiliate Investments

Contract Datascan Holdings, Inc. (4) (10) (20)

Office Machinery and Equipment Rental and Leasing

Preferred Equity ( i 3,061 Series A shares) i 10% PIK

8/5/2015

i 5,849

i 2,748

i 1.3

Common Equity ( i 11,273 shares)

6/28/2016

i 104

i 25

i —

i 5,953

i 2,773

i 1.3

DRS Imaging Services, LLC (20)

Data Processing, Hosting, and Related Services

Common Equity ( i 1,135 units) (10) (13)

3/8/2018

i 1,135

i 1,289

i 0.6

Master Cutlery, LLC (4) (10)(20)

Sporting and Recreational Goods and Supplies Merchant Wholesalers

Subordinated Loan (6) (11)

i 13.00% (11)

N/A

4/17/2015

7/20/2022

i 7,563

i 4,696

i 699

i 0.3

Preferred Equity ( i 3,723 Series A units), i 8% PIK

4/17/2015

i 3,483

i —

Common Equity ( i 15,564 units)

4/17/2015

i —

i 7,563

i 8,179

i 699

i 0.3

126

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(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) (20) (21)

Pharmaceutical Preparation Manufacturing

Common Equity ( i 400 Class A shares)

1/1/2014

i 217

i 65,740

i 32.3

TalentSmart Holdings, LLC (20)

Professional and Management Development Training

Common Equity ( i 1,595,238 Class A shares) (10) (13)

10/11/2019

i 1,595

i 1,095

i 0.5

TRS Services, LLC (4) (10) (20)

Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance

Preferred Equity ( i 1,937,191 Class A units), i 11% PIK

12/10/2014

i —

i 988

i 0.5

Common Equity ( i 3,000,000 units)

12/10/2014

i 572

i —

i 572

i 988

i 0.5

Total Affiliate Investments

i 7,563

i 17,650

i 72,584

i 35.5

Control Investment

MTE Holding Corp. (4) (19)

Travel Trailer and Camper Manufacturing

Subordinated Loan (to Mirage Trailers, LLC, a controlled, consolidated subsidiary of MTE Holding Corp.)

i 11.00% cash / i 5.00% PIK

(L + i 15.00%)

11/25/2015

4/30/2022

i 8,195

i 4.0

Common Equity ( i 554 shares)

11/25/2015

i 3,069

i 4,753

i 2.3

i 8,195

i 11,264

i 12,948

i 6.3

Total Control Investment

i 8,195

i 11,264

i 12,948

i 6.3

Total Investments

i 465,995

i 457,312

i 507,099

i 248.9

(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.

(2)Substantially all of the investments that bear interest at a variable rate are indexed to LIBOR (L), generally between i 0.75% and i 1.0% at December 31, 2021, and reset monthly, quarterly, or semi-annually. Variable-rate loans with an aggregate cost of $ i 316,558 include LIBOR reference rate floor provisions of generally i 0.75% to i 1.0% at December 31, 2021, the reference rates on such instruments were generally below the stated floor provisions. For each investment, the Company has provided the spread over the reference rate and current interest rate in effect at December 31, 2021. 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.

127

OFS Capital Corporation and Subsidiaries

Consolidated Schedule of Investments

(Dollar amounts in thousands)

(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, 2021, meaning the Company has suspended recognition of all or a portion of income on the investment. See Note 4 for further details.

(7)CLO subordinated note positions are entitled to recurring distributions generally equal to the residual cash flow of payments made by underlying securities less contractual payments to debt holders and fund expenses.

Portfolio Company

Reported Interest Rate

Interest Rate per Credit Agreement

Additional Interest per Annum

SS Acquisition, LLC

i 7.88%

i 7.50%

i 0.38%

(9)The rate disclosed 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 amount 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.

Portfolio Company

Investment Type

Range of PIK
Option

Range of Cash
Option

Maximum PIK
Rate Allowed

Eblens Holdings, Inc.

Subordinated Loan

i 0% or i 1.00%

i 13.00% or i 12.00%

i 1.00%

Master Cutlery, LLC

Senior Secured Loan

i 0% to i 13.00%

i 13.00%

(12)Represents expiration date of the warrants.

(13)All or 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 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.

(17)Loan accumulation facilities are financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle. Reported yields represent the realized yield since acquisition. Income notes associated with loan accumulation facilities generally pay returns equal to the actual income earned on facility assets less costs of senior financing. As of December 31, 2021, the fair value of loan accumulation facilities were determined by reference to Transaction Price.

(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, 2021.

(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, 2021, approximately i 85% 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.

128

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 1. i Organization

OFS Capital Corporation (and collectively with its subsidiaries, the “Company”), a Delaware corporation, is an externally managed, closed-end, non-diversified management investment company. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). In addition, for income tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of Code under the Internal Revenue Code of 1986, as amended (the “Code”).

The Company’s investment objective is to provide stockholders with both current income and capital appreciation through its strategic investment focus primarily on debt investments and, to a lesser extent, equity investments primarily in middle-market companies principally in the United States. In addition, the Company may invest in collateralized loan obligation (“CLO”) debt, subordinated (i.e., residual or equity) notes and loan accumulation facility securities (collectively referred to as “Structured Finance Securities”). OFS Capital Management, LLC (“OFS Advisor”), a registered investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), a wholly owned subsidiary of Orchard First Source Asset Management, LLC, a full-service provider of capital and leveraged finance solutions to U.S. corporations (“OFSAM”), manages the day-to-day operations of, and provides investment advisory services to, the Company.

OFS Advisor also serves as the investment adviser for Hancock Park Corporate Income, Inc. (“HPCI”), a Maryland corporation and a BDC. HPCI’s investment objective is similar to that of the Company. OFS Advisor also serves as the investment adviser for OFS Credit Company, Inc. (“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 CLO debt and subordinated securities. Additionally, OFS Advisor serves as the investment adviser to separately-managed accounts and sub-advisor to investment companies managed by an affiliate.

The Company may also make investments through OFSCC-FS, LLC (“OFSCC-FS”), a wholly owned and consolidated special-purpose vehicle formed in April 2019 for the purpose of acquiring senior secured loan investments; and through OFSCC-MB, Inc. (“OFSCC-MB”), a wholly owned and consolidated subsidiary taxed under subchapter C of the Code, that generally holds the equity investments of the Company that are taxed as pass-through entities.

The Company may make follow-on investments in current portfolio companies held through OFS SBIC I LP (“SBIC LP”), its wholly owned and consolidated investment company subsidiary licensed under the U.S. Small Business Administration’s (“SBA”) small business investment company program (“SBIC Program”). SBIC I LP is subject to SBA regulatory requirements, including limitations on the businesses and industries in which it can invest, requirements to invest at least 25% of its “regulatory capital” in “eligible smaller businesses”, as defined under the Small Business Investment Act of 1958, as amended (“SBIC Act”), limitations on the financing terms of investments, and capitalization thresholds that may limit distributions to the Company; and is subject to periodic audits and examinations of its financial statements.

Note 2. i Summary of Significant Accounting Policies

i Basis of presentation: The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including ASC Topic 946, Financial Services-Investment Companies, and the reporting requirements for Form 10-K, the 1940 Act, and Articles 6 and 12 of Regulation S-X. The consolidated financial statements include all adjustments, consisting only of normal and recurring accruals and adjustments, necessary for fair presentation in accordance with GAAP.

i Reclassifications: Certain prior period amounts may 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.

i Principles of consolidation: The Company consolidates majority-owned investment company subsidiaries. The Company does not own any controlled operating company whose business consists of providing services to the Company, which would also require consolidation. All intercompany balances and transactions are eliminated upon consolidation.

i Fair value of financial instruments: The Company applies fair value accounting to all of its financial instruments in accordance with ASC Topic 820, Fair Value Measurements ("ASC" Topic 820"), which defines fair value, establishes a framework to measure fair value, and requires disclosures regarding fair value measurements. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined through the use of models and other valuation techniques, valuation inputs, and assumptions market participants

129

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

would use to value the financial instrument. Highest priority is given to prices for identical financial instruments quoted in active markets (Level 1) and the lowest priority is given to unobservable valuation inputs (Level 3). The availability of observable inputs can vary significantly and is affected by many factors, including the type of product, whether the product is new to the market, whether the product is traded on an active exchange or in the secondary market, and the current market conditions. To the extent that the valuation is based on unobservable inputs, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3 (i.e., those instruments valued using unobservable inputs), which comprise the majority of the Company’s investments. See Note 5 for details.

Changes to the Company's and OFS Advisor's valuation policies are reviewed and approved by management and the Company’s board of directors (the “Board”). As the Company’s investments change, markets change, new products develop, and valuation inputs become more or less observable, the Company will continue to refine its valuation methodologies.

See Note 5 for more detailed disclosures of the Company’s fair value measurements of its financial instruments.

i Investment classification: The Company classifies its investments in accordance with the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in those companies in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of board representation, “Affiliate Investments” are defined as investments in those companies in which the Company owns between 5% and 25% of the voting securities, and “Non-Control/Non-Affiliate Investments” are those that neither qualify as Control Investments nor Affiliate Investments.

i Significant Subsidiaries: The Company evaluates the issuers of its Control Investments for significance in accordance with Rules 3-09 and 4-08(g) of Regulation S-X. No issuers of Control Investments were considered a significant subsidiary under these rules as of or for the years ended December 31, 2022, 2021 and 2020.

i 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 investment income, expenses, gains and losses during the reporting period. Actual results could differ significantly from those estimates.

i Reportable segments: The Company has a single reportable segment and single operating segment structure.

i Cash: The Company’s cash balances are maintained with a member bank of the Federal Deposit Insurance Corporation (“FDIC”) and at times, such balances may be in excess of the FDIC insurance limits. The Company does not believe its cash balances are exposed to any significant credit risk. Cash includes aggregate amounts totaling $ i 14,937 and $ i 43,048 held in US Bank N.A. and Citibank N.A. money market deposit accounts as of December 31, 2022 and 2021, respectively. 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.

Revenue recognition:

Interest income: Interest income from the Company's loan and CLO debt investments is recognized on an accrual basis and reported as an interest receivable until collected. Interest income is accrued based on the outstanding principal amount on the consolidated schedule of investments and the contractual terms of the debt investment. Certain of the Company’s investments contain a payment-in-kind interest income provision (“PIK interest”). The PIK interest, computed at the contractual rate specified in the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash. Recognition of PIK interest includes assessments of collectability. The Company discontinues accrual of interest income, including PIK interest, when there is reasonable doubt that the interest income will be collected. See Non-Accrual Loans section.

Loan origination fees, original issue discount (“OID”), market discount or premium, and loan amendment fees (collectively, “Net Loan Fees”) are recorded as an adjustment to the amortized cost of the investment, and accreted or amortized as an adjustment to interest income over the life of the respective debt investment using a method that approximates the effective interest method. When the Company receives a loan principal payment, the unamortized Net Loan Fees related to the paid principal is accelerated and recognized in interest income.

Further, the Company may acquire or receive equity, warrants or other equity-related securities in connection with the Company’s acquisition of, subsequent amendment or restructuring to, debt investments. The Company determines the cost basis of the equity investment based on its fair value, and the fair value of debt investments and other securities or consideration

130

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

received. Any resulting difference between the face amount of the debt and its recorded cost resulting from the assignment of value to the equity investment is treated as OID, and accreted into interest income as described above.

Interest income - Structured Finance Securities: Structured Finance Securities include CLO debt, CLO subordinated securities and loan accumulation facility positions. Interest income from investments in CLO subordinated securities is recognized on the basis of the estimated effective yield to expected redemption utilizing assumed cash flows in accordance with ASC Sub-topic 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from its CLO subordinated securities, and the accretable yields are determined and updated periodically. Expected cash flows inherent in the Company's estimates of accretable yields are based on expectations of defaults and loss-on-default severity, as well as other loan-performance assumptions, impacting the loans in the underlying CLO portfolios. These estimated cash flows are subject to a reasonable possibility of near-term change due to economic and credit market conditions, and the effect of these changes could be material.

Interest income from investments in loan accumulation facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with loan accumulation facilities generally pay returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. Interest income is generally received upon the earlier of the closing of the CLO securitization or liquidation of the underlying portfolio.

Dividend income: Dividend income on common equity securities in limited liability companies, partnerships, and other private entities, generally payable in cash, is accrued at the time dividends are declared (in the absence of a formal ex-dividend or record date). Declared dividends payable in cash are reported as dividends receivable until collected. Distributions in excess of current or accumulated net income of the underlying portfolio company are recorded as return of capital and, correspondingly, as a reduction in the cost of the investment.

Dividend income on preferred equity investments is accrued based on the contractual terms of the preferred equity investment. Dividends on preferred equity securities may be payable in cash or in additional preferred securities. Non-cash dividends payable in additional preferred securities ("PIK dividends") are recorded as an adjustment (i.e., increase) to the cost basis of the investment. The Company discontinues accrual of PIK dividends when there is reasonable doubt that the income will ultimately be collected.

Fee income: The Company generates fee revenue in the form of syndication, prepayment, and other contractual fees, that are recognized as the related services are rendered. In the general course of its business, the Company receives certain fees, such as management fees, from portfolio companies which are non-recurring in nature. Prepayment fees are received on certain loans when repaid prior to their scheduled due date, which are recognized as earned when received, and syndication fees are received for capital structuring, loan syndication or advisory services from certain portfolio companies, which are recognized as earned upon closing of the investment.

Investment transactions and net realized and unrealized gain or loss on investments: Investment transactions are reported on a trade-date basis. Unsettled trades as of the statement of assets and liabilities date are included in receivable for investments sold and payable for investments purchased. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment. Investments are valued at fair value as determined in good faith by OFS Advisor, as the valuation designee, under the oversight of the Board. After recording all appropriate interest, dividend, and other income, some of which is recorded as an adjustment to the cost basis of the investment as described above, the Company reports changes in the fair value of investments as net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

Non-accrual loans: Management reviews all loans that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected, for placement on non-accrual status. 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. See Note 4 for further information on loans on non-accrual status as of December 31, 2022 and December 31, 2021.

i Income taxes: The Company has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements, and timely distribute at least 90% of its investment company taxable income (“ICTI”) to its stockholders. The

131

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Company has made, and intends to continue to make, requisite distributions to its stockholders, which generally relieves the Company from U.S. federal income taxes.

Depending on the level of ICTI earned in a tax year, the Company may choose to retain ICTI in an amount less than that which would trigger U.S. federal income tax liability under Subchapter M of the Code. However, the Company would be liable for a 4% excise tax on such income. Excise tax liability is recognized when the Company determines its estimated current year annual ICTI, as defined in the Code, exceeds distributions from current year ICTI. For the years ended December 31, 2022, 2021 and 2020, the Company accrued U.S. federal excise taxes of $ i 100, $ i 0 and $ i 0, respectively.

The Company may utilize OFSCC-MB when making equity investments in portfolio companies taxed as pass-through entities to meet its source-of-income requirements as a RIC. For U.S. federal income tax purposes, OFSCC-MB is not consolidated with the RIC and is taxed as a C-Corporation. See Note 8 for further information.

The Company evaluates tax positions taken in the course of preparing its tax returns to determine whether they are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold could result in greater and undistributed ICTI, income and excise tax expense, and, if involving multiple years, a re-assessment of the Company’s RIC status. GAAP requires recognition of accrued interest and penalties related to uncertain tax benefits as income tax expense. There were no uncertain income tax positions at December 31, 2022, 2021 and 2020. The current and prior three tax years remain subject to examination by U.S. federal and most state tax authorities.

Distributions: Distributions to common stockholders are recognized on the record date. The timing of distributions as well as the amount to be paid out as a distribution is determined by the Board each quarter. Distributions from net investment income and net realized gains are determined in accordance with the Code. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. Distributions paid in excess of ICTI and not capital gains are considered returns of capital to stockholders.

The Company has adopted a distribution reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes and the Company declares a cash distribution, then stockholders who have not “opted out” of the DRIP will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution.

The Company may use newly issued shares under the guidelines of the DRIP, or the Company may purchase shares in the open market in connection with its obligations under the plan.

i Deferred debt issuance costs: Deferred debt issuance costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. Deferred debt issuance costs are presented as a direct reduction of the related debt liability on the consolidated statements of assets and liabilities except for deferred debt issuance costs associated with the Company’s line of credit arrangements, which are included in prepaid expenses and other assets on the consolidated statements of assets and liabilities. Unamortized debt issuance costs included in prepaid expenses and other assets on the consolidated statements of assets and liabilities as of December 31, 2022 and 2021, were $ i 1,316 and $ i 671, respectively. Deferred debt issuance costs are amortized to interest expense over the term of the related debt. /

i Goodwill: On December 4, 2013, in connection with the Company's acquisition of the remaining ownership interests in SBIC I LP and SBIC I GP, LLC, making SBIC I LP a wholly owned subsidiary of the Company (“SBIC Acquisition”), the Company recorded goodwill of $ i 1,077. The decline in the price of the Company’s common stock and the level at which it continued to trade relative to the broader stock indices for the BDC industry, led management to conclude in the third quarter of 2020 that an impairment in the value of the Company’s goodwill was more likely than not. Moreover, due to the discount at which the Company’s stock traded to its net asset value, management concluded that the impairment of goodwill equal to the full amount of its carrying value of $ i 1,077 was appropriate. /

Intangible asset: On December 4, 2013, in connection with the SBIC Acquisition, the Company recorded an intangible asset of $ i 2,500 attributable to the SBIC license. The Company amortizes this intangible asset on a straight-line basis over its estimated useful life. During the first quarter of 2022, the Company changed its estimate of the useful life to terminate on March 1, 2024, due to continued early redemptions of SBA debentures. The Company recognized amortization of $ i 409, $ i 222 and $ i 206 for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company tests its intangible asset for impairment if events or circumstances suggest that the asset carrying value may not be fully recoverable. The carrying value of the intangible asset, net of accumulated amortization, was $ i 477 and $ i 886 at December 31, 2022 and 2021, respectively, is included in prepaid expenses and other assets in the consolidated statements of

132

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

assets and liabilities.

i Interest expense: Interest expense is recognized on an accrual basis as incurred.

i 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 the year, the Company may exceed 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. The amount of loss due to credit risk from its investments, if borrowers completely fail to perform according to the terms of the contracts, is equal to the Company's recorded investment and the unfunded commitments disclosed in Note 6.

New Accounting Pronouncements and Rule Issuances

In March 2020, the FASB issued “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”) to provide optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 established Topic 848 to provide relief during the temporary transition period and includes a sunset provision based on expectations of when the London Interbank Offered Rate (“LIBOR”) would cease being published. ASU 2022-06 further defers the sunset provision date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Upon adoption of ASU 2022-06, there was no significant impact to the Company’s consolidated financial position.

In December 2020, the SEC issued a final rule adopting Rule 2a-5 under the 1940 Act to establish requirements for determining fair value in good faith for purposes of the 1940 Act. Pursuant to Rule 2a-5, on September 7, 2022, 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. In order for the Board to maintain oversight, OFS Advisor implemented the required reporting elements as prescribed in Rule 2a-5.

In June 2022, the FASB issued Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 amended Topic 820 to, among other things, (i) clarify the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (ii) amend a related illustrative example and (iii) introduce new disclosure requirements for equity securities subject to contractual sale restrictions. ASU 2022-03 amendments are effective for the Company’s fiscal year ending December 31, 2024, and interim periods within the year. ASU 2022-03 provisions are to be applied prospectively with any adjustments made to earnings on the date of adoption. The Company is currently evaluating the impact, if any, ASU 2022-03 will have on its consolidated financial position or disclosures.

Note 3. i 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 an agreement dated November 7, 2012 (“Investment Advisory Agreement”). The Investment Advisory Agreement was most recently re-approved on April 5, 2022. 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 is a wholly owned subsidiary of OFSAM and a registered investment advisor under the Investment Advisers Act of 1940, as amended.

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 BDCs affiliated with OFS Advisor, so long as its services to the Company are not impaired. OFS Advisor also serves as the investment adviser or sub-adviser to various clients, including HPCI and OCCI.

OFS Advisor receives fees for providing services, consisting of i two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of i 1.75% and based on the average value of the Company’s total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including 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. OFS Advisor has elected to exclude the value of the intangible assets resulting from the SBIC Acquisition from the base management fee calculation.

Effective from January 1, 2020 through December 31, 2022, OFS Advisor agreed to reduce the base management fee attributable to all assets held through OFSCC-FS (“OFSCC-FS Assets”), excluding cash. The agreement reduced the base

133

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

management fee to i 0.25% per quarter ( i 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. This agreement was renewed for the 2023 calendar year on January 11, 2023.

The incentive fee has i 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 (as defined below) 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 i 20.0% of the amount, if any, by which the pre-incentive fee net investment income for the immediately preceding calendar quarter exceeds a i 2.0% (which is i 8.0% annualized) hurdle rate 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 i 2.0%, but then receives, as a “catch-up,” i 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 i 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds i 2.5% in any calendar quarter, OFS Advisor will receive i 20.0% of the pre-incentive fee net investment income.

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), commencing on December 31, 2012, and equals i 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, losses on extinguishment of debt, income taxes from realized capital gains and unrealized capital depreciation through the end of such year, less all previous amounts paid in respect of the Capital Gains Fee; provided that the incentive fee determined as of December 31, 2012, was calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation for the period beginning on the date of the Company’s election to be a BDC and ending December 31, 2012.

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 i 20% of the sum of net realized capital gains (losses) plus net unrealized appreciation (depreciation). As of December 31, 2022 and December 31, 2021, the payable to investment adviser and affiliates on the consolidated statements of assets and liabilities includes a Capital Gains Fee of $ i 0 and $ i 1,916, respectively. During the year ended December 31, 2022, the Company reversed the previously accrued Capital Gains Fees due to a reduction in net unrealized appreciation on the investment portfolio.

On May 4, 2020, OFS Advisor agreed to irrevocably waive the receipt of $ i 441 in Income Incentive Fees (based on net investment income) related to net investment income, that it would otherwise be entitled to receive under the Investment

134

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Advisory Agreement for the three months ended March 31, 2020. As a result of the voluntary fee waiver, the Company incurred Income Incentive Fee expense of $ i 442 for the three months ended March 31, 2020, which is equal to half the Income Incentive Fee expense the Company would have incurred for the three months ended March 31, 2020. The voluntary fee waiver did not include a Capital Gains Fee, which was $ i 0 for the three months ended March 31, 2020.

License Agreement: The Company entered into a license agreement with OFSAM under which OFSAM has agreed to grant 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 an Administration Agreement. The Administration Agreement was most recently re-approved by the Board on April 5, 2022. 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 December 31, 2022, affiliates of OFS Advisor held i 3,019,694 shares of common stock, which is approximately i 23% of the Company's outstanding shares of common stock.

Expenses recognized under agreements with OFS Advisor and OFS Services and distributions paid to affiliates for the years ended December 31, 2022, 2021 and 2020 are presented below:

December 31,

2022

2021

2020

Base management fees

i 7,979

i 7,669

i 7,605

Incentive fees:

Income Incentive Fee

i 2,276

i 2,352

i 2,025

Income Incentive Fee waiver

i —

( i 441)

Capital Gains Fee(1)

( i 1,916)

i 1,916

i —

Administration fees

i 1,742

i 1,758

i 1,855

Distributions paid to affiliates

i 3,503

i 2,764

i 2,553

(1) As of December 31, 2021, the Capital Gains Fee of $ i 1,916 was deferred, and not due to the Advisor, until the close of the year in which such gains are realized. During the year ended December 31, 2022, the Company reversed the previously accrued Capital Gains Fees of $ i 1,916 due to a reduction in net unrealized appreciation on the investment portfolio.

135

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 4. i Investments

As of December 31, 2022, the Company had loans to i 52 portfolio companies, of which i 99.6% were senior secured loans and i 0.4% were subordinated loans, at fair value. The Company also held equity investments in i 16 portfolio companies and i 23 investments in Structured Finance Securities. i At December 31, 2022, the Company’s investments consisted of the following:

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Senior secured debt investments

i 335,558

i 70.7

i 186.0

i 311,636

i 62.3

i 172.7

Subordinated debt investments

i 13,890

i 2.9

i 7.7

i 1,226

i 0.2

i 0.7

Preferred equity

i 9,966

i 2.1

i 5.5

i 8,196

i 1.6

i 4.5

Common equity, warrants and other

i 12,989

i 2.7

i 7.2

i 91,000

i 18.2

i 50.4

Total debt and equity investments

i 372,403

i 78.4

i 206.4

i 412,058

i 82.3

i 228.3

Structured Finance Securities

i 102,477

i 21.6

i 56.8

i 88,518

i 17.7

i 49.1

Total

i 474,880

i 100.0

i 263.2

i 500,576

i 100.0

i 277.4

At December 31, 2022, the Company had i five loans on non-accrual status with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $ i 36,522 and $ i 11,225, respectively.

Geographic composition is determined by the location of the corporate headquarters of the portfolio company. As of December 31, 2022 and 2021, the Company's investment portfolio was domiciled as follows:

Amortized Cost

Fair Value

Amortized Cost

Fair Value

United States of America

i 367,723

i 407,851

i 378,823

i 428,321

Canada

i 4,680

i 4,207

i 12,038

i 12,077

Cayman Islands1

i 102,477

i 88,518

i 66,451

i 66,701

Total investments

i 474,880

i 500,576

i 457,312

i 507,099

(1) Investments domiciled in the Cayman Islands represent certain 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.

As of December 31, 2022, the industry compositions of the Company’s debt and equity investments were as follows:

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Administrative and Support and Waste Management and Remediation Services

All Other Business Support Services

i 2,745

i 0.6

i 1.5

i 2,511

i 0.5%

i 1.4%

Convention and Trade Show Organizers

i 160

i —

i 0.1

i 80

i —

Hazardous Waste Treatment and Disposal

i 1,765

i 0.4

i 1.0

i 1,652

i 0.3

i 0.9

Landscaping Services

i 4,611

i 1.0

i 2.6

i 4,226

i 0.8

i 2.3

Security Systems Services (except Locksmiths)

i 5,849

i 1.2

i 3.2

i 5,767

i 1.2

i 3.2

Temporary Help Services

i 8,854

i 1.9

i 4.9

i 8,821

i 1.8

i 4.9

Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries

i 16,303

i 3.4

i 9.0

i 16,497

i 3.3

i 9.1

Construction

Electrical Contractors and Other Wiring Installation Contractors

i 17,666

i 3.7

i 9.8

i 9,247

i 1.8

i 5.1

New Single-Family Housing Construction (except For-Sale Builders)

i 1,807

i 0.4

i 1.0

i 1,566

i 0.3

i 0.9

136

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Education Services

Professional and Management Development Training

i 1,595

i 0.3%

i 0.9%

i 953

i 0.2%

i 0.5%

Sports and Recreation Instruction

i 4,222

i 0.9

i 2.3

i 4,172

i 0.8

i 2.3

Health Care and Social Assistance

Child Day Care Services

i 6,375

i 1.3

i 3.5

i 6,182

i 1.2

i 3.4

Home Health Care Services

i 4,210

i 0.9

i 2.3

i 3,987

i 0.8

i 2.2

Medical Laboratories

i 17

i —

i 35

i —

Offices of Physicians, Mental Health Specialists

i 13,299

i 2.8

i 7.4

i 13,119

i 2.6

i 7.3

Other Ambulatory Health Care Services

i 16,444

i 3.5

i 9.1

i 15,604

i 3.1

i 8.6

Outpatient Mental Health and Substance Abuse Centers

i 8,787

i 1.9

i 4.9

i 8,675

i 1.7

i 4.8

Services for the Elderly and Persons with Disabilities

i 18,977

i 4.0

i 10.5

i 18,427

i 3.7

i 10.2

Information

Cable and Other Subscription Programming

i 3,763

i 0.8

i 2.1

i 3,103

i 0.6

i 1.7

Data Processing, Hosting, and Related Services

i 4,080

i 0.9

i 2.3

i 3,477

i 0.7

i 1.9

Directory and Mailing List Publishers

i 3,910

i 0.8

i 2.2

i 3,930

i 0.8

i 2.2

Internet Publishing and Broadcasting and Web Search Portals

i 3,100

i 0.7

i 1.7

i 2,843

i 0.6

i 1.6

Software Publishers

i 17,577

i 3.7

i 9.7

i 9,629

i 1.9

i 5.3

Television Broadcasting

i 2,182

i 0.5

i 1.2

i 488

i 0.1

i 0.3

Management of Companies and Enterprises

Offices of Other Holding Companies

i 11,240

i 2.4

i 6.2

i 10,646

i 2.1

i 5.9

Manufacturing

Bare Printed Circuit Board Manufacturing

i 1,977

i 0.4

i 1.1

i 1,854

i 0.4

i 1.0

Current-Carrying Wiring Device Manufacturing

i 3,360

i 0.7

i 1.9

i 3,468

i 0.7

i 1.9

Fluid Power Pump and Motor Manufacturing

i 1,931

i 0.4

i 1.1

i 1,862

i 0.4

i 1.0

Ice Cream and Frozen Dessert Manufacturing

i 1,641

i 0.3

i 0.9

i 1,540

i 0.3

i 0.9

Motorcycle, Bicycle, and Parts Manufacturing

i 15,873

i 3.3

i 8.8

i 15,942

i 3.2

i 8.8

Other Aircraft Parts and Auxiliary Equipment Manufacturing

i 500

i 0.1

i 0.3

i —

Other Industrial Machinery Manufacturing

i 5,203

i 1.1

i 2.9

i 4,660

i 0.9

i 2.6

Pharmaceutical Preparation Manufacturing

i 217

i —

i 0.1

i 85,456

i 17.1

i 47.4

Other Services (except Public Administration)

Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance

i 572

i 0.1

i 0.3

i 1,890

i 0.4

i 1.0

Communication Equipment Repair and Maintenance

i 1,766

i 0.4

i 1.0

i 1,572

i 0.3

i 0.9

Other Automotive Mechanical and Electrical Repair and Maintenance

i 1,083

i 0.2

i 0.6

i 1,064

i 0.2

i 0.6

137

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Professional, Scientific, and Technical Services

Administrative Management and General Management Consulting Services

i 27,621

i 5.8%

i 15.3%

i 27,148

i 5.4%

i 15.0%

Advertising Agencies

i 2,256

i 0.5

i 1.3

i 1,898

i 0.4

i 1.1

Computer Systems Design Services

i 1,959

i 0.4

i 1.1

i 1,943

i 0.4

i 1.1

Other Computer Related Services

i 14,595

i 3.1

i 8.1

i 14,868

i 3.0

i 8.2

Public Administration

Other Justice, Public Order, and Safety Activities

i 703

i 0.1

i 0.4

i 32

i —

Real Estate and Rental and Leasing

Nonresidential Property Managers

i 4,680

i 1.0

i 2.6

i 4,207

i 0.8

i 2.3

Office Machinery and Equipment Rental and Leasing

i 6,418

i 1.4

i 3.6

i 6,713

i 1.3

i 3.7

Retail Trade

Electronic Shopping and Mail-Order Houses

i 6,747

i 1.4

i 3.7

i 6,515

i 1.3

i 3.6

Electronics and Appliance Stores

i 8,037

i 1.7

i 4.5

i 8,102

i 1.6

i 4.5

Shoe Store

i 10,160

i 2.1

i 5.6

i 1,104

i 0.2

i 0.6

Supermarkets and Other Grocery (except Convenience) Stores

i 5,647

i 1.2

i 3.1

i 5,532

i 1.1

i 3.1

All Other General Merchandise Stores

i 499

i 0.1

i 0.3

i 967

i 0.2

i 0.5

Transportation and Warehousing

i 2,514

i 0.5

i 1.4

i 2,501

i 0.5

i 1.4

Wholesale Trade

Business to Business Electronic Markets

i 2,858

i 0.6

i 1.6

i 2,689

i 0.5

i 1.5

Computer and Computer Peripheral Equipment and Software Merchant Wholesalers

i 11,156

i 2.3

i 6.2

i 9,013

i 1.8

i 5.0

Drugs and Druggists' Sundries Merchant Wholesalers

i 5,227

i 1.1

i 2.9

i 4,622

i 0.9

i 2.6

Industrial Machinery and Equipment Merchant Wholesalers

i 9,071

i 1.9

i 5.0

i 9,073

i 1.8

i 5.0

Motor Vehicle Parts (Used) Merchant Wholesalers

i 27,751

i 5.8

i 15.4

i 27,821

i 5.6

i 15.4

Other Miscellaneous Nondurable Goods Merchant Wholesalers

i 2,680

i 0.6

i 1.5

i 2,246

i 0.4

i 1.2

Sporting and Recreational Goods and Supplies Merchant Wholesalers

i 8,163

i 1.7

i 4.4

i 122

i —

i 0.1

Total debt and equity investments

i 372,403

i 78.4%

i 206.4%

i 412,058

i 82.3%

i 228.3%

Structured Finance Securities

i 102,477

i 21.6

i 56.8

i 88,518

i 17.7

i 49.1

Total investments

i 474,880

i 100.0%

i 263.2%

i 500,576

i 100.0%

i 277.4%

138

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

As of December 31, 2021, the Company had loans to i 58 portfolio companies, of which i 95% were senior secured loans and i 5% were subordinated loans, at fair value, as well as equity investments in i five of these portfolio companies. The Company also held an equity investment in i 12 portfolio companies in which it did not hold a debt investment, as well as i 17 investments in Structured Finance Securities. At December 31, 2021, the Company’s investments consisted of the following:

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Senior secured debt investments

i 336,132

i 73.3

i 165.0

i 326,704

i 64.9

i 160.4

Subordinated debt investments

i 22,071

i 4.8

i 10.8

i 17,943

i 3.5

i 8.8

Preferred equity

i 9,552

i 2.1

i 4.7

i 3,765

i 0.7

i 1.8

Common equity, warrants and other

i 14,606

i 3.2

i 7.2

i 83,486

i 16.5

i 41.0

Total debt and equity investments

i 382,361

i 83.4

i 187.7

i 431,898

i 85.6

i 212.0

Structured Finance Securities

i 74,951

i 16.6

i 36.8

i 75,201

i 14.4

i 36.9

Total

i 457,312

i 100.0

i 224.5

i 507,099

i 100.0

i 248.9

At December 31, 2021, the Company had i two loans on non-accrual status with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $ i 19,054 and $ i 7,726, respectively.

As of December 31, 2021, the industry compositions of the Company’s debt and equity investments were as follows:

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Administrative and Support and Waste Management and Remediation Services

Convention and Trade Show Organizers

i 214

i —

i 0.1

i 12

i —

Hazardous Waste Treatment and Disposal

i 1,833

i 0.4

i 0.9

i 1,837

i 0.4

i 0.9

Landscaping Services

i 4,630

i 1.0

i 2.3

i 4,590

i 0.9

i 2.3

Security Systems Services (except Locksmiths)

i 4,827

i 1.1

i 2.4

i 4,887

i 1.0

i 2.4

Arts, Entertainment, and Recreation

Other Amusement and Recreation Industries

i 16,287

i 3.6

i 8.0

i 16,396

i 3.2

i 8.0

Construction

Electrical Contractors and Other Wiring Installation Contractors

i 18,132

i 4.0

i 8.9

i 11,632

i 2.3

i 5.7

New Single-Family Housing Construction (except For-Sale Builders)

i 1,823

i 0.4

i 0.9

i 1,794

i 0.4

i 0.9

Plumbing, Heating, and Air-Conditioning Contractors

i 5,344

i 1.2

i 2.6

i 5,378

i 1.1

i 2.6

Water and Sewer Line and Related Structures Construction

i 627

i 0.1

i 0.3

i 628

i 0.1

i 0.3

Education Services

Colleges, Universities, and Professional Schools

i —

i 7,408

i 1.5

i 3.6

Professional and Management Development Training

i 1,595

i 0.3

i 0.8

i 1,095

i 0.2

i 0.5

Sports and Recreation Instruction

i 3,011

i 0.7

i 1.5

i 3,011

i 0.6

i 1.5

Health Care and Social Assistance

Child Day Care Services

i 6,336

i 1.4

i 3.1

i 5,916

i 1.2

i 2.9

Home Health Care Services

i 4,182

i 0.9

i 2.1

i 4,250

i 0.8

i 2.1

Medical Laboratories

i 92

i —

i 25

i —

Offices of Physicians, Mental Health Specialists

i 13,402

i 2.9

i 6.6

i 13,491

i 2.7

i 6.6

139

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Other Ambulatory Health Care Services

i 20,331

i 4.4

i 10.0

i 20,331

i 4.0

i 10.0

Outpatient Mental Health and Substance Abuse Centers

i 4,770

i 1.0

i 2.3

i 5,231

i 1.0

i 2.6

Services for the Elderly and Persons with Disabilities

i 6,416

i 1.4

i 3.1

i 6,416

i 1.3

i 3.1

Information

All Other Publishers

i 2,288

i 0.5

i 1.1

i 2,303

i 0.5

i 1.1

All Other Telecommunications

i 3,429

i 0.7

i 1.7

i 3,323

i 0.7

i 1.6

Cable and Other Subscription Programming

i 3,801

i 0.8

i 1.9

i 3,810

i 0.8

i 1.9

Data Processing, Hosting, and Related Services

i 4,112

i 0.9

i 2.0

i 4,255

i 0.8

i 2.1

Directory and Mailing List Publishers

i 2,004

i 0.4

i 1.0

i 2,085

i 0.4

i 1.0

Internet Publishing and Broadcasting and Web Search Portals

i 3,249

i 0.7

i 1.6

i 3,299

i 0.7

i 1.6

Motion Picture and Video Production

i 3,929

i 0.9

i 1.9

i 3,970

i 0.8

i 1.9

Software Publishers

i 24,948

i 5.5

i 12.2

i 17,929

i 3.5

i 8.8

Television Broadcasting

i 1,957

i 0.4

i 1.0

i 918

i 0.2

i 0.5

Wired Telecommunications Carriers

i 4,388

i 1.0

i 2.2

i 4,405

i 0.9

i 2.2

Management of Companies and Enterprises

Offices of Other Holding Companies

i 5,336

i 1.2

i 2.6

i 5,336

i 1.1

i 2.6

Manufacturing

Bare Printed Circuit Board Manufacturing

i 1,985

i 0.4

i 1.0

i 1,977

i 0.4

i 1.0

Commercial Printing (except Screen and Books)

i 3,427

i 0.7

i 1.7

i 3,436

i 0.7

i 1.7

Current-Carrying Wiring Device Manufacturing

i 2,653

i 0.6

i 1.3

i 2,954

i 0.6

i 1.4

Motorcycle, Bicycle, and Parts Manufacturing

i 15,166

i 3.3

i 7.4

i 15,166

i 3.0

i 7.4

Metal Can Manufacturing

i 2,143

i 0.5

i 1.1

i 2,167

i 0.4

i 1.1

Other Aircraft Parts and Auxiliary Equipment Manufacturing

i 500

i 0.1

i 0.2

i 80

i —

Other Industrial Machinery Manufacturing

i 12,121

i 2.7

i 5.9

i 12,176

i 2.4

i 6.0

Pharmaceutical Preparation Manufacturing

i 217

i —

i 0.1

i 65,740

i 13.0

i 32.3

Small Electrical Appliance Manufacturing

i 4,997

i 1.1

i 2.5

i 4,997

i 1.0

i 2.5

Travel Trailer and Camper Manufacturing

i 11,264

i 2.5

i 5.5

i 12,948

i 2.6

i 6.4

Other Services (except Public Administration)

Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance

i 572

i 0.1

i 0.3

i 988

i 0.2

i 0.5

Professional, Scientific, and Technical Services

Administrative Management and General Management Consulting Services

i 22,990

i 5.0

i 11.3

i 22,634

i 4.5

i 11.1

All Other Professional, Scientific, and Technical Services

i 2,872

i 0.6

i 1.4

i 2,865

i 0.6

i 1.4

Management Consulting Services

i 2,251

i 0.5

i 1.1

i 2,264

i 0.4

i 1.1

Other Accounting Services

i 19,631

i 4.3

i 9.6

i 19,927

i 3.9

i 9.8

Other Computer Related Services

i 15,017

i 3.3

i 7.4

i 15,260

i 3.0

i 7.5

140

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Percentage of Total

Amortized Cost

Net Assets

Fair Value

Net Assets

Public Administration

Other Justice, Public Order, and Safety Activities

i 703

i 0.2

i 0.3

i 29

i —

Real Estate and Rental and Leasing

Nonresidential Property Managers

i 2,972

i 0.6

i 1.5

i 2,972

i 0.6

i 1.5

Office Machinery and Equipment Rental and Leasing

i 5,952

i 1.3

i 2.9

i 2,774

i 0.5

i 1.4

Retail Trade

Automotive Parts and Accessories Stores

i 2,688

i 0.6

i 1.3

i 2,704

i 0.5

i 1.3

Cosmetics, Beauty Supplies, and Perfume Stores

i 1,533

i 0.3

i 0.8

i 1,531

i 0.3

i 0.8

Electronic Shopping and Mail-Order Houses

i 6,913

i 1.5

i 3.4

i 6,870

i 1.4

i 3.4

Shoe Store

i 9,893

i 2.2

i 4.9

i 9,342

i 1.8

i 4.6

Sporting Goods Stores

i 1,958

i 0.4

i 1.0

i 1,972

i 0.4

i 1.0

All Other General Merchandise Stores

i 499

i 0.1

i 0.2

i 1,698

i 0.3

i 0.8

Transportation and Warehousing

Freight Transportation Arrangement

i 1,960

i 0.4

i 1.0

i 1,970

i 0.4

i 1.0

Scheduled Passenger Air Transportation

i 360

i 0.1

i 0.2

i 377

i 0.1

i 0.2

Wholesale Trade

Business to Business Electronic Markets

i 2,875

i 0.6

i 1.4

i 2,838

i 0.6

i 1.4

Computer and Computer Peripheral Equipment and Software Merchant Wholesalers

i 7,173

i 1.6

i 3.5

i 6,903

i 1.4

i 3.4

Drugs and Druggists' Sundries Merchant Wholesalers

i 5,529

i 1.2

i 2.7

i 5,550

i 1.1

i 2.7

Industrial Machinery and Equipment Merchant Wholesalers

i 9,071

i 2.0

i 4.5

i 9,073

i 1.8

i 4.5

Motor Vehicle Parts (Used) Merchant Wholesalers

i 23,005

i 5.0

i 11.3

i 23,052

i 4.5

i 11.3

Sporting and Recreational Goods and Supplies Merchant Wholesalers

i 8,179

i 1.8

i 3.9

i 699

i 0.1

i 0.2

Total debt and equity investments

i 382,361

i 83.4

i 187.7

i 431,898

i 85.6

i 212.0

Structured Finance Securities

i 74,951

i 16.6

i 36.8

i 75,201

i 14.4

i 36.9

Total investments

i 457,312

i 100.0

i 224.5

i 507,099

i 100.0

i 248.9

Note 5. i Fair Value of Financial Instruments

Investments

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, 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. In order for the Board to maintain oversight, OFS Advisor implemented the requirements 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 market participants would use in pricing an asset or liability. Valuation inputs are organized

141

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

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 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.

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 significant management 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. i The following table presents the Company’s transfers of Level 2 and Level 3 loans for the years ended December 31, 2022 and 2021, respectively:


	Year Ended December 31,
	2022		2021
Transfers from Level 2 to Level 3	$	i 3,218	$	i —
Transfers from Level 3 to Level 2	i —		i —

Certain of the Company's investments are exchanged in the non-public market among banks, CLOs and other institutional investors for loans to large U.S. corporations. The Company classifies these loan investments as Level 2 when a sufficient number of market quotations or indicative prices from pricing services or broker/dealers (collectively, “Indicative Prices”) are available, and the depth of the market is sufficient to transact at those prices in amounts approximating the Company's investment position at the measurement date. Investments for which sufficient Indicative Prices exist are generally valued consistent with such Indicative Prices.

In addition, each quarter, the Company assesses whether an arm’s length transaction occurred in the same security, including the Company's new investments during the quarter, the cost of which (“Transaction Prices”), may be considered a reasonable indication of fair value generally up to three months after the transaction date. Senior secured debt investments with a fair value of $ i 0 and $ i 72,572, respectively, were valued at their Transaction Price at December 31, 2022 and December 31, 2021.

Investments that are not valued using Indicative Prices or Transaction Prices are typically valued using two different valuation techniques. The Company typically estimates the fair value of debt investments by a discounted cash flows technique in which a current price is imputed for the investment based upon an assessment of the expected market yield (or discount rate) for similarly structured investments with a similar level of risk. The Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the portfolio company and various market indices. A key determinant of portfolio-company risk is the leverage through the investment relative to earnings metrics of the portfolio company.

The fair value of Structured Finance Securities are also estimated primarily by discounted cash flow techniques. In valuing such investments, the Company considers CLO performance metrics, including prepayment rates, default rates, loss-on-default and recovery rates, and other metrics, as well as estimated market yields provided by a recognized industry pricing service as a primary source for discounted cash flow fair value estimates, supplemented by actual trades executed in the market at or around period-end, as well as the indicative prices provided by broker-dealers in its estimate of the fair value of such investments. The

142

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Company also considers the operating metrics of the CLO vehicle, including compliance with collateralization tests, concentration limits and restructuring activity, if applicable.

The fair value of the Company’s equity investments as well as certain of its non-performing debt investments are estimated through analysis of the portfolio company's enterprise value under a market approach. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining enterprise value under the market approach involves multiple analyses whereby appropriate multiples are applied to an earnings metric of the portfolio company, typically earnings before net interest expense, income tax expense, depreciation and amortization (“EBITDA”). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Company may also utilize other portfolio-company earnings metrics to determine enterprise value, such as recurring monthly revenue or a delineated measure of portfolio company EBITDA. Application of these valuation methodologies involves a significant degree of judgment by management.

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 inflation rates, the ongoing war between Russia and Ukraine, the continuing COVID-19 pandemic, and the risk of recession 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.

The following tables present the Company's investment portfolio measured at fair value on a recurring basis as of December 31, 2022 and 2021, respectively.

Security

Level 1

Level 2

Level 3

Fair Value at December 31, 2022

Debt investments

i —

i 30,823

i 282,039

i 312,862

Equity investments

i —

i 99,196

Structured Finance Securities

i —

i 88,518

i —

i 30,823

i 469,753

i 500,576

Security

Level 1

Level 2

Level 3

Fair Value at December 31, 2021

Debt investments

i —

i 65,591

i 279,056

i 344,647

Equity investments

i —

i 87,251

Structured Finance Securities

i —

i 75,201

i —

i 65,591

i 441,508

i 507,099

143

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

The following tables provide quantitative information about the Company’s significant unobservable inputs to the Company’s Level 3 fair value measurements as of December 31, 2022 and 2021.

Fair Value at December 31, 2022

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

i 264,702

Discounted cash flow

Discount rates

i 10.21% - i 20.71% ( i 12.94%)

Senior secured

i 16,110

Market approach

Revenue multiples

i 0.46x - i 0.70x ( i 0.56x)

Subordinated

i 1,226

Market approach

EBITDA multiples

i 10.50x - i 10.50x ( i 10.50x)

Structured Finance Securities:

Subordinated notes(1)

i 53,688

Discounted cash flow

Discount rates

i 12.50% - i 34.00% ( i 22.14%)

Constant default rate

i 2.00% - i 2.00% ( i 2.00%)

Recovery rate

i 65.00% - i 65.00% ( i 65.00%)

Mezzanine debt

i 26,413

Discounted cash flow

Discount margin

i 7.25% - i 11.60% ( i 8.58%)

Constant default rate

i 2.00% - i 3.00% ( i 2.03%)

Recovery rate

i 65.00% - i 65.00% ( i 65.00%)

Subordinated notes

i 118

Market approach

Net asset value liquidation(2)

Loan accumulation facility

i 8,299

Market approach

Probability weighted NAV analysis

Equity investments:

Preferred equity

i 6,202

Market approach

EBITDA multiples

i 7.25x - i 7.25x ( i 7.25x)

Preferred equity

i 1,901

Market approach

Revenue multiples

i 0.15x - i 0.87x ( i 0.87x)

Common equity, warrants and other

i 91,070

Market approach

EBITDA multiples

i 3.72x - i 11.75x ( i 9.63x)

Common equity, warrants and other

i 24

Market approach

Revenue multiples

i 0.15x - i 0.87x ( i 0.15x)

i 469,753

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

144

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Fair Value at December 31, 2021

Valuation technique

Unobservable inputs

Range
(Weighted average)

Debt investments:

Senior secured

i 178,382

Discounted cash flow

Discount rates

i 6.47% - i 12.32% ( i 9.25%)

Senior secured

i 11,632

Market approach

EBITDA multiples

i 7.09x - i 7.09x ( i 7.09x)

Senior secured

i 7,027

Market approach

Revenue multiples

i 0.74x - i 0.74x ( i 0.74x)

Senior secured

i 64,072

Market approach

Transaction Price

Subordinated

i 17,244

Discounted cash flow

Discount rates

i 15.90% - i 17.49% ( i 16.65%)

Subordinated

i 699

Market approach

Revenue multiples

i 0.28x - i 0.28x ( i 0.28x)

Structured Finance Securities:

Subordinated notes(1)

i 63,922

Discounted cash flow

Discount rates

i 8.00% - i 16.00% ( i 12.39%)

Constant default rate(2)

i 0.00% - i 2.00% ( i 1.77%)

Constant default rate(3)

i 2.00% - i 2.00% ( i 2.00%)

Recovery rate

i 60.00% - i 60.00% ( i 60.00%)

Mezzanine debt

i 2,779

Discounted cash flow

Discount Margin

i 7.10% - i 8.95% ( i 7.91%)

Constant default rate(2)

i 2.00% - i 3.00% ( i 2.36%)

Constant default rate(3)

i 2.00% - i 3.00% ( i 2.36%)

Recovery rate

i 60.00% - i 60.00% ( i 60.00%)

Loan accumulation facility

i 8,500

Market approach

Transaction Price

Equity investments:

Preferred equity

i 2,748

Market approach

EBITDA multiples

i 7.80x - i 7.80x ( i 7.80x)

Preferred equity

i 1,017

Market approach

Revenue multiples

i 0.15x - i 3.00x ( i 0.91x)

Common equity and warrants

i 83,478

Market approach

EBITDA multiples

i 4.50x - i 12.00x ( i 8.10x)

Common equity and warrants

i 8

Market approach

Revenue multiples

i 0.15x - i 3.00x ( i 0.15x)

i 441,508

(2) Constant default rates for the six months ended June 30, 2022.

(3) Constant default rates for the period between June 30, 2022, and the assumed optional redemptions of the 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 wide range of approaches towards 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.

145

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(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 years ended December 31, 2022 and 2021:

Year Ended December 31, 2022

Senior
Secured Debt
Investments

Subordinated
Debt
Investments

Preferred Equity

Common Equity and Warrants

Structured Finance Securities

Total

Level 3 assets, December 31, 2021

i 261,113

i 17,943

i 3,765

i 83,486

i 75,201

i 441,508

i Net realized loss on investments

( i 336)

i —

( i 51)

( i 325)

i —

( i 712)

i Net change in unrealized appreciation (depreciation) on investments

( i 9,370)

( i 8,536)

i 4,016

i 9,133

( i 14,209)

( i 18,966)

i Amortization of net loan origination fees

i 1,332

i 6

i —

i 244

i 1,582

i Accretion of interest income on Structured Finance Securities

i —

i 10,656

i Capitalized PIK interest and dividends

i 452

i 58

i 466

i —

i 976

i Amendment fees

( i 206)

i —

( i 206)

Purchase and origination of portfolio investments

i 92,329

i —

i 2,240

i 43,198

i 137,767

Proceeds from principal payments on portfolio investments

( i 59,329)

( i 8,245)

i —

( i 14,399)

( i 81,973)

Sale and redemption of portfolio investments

( i 8,390)

i —

( i 3,534)

i —

( i 11,924)

Distributions received from Structured Finance Securities

i —

( i 12,173)

Transfers from Level 2 to Level 3

i 3,218

i —

i 3,218

Level 3 assets, December 31, 2022

i 280,813

i 1,226

i 8,196

i 91,000

i 88,518

i 469,753

Year Ended December 31, 2021

Senior
Secured Debt
Investments

Subordinated
Debt
Investments

Preferred Equity

Common Equity and Warrants

Structured Finance Securities

Total

Level 3 assets, December 31, 2020

i 284,078

i 15,067

i 11,543

i 52,984

i 56,425

i 420,097

i Net realized gain (loss) on investments

( i 265)

( i 23,676)

i 3,310

( i 49)

i —

( i 20,680)

i Net change in unrealized appreciation (depreciation) on investments

i 10,780

i 26,214

i 1,318

i 31,355

( i 314)

i 69,353

i Amortization of net loan origination fees

i 2,092

i 24

i —

i 73

i 2,189

i Accretion of interest income on Structured Finance Securities

i —

i 9,861

i Capitalized PIK interest, dividends, and fees

i 1,472

i 526

i 143

i —

i 2,141

Purchase and origination of portfolio investments

i 167,720

i —

i 200

i 30,412

i 198,332

Proceeds from principal payments on portfolio investments

( i 172,661)

( i 121)

i —

( i 172,782)

Sale and redemption of portfolio investments

( i 27,381)

( i 91)

( i 12,549)

( i 5,726)

( i 8,600)

( i 54,347)

Distributions received from Structured Finance Securities

i —

( i 12,656)

Conversion from debt investment to equity investment (Note 4)

( i 4,722)

i —

i 4,722

i —

Level 3 assets, December 31, 2021

i 261,113

i 17,943

i 3,765

i 83,486

i 75,201

i 441,508

The net unrealized appreciation (depreciation) reported in the Company’s consolidated statements of operations for the years ended December 31, 2022 and 2021, attributable to the Company’s Level 3 assets still held at those respective year ends was as

146

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

follows:


	Year Ended December 31,
	2022		2021
Senior secured debt investments	$	( i 9,411)	$	i 3,637
Subordinated debt investments	( i 8,536)		i 4,977
Preferred equity	i 3,952		( i 73)
Common equity, warrants and other	i 17,740		i 30,208
Structured Finance Securities	( i 14,162)		( i 302)
i i Net unrealized appreciation (depreciation) on investments held /	$	( i 10,417)	$	i 38,447

Other Financial Assets and Liabilities

GAAP requires disclosure of the fair value of financial instruments not reported at fair value on a recurring basis for which it is practical to estimate such values. 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 senior secured revolving credit facility between the Company and Pacific Western Bank, as lender (“PWB Credit Facility”) and the secured revolving credit facility that provides for borrowings in an aggregate principal amount up to $ i 150,000 issued pursuant to a Revolving Credit and Security Agreement 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 equity holder, the Company, as servicer, Citibank, N.A., as collateral agent and Virtus Group, LP, as collateral administrator (“BNP Facility”) are variable rate instruments and fair value is approximately book value.

The following tables present the fair value measurements of the Company’s debt and the level within the fair value hierarchy of the significant unobservable inputs used to determine such fair values as of December 31, 2022 and 2021:

Description

Level 1(1)

Level 2

Level 3(2)

Total

PWB Credit Facility

i —

BNP Facility

i —

i 104,700

OFS Capital Corporation i 4.75% Notes due 2026

i —

i 109,037

OFS Capital Corporation i 4.95% Notes due 2028

i 47,058

i —

i 47,058

SBA-guaranteed debentures

i —

i 49,470

Total debt

i 47,058

i —

i 263,207

i 310,265

Description

Level 1(1)

Level 2

Level 3(2)

Total

PWB Credit Facility

i —

BNP Facility

i —

i 100,000

OFS Capital Corporation i 4.75% Notes due 2026

i —

i 123,130

OFS Capital Corporation i 4.95% Notes due 2028

i 56,430

i —

i 56,430

SBA-guaranteed debentures

i —

i 73,011

Total debt

i 56,430

i —

i 296,141

i 352,571

(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 through discounting remaining payments using current market rates for similar instruments at the measurement date through the legal maturity date.

147

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

The following are the carrying values and fair values of the Company’s debt as of December 31, 2022 and 2021:

As of December 31, 2022

As of December 31, 2021

Description

Carrying Value(1)

Fair Value

Carrying Value(1)

Fair Value

PWB Credit Facility

i —

BNP Facility

i 104,700

i 100,000

OFS Capital Corporation i 4.75% Notes due 2026

i 122,547

i 109,037

i 121,774

i 123,130

OFS Capital Corporation i 4.95% Notes due 2028

i 53,806

i 47,058

i 53,672

i 56,430

SBA-guaranteed debentures

i 50,697

i 49,470

i 69,365

i 73,011

Total debt

i 331,750

i 310,265

i 344,811

i 352,571

(1) Carrying value is calculated as the outstanding principal amount less unamortized deferred debt issuance costs. See Note 2 for details.

Note 6. i Commitments and Contingencies

The Company had outstanding commitments to fund investments totaling $ i 32,157 and $ i 43,690 under various undrawn revolvers and other credit facilities as of December 31, 2022 and 2021, respectively.

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 December 31, 2022.

Additionally, the Company is subject to periodic inspection by regulators to assess compliance with applicable BDC regulations and the 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 general indemnifications. 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. i Borrowings

SBA Debentures: The SBIC Program enabled SBIC I LP 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 the Company, have interest payable semi-annually and a i ten-year maturity. The interest rate is fixed at the time of SBA pooling, which is March and September of each year, at a market-driven spread over U.S. Treasury Notes with ten-year maturities.

The Company received exemptive relief from the SEC effective November 26, 2013, which permits the Company to exclude SBA guaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act, allowing for greater capital deployment.

During the year ended December 31, 2022, SBIC I LP redeemed $ i 19,000 of SBA debentures that were contractually due March 1, 2025 and September 1, 2025. The Company recognized losses on extinguishment of debt of $ i 144 related to the acceleration of unamortized deferred borrowing costs on the redeemed debentures. As of December 31, 2022 and 2021, SBIC I LP had outstanding SBA debentures of $ i 50,920 and $ i 69,920, respectively.

On a stand-alone basis, SBIC I LP held $ i 176,521 and $ i 195,502 in assets at December 31, 2022 and 2021, respectively, which accounted for approximately i 34% and i 34% of the Company’s total consolidated assets, respectively. These assets cannot be pledged under any non-SBA debt obligation of the Company.

148

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

The following table shows the Company’s outstanding SBA debentures payable as of December 31, 2022 and 2021:

Fixed Interest Rate

SBA debentures outstanding

Pooling Date

Maturity Date

i 2.872

i 50,920

i 65,920

September 23, 2015

September 1, 2025

i 3.184

i —

i 4,000

SBA debentures outstanding

i 50,920

i 69,920

Unamortized debt issuance costs

( i 223)

( i 555)

SBA debentures outstanding, net of unamortized debt issuance costs

i 50,697

i 69,365

For the years ended December 31, 2022, 2021 and 2020, the components of interest expense, cash paid for interest, effective interest rates and average outstanding balances for the SBA debentures were as follows:


	Years Ended December 31,
	2022			2021			2020
Stated interest expense	$	i 1,552		$	i 2,627		$	i 4,070
Amortization of debt issuance costs	i 188			i 209			i 332
Total interest and debt financing costs	$	i 1,740		$	i 2,836		$	i 4,402
Cash paid for interest expense	$	i 1,739		$	i 2,978		$	i 4,830
Effective interest rate	i 3.22		%	i 3.27		%	i 3.31		%
Average outstanding balance	$	i 53,991		$	i 86,710		$	i 132,803

Unsecured Notes: The unsecured notes totaled $ i 180,000 and $ i 180,000 in aggregate principal debt at December 31, 2022 and 2021, respectively.

Issuances during the year ended December 31, 2021

On February 10, 2021, the Company closed the public offering of $ i 100,000 aggregate principal amount of its i 4.75% notes due 2026, and on March 18, 2021, the Company closed an additional public offering of $ i 25,000 aggregate principal amount of its i 4.75% notes due 2026 (the "Unsecured Notes Due February 2026"). The total net proceeds to the Company from the Unsecured Notes Due February 2026, after deducting underwriting fees and offering expenses of $ i 3,936, was approximately $ i 121,064.

On October 28, 2021 and November 1, 2021, the Company closed the public offering of $ i 55,000 aggregate principal amount of its i 4.95% notes due 2028 (the “Unsecured Notes Due October 2028”), which included a full exercise of the underwriters overallotment option. The total net proceeds to the Company, after deducting underwriting discounts and offering expenses of $ i 1,389, was approximately $ i 53,611.

Redemptions during the year ended December 31, 2021

On March 12, 2021, the Company redeemed all of its $ i 50,000 aggregate principal amount of i 6.375% notes due April 30, 2025 (the “Unsecured Notes Due April 2025”) and $ i 48,525 aggregate principal amount of i 6.50% notes due October 30, 2025 (the “Unsecured Notes Due October 2025”).

On November 1, 2021, the Company redeemed all of its $ i 25,000 aggregate principal amount of i 6.25% notes due September 30, 2023 (“Unsecured Notes Due September 2023”).

On November 22, 2021, the Company redeemed all of its $ i 54,325 aggregate principal amount of i 5.95% notes due October 31, 2026 (the “Unsecured Notes Due October 2026”).

During the year ended December 31, 2021, the Company recognized a loss on extinguishment of $ i 4,267 related to the acceleration of unamortized deferred borrowing costs on the redemption of unsecured notes.

The Unsecured Notes Due February 2026, the Unsecured Notes Due October 2028, the Unsecured Notes Due April 2025, the Unsecured Notes Due October 2025, the Unsecured Notes Due September 2023 and Unsecured Notes Due October 2026, combined (the “Unsecured Notes”), of which the Unsecured Notes Due February 2026 and the Unsecured Notes Due October 2028 were outstanding at December 31, 2021, 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

149

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

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 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 and BNP Facility.

The indenture governing the Unsecured Notes contains certain covenants: (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 i 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 if the Company’s asset coverage, as defined in the 1940 Act, were below i 150% at the time of such capital transaction and after deducting the amount of such transaction.


	Years Ended December 31,
	2022			2021			2020
Stated interest expense	$	i 8,663		$	i 11,160		$	i 10,044
Amortization of debt issuance costs	i 1,029			i 1,403			i 909
Total interest and debt financing costs	$	i 9,692		$	i 12,563		$	i 10,953
Cash paid for interest expense	$	i 8,683		$	i 10,384		$	i 9,645
Effective interest rate	i 5.38		%	i 6.03		%	i 6.84		%
Average outstanding balance	$	i 180,000		$	i 208,240		$	i 160,022

As of December 31, 2022, the Unsecured Notes had the following terms and balances:

Unsecured Notes

Principal

Unamortized Discount and Issuance Costs

Stated Interest Rate(1)

Effective Interest Rate(2)

Maturity(3)

Unsecured Notes Due February 2026

i 125,000

i 2,452

i 4.75

i 5.39

2/10/2026

Unsecured Notes Due October 2028

i 55,000

i 1,195

i 4.95

i 5.32

10/31/2028

Total

i 180,000

i 3,647

(1) The weighted-average fixed cash interest rate on the Unsecured Notes as of December 31, 2022 was i 4.81%.

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

(3) 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. 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.

PWB Credit Facility: The Company is party to a business loan agreement (“BLA”) with Pacific Western Bank, as lender, to provide the Company with a $ i 25,000 senior secured revolving credit facility. The PWB Credit Facility is available for general corporate purposes including investment funding and is scheduled to mature on February 28, 2024. The maximum availability of the PWB Credit Facility is equal to i 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which excludes subordinated loan investments and as otherwise 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 PWB Credit Facility bears interest at a variable rate of the Prime Rate plus a i 0.25% margin, with a i 4.00% floor, and includes an unused commitment fee for any unused portion in excess of $ i 15,000, payable monthly in arrears, equal to i 0.50% per annum on any unused portion. As of December 31, 2022, the stated interest rate of the PWB Credit Facility was i 7.75%. At December 31, 2022, the PWB Credit Facility’s effective interest rate, including deferred financing cost amortization and unused fees, was i 7.97%.

150

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Unamortized debt issuance costs included in prepaid expenses and other assets on the consolidated statements of assets and liabilities as of December 31, 2022 and 2021, were $ i 1 and $ i 6, respectively.

As of December 31, 2022 and 2021, the Company had $ i 0 and $ i 0 outstanding debt under the PWB Credit Facility, respectively, and $ i 25,000 and $ i 25,000 of availability under the terms of the borrowing base, respectively.

On February 17, 2021, the Company amended the PWB Credit Facility to among other things: (i) increase the maximum amount available from $ i 20,000 to $ i 25,000; (ii) decrease the interest rate floor from i 5.25% per annum to i 5.00% per annum; (iii) modify certain financial performance covenants; and (iv) extend the maturity date from February 28, 2021 to February 28, 2023.

On November 15, 2021, the Company amended the PWB Credit Facility to decrease the interest rate floor from i 5.0% to i 4.0%, effective as of November 1, 2021.

On April 22, 2022, the Company amended the PWB Credit Facility to: (i) increase the maximum amount available under the PWB Credit Facility from $ i 25,000 to $ i 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 $ i 35,000 to $ i 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.

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, and a ratio of total liabilities divided by NAV. 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.


	Years Ended December 31,
	2022			2021			2020
Stated interest expense(1)	$	i 128		$	i 101		$	i 1,060
Amortization of debt issuance costs	i 5			i 19			i 225
Total interest and debt financing costs	$	i 133		$	i 120		$	i 1,285
Cash paid for interest expense	$	i 131		$	i 81		$	i 1,144
Effective interest rate(2)	i 6.93		%	i 4.01		%	i 6.76		%
Average outstanding balance	$	i 714		$	i 1,810		$	i 15,222

(1) Stated interest expense includes unused fees.

(2) Unused fees were excluded from the calculation.

BNP Facility: OFSCC-FS is party to the BNP Facility, which provides for borrowings in an aggregate principal amount up to $ i 150,000, of which $ i 104,700 was drawn as of December 31, 2022. Borrowings under the BNP Facility bear interest of SOFR plus an applicable spread, which is determined on the basis of industry-recognized portfolio company metrics at the time of funding. The BNP Facility will mature on the earlier of June 20, 2027 or upon certain other events defined in the credit agreement which result in accelerated maturity. Borrowings under the BNP Facility are secured by substantially all of the assets held by OFSCC-FS, which were $ i 173,692 and i 185,105, or i 33% and i 33% of the Company's total consolidated assets at December 31, 2022 and 2021, respectively.

On June 24, 2022, OFSCC-FS amended the BNP Facility to, among other things: (i) extend the reinvestment period under the BNP Facility for i 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 i 0.40% on all classes of loans; and (v) increase the applicable margin floor from i 1.925% to i 2.65%.

151

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

As of December 31, 2022 and 2021, the Company had $ i 104,700 and $ i 100,000 outstanding debt under the BNP Facility, respectively, and $ i 45,300 and $ i 50,000 of availability under the terms of the borrowing base, respectively. OFSCC-FS also pays a non-usage fee up to i 0.75% depending on the size of the unused portion of the BNP Facility.

At December 31, 2022, the cash interest rate on the BNP Facility was i 7.05%.

OFSCC-FS incurred fees to the lenders as well as legal costs to establish and amend the BNP Facility, which are amortized over the life of the facility. Unamortized debt issuance costs included in prepaid expenses and other assets on the consolidated statements of assets and liabilities as of December 31, 2022 and 2021 were $ i 1,315 and $ i 665, respectively.


	Years Ended December 31,
	2022			2021			2020
Stated interest expense(1)	$	i 5,133		$	i 1,658		$	i 1,943
Amortization of debt issuance costs	i 327			i 338			i 225
Total interest and debt financing costs	$	i 5,460		$	i 1,996		$	i 2,168
Cash paid for interest expense	$	i 4,661		$	i 1,594		$	i 2,022
Effective interest rate	i 4.42		%	i 4.20		%	i 5.53		%
Average outstanding balance	$	i 123,632		$	i 47,481		$	i 39,182

(1) Stated interest expense includes unused fees.

The average dollar borrowings and average interest rate for all Company debt during the years ended December 31, 2022, 2021 and 2020, were as follows:

Year ended

Average Dollar Borrowings

Weighted Average Interest Rate

i 358,337

i 4.75

i 344,241

i 5.09

i 347,229

i 5.42

i As of December 31, 2022, the Company's debt liabilities are scheduled to mature as follows:

Principal Due by Year

Debt liabilities

Total

2023

2024

2025

2026

2027

Thereafter

PWB Credit Facility

i —

BNP Facility

i 104,700

i —

i 104,700

i —

SBA Debentures

i 50,920

i —

i 50,920

i —

Unsecured Notes

i 180,000

i —

i 125,000

i —

i 55,000

Total

i 335,620

i —

i 50,920

i 125,000

i 104,700

i 55,000

Note 8. i Federal Income Tax

Filing status: The Company has elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its ICTI, as defined by the Code. Additionally, to avoid a 4% U.S. federal excise tax on undistributed earnings the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year, (ii) 98.2% of its 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 the Company paid no U.S. federal income tax. Maintenance of the Company's RIC status also requires adherence to certain source of income and asset diversification requirements.

152

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

OFSCC-MB, an entity taxed as a corporation under Subchapter C of the Code, is consolidated in the Company’s GAAP financial statements but is not included in the determination of ICTI or the RIC compliance requirements of the Company. The income of OFSCC-MB, net of applicable income taxes, is not included in the Company’s ICTI until distributed by OFSCC-MB, which may result in timing and character differences between the Company’s GAAP and tax-basis net investment income and realized gains and losses.

Taxable income and distributions: As of December 31, 2022, the Company met the source of income and asset diversification requirements, and intends to continue to meet these requirements. As of December 31, 2022, the Company recognized excise tax of $ i 100 related to estimated undistributed income for the year ended December 31, 2022. The Company’s ICTI differs from the net increase (decrease) in net assets resulting from operations primarily due to differences in income recognition on the unrealized appreciation/depreciation of investments, income recognition for CLO subordinated note investments, income from Company’s equity investments in pass-through entities, capital gains and losses and the net creation or utilization of capital loss carryforwards.

The distributions paid to stockholders are reported as ordinary income, long-term capital gains and returns of capital. i The tax character of distributions paid(1) were as follows:

Years Ended December 31,

2022(1)

2021

2020

Ordinary taxable income

i 15,564

i 12,207

i 11,516

Long-term capital gain

i —

Return of capital

i —

Total distributions to stockholders

i 15,564

i 12,207

i 11,516

(1) The calculation of 2022 U.S. federal taxable income is based on certain estimated amounts, including information received from third parties and, as a result, actual 2022 U.S. federal taxable income will not be finally determined until the Company’s 2022 U.S. federal tax return is filed in 2023 (and, therefore, such estimate is subject to change).

i Tax-basis components of distributable earnings (accumulated losses) as of December 31, 2022 and 2021, were as follows:


	December 31,
	2022		2021
Ordinary income (RIC)	$	i 3,551	$	i 1,193
Undistributed earnings and profits (net operating loss carry-forward) (OFSCC-MB; C-Corporation)	i 2,606		i 3,325
Capital loss carryforwards:
RIC – short-term, non-expiring	( i 3,683)		( i 3,226)
RIC – long-term, non-expiring	( i 34,335)		( i 34,292)

The Company records reclassifications to its capital accounts related to permanent differences between GAAP and tax treatment of excise taxes and other permanent differences. The Company recorded reclassifications to decrease additional paid-in capital against total distributable earnings (accumulated loss) of $ i 101, $ i 2,142 and $ i 331 for the years ended December 31, 2022, 2021 and 2020, respectively.

153

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

i The estimated tax-basis cost of investments and associated tax-basis gross unrealized appreciation (depreciation) inherent in the fair value of investments as of December 31, 2022 and 2021, were as follows:


	December 31,
	2022		2021
Tax-basis amortized cost of investments	$	i 473,716	$	i 452,722
Tax-basis gross unrealized appreciation on investments	i 92,230		i 83,033
Tax-basis gross unrealized depreciation on investments	( i 65,370)		( i 28,656)
Tax-basis net unrealized appreciation (depreciation) on investments	i 26,860		i 54,377
Fair value of investments	$	i 500,576	$	i 507,099

Deferred taxes: The Company recognizes deferred taxes on the unrealized appreciation or depreciation of securities held through OFSCC-MB, and other basis differences including available loss carry forwards and suspended interest expense deductions reported by portfolio companies. Deferred tax assets and liabilities are measured using enacted corporate federal tax rates and estimated state tax burdens expected to apply to taxable income in the years in which those unrealized gains and losses are realized. The recoverability of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of the projected taxable income or other taxable events in OFSCC-MB.

The tax-basis unrealized appreciation (depreciation) of investments by tax entity inherent in the fair value of investments as of December 31, 2022 and 2021, were as follows:


	2022		2021



Total net unrealized appreciation (depreciation) on investments held by RIC entities	$	i 27,494	$	i 54,282
OFSCC-MB (C-Corp):
Gross unrealized appreciation on investments	i 144		i 649
Gross unrealized depreciation on investments	( i 778)		( i 554)
Total net unrealized appreciation (depreciation) on investments on investments held by OFSCC-MB	( i 634)		i 95
Total tax-basis net unrealized appreciation on investments	$	i 26,860	$	i 54,377

Deferred tax assets and liabilities as of December 31, 2022 and 2021, were as follows:


	December 31,
	2022		2021
Total deferred tax assets	$	i 205	$	i 141
Valuation allowance on deferred tax assets	( i 124)		i —
Total deferred tax liabilities	( i 81)		( i 167)

Deferred tax liabilities and assets with tax basis unrealized gain and losses differs from the amount that would have resulted from applying the federal rate of 21% to unrealized gains and losses because of state income taxes, net of associated federal benefit.

154

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 9. i Financial Highlights

The following is a schedule of financial highlights for each year in the five-year period ended December 31, 2022:

Years Ended December 31,

2022

2021

2020

2019

2018

Per share operating performance:

Net asset value per share at beginning of year

i 15.18

i 11.85

i 12.46

i 13.10

i 14.12

Net investment income(4)

i 1.37

i 1.00

i 0.92

i 1.43

i 1.38

Net realized loss on investments, net of taxes(4)

( i 0.13)

( i 1.54)

( i 0.75)

( i 0.29)

( i 0.36)

Net unrealized appreciation (depreciation) on investments, net of deferred taxes(4)

( i 1.79)

i 5.12

i 0.25

( i 0.42)

( i 0.31)

Loss on extinguishment of debt(4)

( i 0.01)

( i 0.34)

( i 0.06)

i —

Loss on impairment of goodwill(4)

i —

( i 0.08)

i —

Total from operations

( i 0.56)

i 4.24

i 0.28

i 0.72

i 0.71

Distributions

( i 1.16)

( i 0.91)

( i 0.86)

( i 1.36)

( i 1.73)

Issuance/repurchase of common stock(5)

i 0.01

i —

( i 0.03)

i —

Net asset value per share at end of year

i 13.47

i 15.18

i 11.85

i 12.46

i 13.10

Per share market value, end of period

i 10.15

i 10.90

i 7.15

i 11.17

i 10.60

Total return based on market value(1)

i 4.4

i 66.8

( i 24.0)

i 18.3

i 3.5

Total return based on net asset value(2)

( i 0.6)

i 40.2

i 13.6

i 6.7

i 7.8

Shares outstanding at end of period

i 13,398,078

i 13,422,413

i 13,409,559

i 13,376,836

i 13,357,337

Weighted average shares outstanding

i i 13,417,410 /

i i 13,413,861 /

i i 13,394,005 /

i i 13,364,244 /

i i 13,348,203 /

Ratio/Supplemental Data (in thousands except ratios)

Average net asset value(3)

i 194,068

i 178,628

i 148,175

i 171,889

i 182,468

Net asset value at end of year

i 180,423

i 203,744

i 158,956

i 166,627

i 175,023

Net investment income

i 18,352

i 13,450

i 12,295

i 19,098

i 18,385

Ratio of total expenses, net to average net assets(8)

i 15.7

i 19.2

i 22.4

i 19.4

i 13.4

Ratio of total expenses, net and losses on impairment of goodwill and extinguishment of debt to average net assets(9)

i 15.7

i 21.8

i 23.7

i —

Ratio of net investment income to average net assets(6)

i 9.5

i 7.5

i 8.3

i 11.1

i 10.5

Ratio of goodwill impairment loss to average net assets

i —

i 0.7

i —

Ratio of loss on extinguishment of debt to average net assets

i 0.1

i 2.6

i 0.6

i —

Portfolio turnover(7)

i 28.0

i 54.9

i 28.1

i 21.2

i 41.9

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

(2)Calculated as ending net asset value less beginning net asset value, adjusted for distributions reinvested at the Company’s dividend reinvestment plan for the respective distributions.

(3)Based on the average of the net asset value at the beginning of the indicated period and the end of each calendar quarter within the period indicated.

(4)Calculated on the average share method.

(5)The issuance/repurchase of common stock on a per share basis reflects the net asset value change as a result of DRIP issuances or shares repurchased pursuant to the Stock Repurchase Program.

(6)Ratio of net investment income before incentive fee waiver to average net assets was i 8.0% and i 10.5% for the years ended December 31, 2020 and December 31, 2018, respectively.

(8)Ratio of total expenses before incentive fee waiver to average net assets was i 22.7% and i 13.4% for the years ended December 31, 2020 and December 31, 2018, respectively.

(9)Ratio of total expenses before incentive fee waiver and losses on impairment of goodwill and extinguishment of debt to average net assets was i 24.0% for the year ended December 31, 2020.

155

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 10. i Capital Transactions

Distributions: The Company intends to make distributions to stockholders on a quarterly basis of substantially all of its net investment income. In addition, although the Company intends to make distributions of any net realized capital gains, out of assets legally available for such distributions at least annually, the Company may in the future decide to retain such net investment income and capital gains for investment or corporate purposes.

The Company may be limited in its ability to make distributions due to the BDC asset coverage requirements of the 1940 Act. The Company’s ability to make distributions may also be affected by its restrictions imposed by the SBA regulations on the Company’s wholly owned SBIC subsidiary, and may require the prior approval of the SBA. In addition, distributions from OFSCC-FS to the Company are restricted by the terms and conditions of the BNP Facility. At December 31, 2022 and December 31, 2021, net assets of SBIC I LP were $ i 125,236 and $ i 125,375, respectively, which included cash of $ i 8,587 and $ i 11,265, of which $ i 4,180 and $ i 12,422 were available for distribution at December 31, 2022 and 2021, respectively. At December 31, 2022 and December 31, 2021, net assets of OFSCC-FS were $ i 68,214 and $ i 76,072, respectively, which included cash of $ i 3,706 and $ i 3,693, of which $ i 0 and $ i 0 were available for distribution to the Company at December 31, 2022 and 2021, respectively.

The following table summarizes distributions declared and paid for the years ended December 31, 2022, 2021 and 2020:

Date Declared

Record Date

Payment Date

Amount
Per Share

Cash
Distribution

DRIP Shares
Issued

DRIP Shares
Value

Year ended December 31, 2020

March 11, 2020

March 24, 2020

March 31, 2020

i 0.34

i 4,484

i 15,693

i 64

May 4, 2020

June 23, 2020

June 30, 2020

i 0.17

i 2,244

i 7,165

i 32

July 28, 2020

September 23, 2020

September 30, 2020

i 0.17

i 2,246

i 6,708

i 32

November 3, 2020

December 24, 2020

i 0.18

i 2,391

i 3,157

i 22

i 0.86

i 11,365

i 32,723

i 150

Year ended December 31, 2021

March 2, 2021

March 24, 2021

March 31, 2021

i 0.20

i 2,655

i 3,103

i 27

May 7, 2021

June 23, 2021

June 30, 2021

i 0.22

i 2,918

i 3,273

i 33

August 3, 2021

September 23, 2021

September 30, 2021

i 0.24

i 3,181

i 3,738

i 38

November 2, 2021

December 24, 2021

i 0.25

i 3,317

i 3,440

i 38

i 0.91

i 12,071

i 13,554

i 136

Year ended December 31, 2022

March 1, 2022

March 24, 2022

March 31, 2022

i 0.28

i 3,719

i 3,016

i 39

May 3, 2022

June 23, 2022

June 30, 2022

i 0.29

i 3,850

i 4,348

i 43

August 2, 2022

September 23, 2022

September 30, 2022

i 0.29

i 3,849

i 5,529

i 46

November 1, 2022

December 23, 2022

December 30, 2022

i 0.30

i 3,967

i 5,026

i 51

i 1.16

i 15,385

i 17,919

i 179

The following table represents DRIP participation for the years ended December 31, 2022, 2021 and 2020, respectively:

For the Year Ended

DRIP Shares Value

Total Distribution Declared

DRIP Shares Issued

Average Value Per Share

i 179

i 15,564

i 17,919

i 9.98

i 136

i 12,207

i 13,554

i 10.04

Incorporated by Reference

i 150

i 11,516

i 32,723

i 4.60

Since the Company’s initial public offering in 2012, distributions to stockholders total $ i 148,327, or $ i 12.65 per share on a cumulative basis.

Distributions in excess of the Company’s current and accumulated ICTI would be treated first as a return of capital to the extent of a stockholder’s 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 and distributions paid for the full year. Each year, if required, a statement on Form 1099-DIV identifying the source of the distribution is mailed to the Company’s stockholders.

156

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Stock repurchase program: The Company is authorized to acquire up to $ i 10,000 of its outstanding common stock through May 22, 2024 (the “Stock Repurchase Program”). Under the Stock Repurchase Program, the Company may 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 may be extended, modified or discontinued at any time for any reason.

i The following table summarizes the shares of common stock the Company repurchased under the Stock Repurchase Program (amount in thousands except shares):

Period

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of the Program

Maximum Dollar Value of Shares That May Yet be Purchased Under the Program

Weighted Average Discount to NAV Prior to Repurchase

May 22, 2018 through December 31, 2018

i 300

i 10.29

i 300

i 9,997

i 21.5

January 1, 2019 through December 31, 2019

i —

—

i —

—

January 1, 2020 through December 31, 2020

i —

—

i —

—

January 1, 2021 through December 31, 2021

i 700

i 6.70

i 700

i 9,992

i 43.3

January 1, 2022 through December 31, 2022

i 42,254

i 8.30

i 42,254

i 9,642

i 41.6

Total

i 43,254

i 8.29

i 43,254

157

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 11. i Consolidated Schedule of Investments In and Advances To Affiliates i

Year Ended December 31, 2022

Name of Portfolio Company

Investment Type (1)

Net Realized Gain (Loss)

Net change in unrealized appreciation/ (depreciation)

Interest & PIK Interest

Dividends

Fees

Total Income (2)

December 31, 2021, Fair Value

Gross

Additions (3)

Gross

Reductions (4)

December 31, 2022, Fair Value (5)

Control Investment

Eblens Holdings, Inc.

Subordinated Loan

i —

( i 3,013)

i —

i 4,117

( i 3,013)

i 1,104

Subordinated Loan

i —

Common Equity (6)

i —

( i 950)

i —

i 950

( i 950)

i —

( i 3,963)

i —

i 5,067

( i 3,963)

i 1,104

MTE Holding Corp.

Subordinated Loan

i —

i 141

i —

i 6

i 147

i 8,195

i 35

( i 8,230)

i —

Common Equity

i 278

( i 1,685)

i —

i 45

i —

i 45

i 4,753

i —

( i 4,753)

i —

i 278

( i 1,685)

i 141

i 45

i 6

i 192

i 12,948

i 35

( i 12,983)

i —

Total Control Investment

i 278

( i 5,648)

i 141

i 45

i 6

i 192

i 12,948

i 5,102

( i 16,946)

i 1,104

Affiliate Investments

Contract Datascan Holdings, Inc.

Preferred Equity(7)

i —

i 2,988

i —

i 466

i —

i 466

i 2,748

i 3,454

i —

i 6,202

Common Equity(6)

i —

i 485

i —

i 25

i 485

i —

i 510

i —

i 3,473

i —

i 466

i —

i 466

i 2,773

i 3,939

i —

i 6,712

DRS Imaging Services, LLC

Common Equity(6)

i —

i 280

i —

i 1,289

i 280

i —

i 1,569

158

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Year Ended December 31, 2022

Name of Portfolio Company

Investment Type (1)

Net Realized Gain (Loss)

Net change in unrealized appreciation/ (depreciation)

Interest & PIK Interest

Dividends

Fees

Total Income (2)

December 31, 2021, Fair Value

Gross

Additions (3)

Gross

Reductions (4)

December 31, 2022, Fair Value (5)

Master Cutlery, LLC

Subordinated Loan (6)

i —

( i 561)

i —

i 699

i —

( i 577)

i 122

Preferred Equity(6)

i —

Common Equity(6)

i —

( i 561)

i —

i 699

i —

( i 577)

i 122

Pfanstiehl Holdings, Inc.

Common Equity

i —

i 19,716

i —

i 65,740

i 19,716

i —

i 85,456

TalentSmart Holdings, LLC

Common Equity(6)

i —

( i 141)

i —

i 1,095

i —

( i 142)

i 953

TRS Services, Inc.

Preferred Equity(6)

i —

i 902

i —

i 5

i —

i 5

i 988

i 902

i —

i 1,890

Common Equity(6)

i —

i 97

i —

i 97

i —

i 902

i —

i 102

i —

i 102

i 988

i 902

i —

i 1,890

Total Affiliate Investments

i —

i 23,667

i —

i 568

i —

i 568

i 72,584

i 24,837

( i 720)

i 96,701

Total Control and Affiliate Investments

i 278

i 18,019

i 141

i 613

i 6

i 760

i 85,532

i 29,939

( i 17,666)

i 97,805

(1)Principal balance of debt investments and ownership detail for equity investments are shown 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.

(2)Represents the total amount of interest, fees or dividends included in 2022 income for the portion of the year ended December 31, 2022, that an investment was included in Control or Affiliate Investment categories, respectively.

(3)Gross additions include increases in cost basis resulting from a new portfolio investment, PIK interest, fees and dividends, accretion of OID, and net increases in unrealized net appreciation or decreases in net unrealized depreciation. Gross additions also include transfers of portfolio companies, at fair value, out of the non-affiliate/non-control classification to the control classification during the period.

159

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

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

(6)Non-income producing.

(7)Dividends credited to income include dividends contractually earned but not declared.

160

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Year Ended December 31, 2021

Name of Portfolio Company

Investment Type (1)

Net Realized Gain (Loss)

Net change in unrealized appreciation/ (depreciation)

Interest & PIK Interest

Dividends

Fees

Total Income (2)

December 31, 2020, Fair Value

Gross

Additions (3)

Gross

Reductions (4)

December 31, 2021, Fair Value (5)

Control Investment

MTE Holding Corp.

Subordinated Loan

i —

i 20

i 1,348

i —

i 74

i 1,422

i 7,822

i 425

( i 52)

i 8,195

Common Equity

i —

i 1,763

i —

i 136

i —

i 136

i 2,990

i 1,763

i —

i 4,753

i —

i 1,783

i 1,348

i 136

i 74

i 1,558

i 10,812

i 2,188

( i 52)

i 12,948

Total Control Investment

i —

i 1,783

i 1,348

i 136

i 74

i 1,558

i 10,812

i 2,188

( i 52)

i 12,948

Affiliate Investments

3rd Rock Gaming Holdings, LLC

Senior Secured Loan

i —

i 9,258

i —

( i 9,258)

i —

Common Equity(6)

( i 2,537)

i 2,547

i —

( i 2,537)

i 2,547

i —

i 9,258

i —

( i 9,258)

i —

Chemical Resources Holdings, Inc.

Senior Secured Loan

i —

( i 114)

i 857

i —

i 201

i 1,058

i 13,744

i 114

( i 13,858)

i —

Common Equity(6)

i 1,730

( i 1,606)

i —

i 3,420

i —

( i 3,420)

i —

i 1,730

( i 1,720)

i 857

i —

i 201

i 1,058

i 17,164

i 114

( i 17,278)

i —

Contract Datascan Holdings, Inc.

Preferred Equity(7)

i —

i 59

i —

i 2,690

i 58

i —

i 2,748

Common Equity(6)

i —

( i 21)

i —

i 46

i —

( i 21)

i 25

i —

i 38

i —

i 2,736

i 58

( i 21)

i 2,773

161

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Year Ended December 31, 2021

Name of Portfolio Company

Investment Type (1)

Net Realized Gain (Loss)

Net change in unrealized appreciation/ (depreciation)

Interest & PIK Interest

Dividends

Fees

Total Income (2)

December 31, 2020, Fair Value

Gross

Additions (3)

Gross

Reductions (4)

December 31, 2021, Fair Value (5)

DRS Imaging Services, LLC

Common Equity(6)

i —

( i 460)

i —

i 1,749

i —

( i 460)

i 1,289

Master Cutlery, LLC

Subordinated Loan (6)

i —

i 421

i —

i 346

i 421

( i 68)

i 699

Preferred Equity(6)

i —

Common Equity(6)

i —

i 421

i —

i 346

i 421

( i 68)

i 699

NeoSystems Corp.

Preferred Stock(7)

i 1,505

( i 371)

i —

i 143

i —

i 143

i 2,250

i 143

( i 2,393)

i —

Pfanstiehl Holdings, Inc.

Common Equity

i —

i 29,519

i —

i 1,000

i —

i 1,000

i 36,221

i 29,519

i —

i 65,740

Professional Pipe Holdings, LLC

Senior Secured Loan

i —

i 867

i —

i 867

i 6,086

i 1,370

( i 7,456)

i —

Common Equity(6)

i 1,061

i 206

i —

i 1,208

i 1,267

( i 2,475)

i —

i 1,061

i 206

i 867

i —

i 867

i 7,294

i 2,637

( i 9,931)

i —

TalentSmart Holdings, LLC

Common Equity(6)

i —

( i 211)

i —

i 1,306

i —

( i 211)

i 1,095

TRS Services, Inc.

Preferred Equity(6)

i —

i 73

i —

i 915

i 73

i —

i 988

Common Equity(6)

i —

i 73

i —

i 915

i 73

i —

i 988

162

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Year Ended December 31, 2021

Name of Portfolio Company

Investment Type (1)

Net Realized Gain (Loss)

Net change in unrealized appreciation/ (depreciation)

Interest & PIK Interest

Dividends

Fees

Total Income (2)

December 31, 2020, Fair Value

Gross

Additions (3)

Gross

Reductions (4)

December 31, 2021, Fair Value (5)

TTG Healthcare, LLC

Senior Secured Loan

i —

( i 123)

i 1,962

i —

i 452

i 2,414

i 19,530

i 194

( i 19,724)

i —

Preferred Equity(6)

i 5,786

( i 1,766)

i —

i 4,077

i —

( i 4,077)

i —

i 5,786

( i 1,889)

i 1,962

i —

i 452

i 2,414

i 23,607

i 194

( i 23,801)

i —

Total Affiliate Investments

i 7,545

i 28,153

i 3,686

i 1,143

i 653

i 5,482

i 102,846

i 33,159

( i 63,421)

i 72,584

Total Control and Affiliate Investments

i 7,545

i 29,936

i 5,034

i 1,279

i 727

i 7,040

i 113,658

i 35,347

( i 63,473)

i 85,532

(2)Represents the total amount of interest, fees or dividends included in 2021 income for the portion of the year ended December 31, 2021, that an investment was included in Control or Affiliate Investment categories, respectively.

(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. Gross reductions also include transfers of portfolio companies out of the affiliate classification to the non-affiliate/non-control classification during the period.

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

(6)Non-income producing.

(7)Dividends credited to income include dividends contractually earned but not declared.

163

OFS Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data)

Note 12. i Subsequent Events Not Disclosed Elsewhere

On February 28, 2023, the Company’s Board declared a distribution of $ i 0.33 per share for the first quarter of 2023, payable on March 31, 2023 to stockholders of record as of March 24, 2023.

On March 1, 2023, SBIC I LP prepaid $ i 5,000 of SBA debentures that were contractually due March 1, 2025.

164

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. 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 December 31, 2022. 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 December 31, 2022, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with polices or procedures may deteriorate.

Our management (with the supervision and participation of our Chief Executive Officer and Chief Financial Officer) conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework in Internal Control – Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting is effective based on those criteria.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2022, 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.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

165

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year.

Item 11. Executive Compensation

The information required by Item 11 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

The information required by Item 12 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from the Company’s definitive Proxy Statement relating to the Company’s 2023 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company’s fiscal year.

166

PART IV

Item 15. Exhibits and Financial Statement Schedules

a. Documents Filed as Part of this Report

1. Financial Statements: See “Part II, Item 8. Financial Statements and Supplementary Data” of this report for a list of financial statements.

2. Financial Statement Schedules: Schedule 12-14 Investments in and Advances to Affiliates—See “Part II, Item 8. Financial Statements and Supplementary Data—Note 11. ” of this report.

3. Exhibits required to be filed by Item 601 of Regulation S-K: See Item 15b. below.

b. Exhibits

The following table lists exhibits filed as part of this report, according to the number assigned to them in Item 601 of Regulation S-K. All exhibits listed in the following table are incorporated by reference except for those exhibits denoted in the last column. Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.

Exhibit Number

Description

Form and SEC File No.

Filing Date with SEC

Filed with this 10-K

3.1

Certificate of Incorporation of OFS Capital Corporation

N-2 (333-166363)

Certificate of Correction to Certificate of Incorporation of OFS Capital Corporation

3.2

10-K (814-00813)

March 26, 2013

3.3

Bylaws of OFS Capital Corporation

N-2/A (333-166363)

Form of Stock Certificate of OFS Capital Corporation

4.1

N-2/A (333-166363)

4.2

N-2 (333-200376)

4.3

N-2/A (333-200376)

4.4

Subscription Agent Agreement

N-2/A (333-200376)

December 16, 2014

4.5

Subscription Certificate

N-2/A (333-200376)

December 16, 2014

4.6

Certificate of Designation

N-2/A (333-200376)

December 16, 2014

4.7

Fifth Supplemental Indenture dated as of February 10, 2021 between OFS Capital Corporation and U.S. Bank National Association, as trustee

Form 8-K
(814-00813)

February 10, 2021

4.8

Form of 4.75% Note due 2026 (incorporated by reference to Exhibit 4.1 thereto and Exhibit A therein)

Form 8-K
(814-00813)

February 10, 2021

4.9

Sixth Supplemental Indenture dated of October 28, 2021 between OFS Capital Corporation and U.S. Bank National Association, as trustee

Form 8-K
(814-00813)

October 28, 2021

4.10

Form of 4.95% Notes due 2028 (incorporated by reference to Exhibit 4.1 thereto and Exhibit A therein)

Form 8-K
(814-00813)

October 28, 2021

4.11

Description of Securities

10.1

Form of Dividend Reinvestment Plan

N-2/A (333-166363)

Investment Advisory and Management Agreement between OFS Capital Corporation and OFS Capital Management, LLC

10.2

10-Q (814-00813)

November 7, 2014

10.3

Custody Agreement

10-K (814-00813)

March 4, 2022

167

Incorporated by Reference

Exhibit Number

Description

Form and SEC File No.

Filing Date with SEC

Filed with this 10-K

10.4

Administration Agreement between OFS Capital Corporation and OFS Capital Services, LLC

N-2/A (333-166363)

License Agreement between OFS Capital Corporation and Orchard First Source Asset Management, LLC

10.5

N-2/A (333-166363)

Form of Indemnification Agreement between OFS Capital Corporation and each of its directors and executive officers

10.6

N-2/A (333-166363)

Form of Registration Rights Agreement between OFS Capital Corporation and Orchard First Source Asset Management, LLC

10.7

N-2/A (333-166363)

July 24, 2012

10.8

Assignment and Assumption Agreement by and among Orchard First Source Asset Management, LLC, Orchard First Source Asset Management Holdings, LLC and OFS Capital Corporation, dated January 10, 2023

10.9

Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated March 7, 2018

10-K (814-00813)

March 12, 2018

10.10

Promissory Note between OFS Capital Corporation and Pacific Western Bank dated November 5, 2015

10-Q (814-00813)

November 6, 2015

10.11

Change in terms to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated March 7, 2018

10-K (814-00813)

March 12, 2018

10.12

Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank, dated April 10, 2019

Form 8-K
(814-00813)

Change in terms to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank, dated April 10, 2019

10.13

Form 8-K
(814-00813)

Commercial Guaranty Agreement between OFS Capital Corporation and Pacific Western Bank, dated April 10, 2019

10.14

Form 8-K
(814-00813)

Amendment One to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated June 26, 2020

10.15

Form 8-K
(814-00813)

July 2, 2020

10.16

Amendment Two to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated July 29, 2020

Form 8-K
(814-00813)

July 31, 2020

10.17

Amendment Three to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated October 7, 2020

Form 8-K
(814-00813)

October 9, 2020

10.18

Amendment Four to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated February 17, 2021

Form 8-K
(814-00813)

February 19, 2021

10.19

Change in Terms to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated February 17, 2021

Form 8-K
(814-00813)

February 19, 2021

10.20

Change in Terms to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated November 15, 2021

Form 8-K
(814-00813)

November 18, 2021

10.21

Amendment Five to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated April 22, 2022

Form 8-K
(814-00813)

April 25, 2022

10.22

Change in Terms to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated April 22, 2022

Form 8-K
(814-00813)

April 25, 2022

10.23

Amendment Six to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank dated December 15, 2022

Form 8-K
(814-00813)

December 15, 2022

10.24

Commercial Guaranty Agreement between among OFS Capital Corporation, OFSCC-MB, Inc., and Pacific Western Bank, dated April 10, 2019

Form 8-K
(814-00813)

Incorporated by Reference

168

Exhibit Number

Description

Form and SEC File No.

Filing Date with SEC

Filed with this 10-K

10.25

Revolving Credit and Security Agreement by and among OFSCC-FS, LLC, as borrower, the lenders from time to time parties thereto, BNP Paribas, as administrative agent, OFSCC-FS Holdings LLC, as equityholder, OFS Capital Corporation, LLC, as servicer, and Citibank, N.A., as collateral agent, dated June 20, 2019.

Form 8-K
(814-00813)

First Amendment to the Revolving Credit and Security Agreement by and among OFSCC-FS, LLC, as borrower, the lenders from time to time parties thereto, BNP Paribas, as administrative agent, OFSCC-FS Holdings LLC, as equityholder, OFS Capital Corporation, LLC, as servicer, and Virtus Group LP , as collateral a dministrator , dated June 24, 2022

10.26

Form 8-K
(814-00813)

June 27, 2022

10.27

Second Amendment to the Revolving Credit and Security Agreement by and among OFSCC-FS, LLC, as borrower, the lenders from time to time parties thereto, BNP Paribas, as administrative agent, OFSCC-FS Holdings LLC, as equityholder, OFS Capital Corporation, LLC, as servicer, and Virtus Group, LP, as collateral administrator, dated February 2, 2023

10.28

Securities Account Control Agreement by and among OFSCC-FS, LLC, as pledgor, BNP Paribas, as administrative agent, and Citibank, N.A., as secured party and securities intermediary, dated June 20, 2019.

Form 8-K
(814-00813)

Custodian and Loan Administration Agreement by and among OFSCC-FS, LLC, Citibank, N.A., as custodian, and Virtus Group, LP, as collateral administrator, dated June 20, 2019.

10.29

Form 8-K
(814-00813)

Loan Sale and Contribution Agreement by and between OFSCC-FS, LLC, as the buyer, and OFSCC-FS Holdings, LLC, as the seller, dated June 20, 2019.

10.30

Form 8-K
(814-00813)