What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-04 compared with 2024-03-05 · 212 added, 229 removed, 521 unchanged (46% of the section changed)

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• 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;

• the belief that the carrying amounts of our financial instruments, such as cash, cash equivalents, 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;

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• 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 elevated interest and inflation rates, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S.

and international banking systems, the risk of recession or a shutdown of U.S.

• the belief that the seniority of our debt investments in a borrower’s capital structure may provide greater downside protection against adverse economic changes, including those caused by the impacts of interest rate and inflation rate changes, the ongoing war between Russia and Ukraine, instability in the U.S.

and international banking systems, the agenda of the new U.S.

presidential administration, including the potential impact of tariff enactment and tax reductions, the risk of recession or a shutdown of U.S.

government services, and related market volatility on our business, our portfolio companies, our industry and the global economy;

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• the holding period of our investments;

• the impact of alternative reference rates on our business, including a reduction in the value of certain of our investments;

• the impact of alternative reference rates on our business, including potential additional interest rate reductions approved by the U.S.

Federal Reserve, which may impact our investment income, cost of funding and the valuation of our investments;

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

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• the impact of current political, economic and industry conditions, including changes in the interest rate environment, inflation, significant market volatility, supply chain and labor market disruptions, including those as a result of strikes, work stoppages or accidents, resource shortages and other conditions affecting the financial and capital markets, which, in turn, impacts our business prospects and the prospects of our portfolio companies;

• the impact of the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East and general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;

• 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 some of our outstanding debt has favorable financing rates compared to today’s rates;

• the belief that we have sufficient levels of liquidity to support our existing portfolio companies;

• the effect of laws or regulations, including accounting pronouncements and rule issuances, on our business;

• our ability to consummate credit facilities in the future on commercially reasonable terms, if at all;

• the effect of laws or regulations, including accounting pronouncements and rule issuances, 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;

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• 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;

• the impact of our ESG activities;

• the fluctuation of the fair value of our investments due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value;

• the belief that the deployment of capital into Structured Finance Securities will improve our performing income yield;

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

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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.

These risks and uncertainties include, among others, those described or identified in “Part 1, Item 1A.

Risk Factors” in this Annual Report on Form 10-K.

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Distributions declared 1.36 1.34 1.16

Our NAV per common share decreased to $12.09 at December 31, 2023, from $13.47 at December 31, 2022, primarily due to net losses on our investment portfolio of $20.4 million, or $1.52 per common share.

For the year ended December 31, 2023, net investment income of $1.50 per common share exceeded our aggregate distributions of $1.34 per common share during such period.

During the year ended December 31, 2023, net investment income increased $1.8 million compared to the prior year.

The increase in net investment income was primarily due to an increase in total investment income of $8.2 million, partially

offset by increases in interest expense and incentive fees (including the Income Incentive Fee and the Capital Gains Fee) of $2.5 million and $4.7 million, respectively.

Our NAV per common share increased from $12.09 at December 31, 2023 to $12.85 at December 31, 2024, primarily due to net gains on our investment portfolio of $11.7 million, or $0.87 per common share.

For the year ended December 31, 2024, our aggregate distributions of $1.36 per common share exceeded our net investment income of $1.25 per common share.

During the year ended December 31, 2024, net investment income decreased $3.4 million compared to the prior year.

The decrease in net investment income was primarily due to a decrease in total investment income of $9.0 million, partially offset by a decrease in total expenses of $5.5 million.

See “—Results of Operations” for additional details.

For the year ended December 31, 2023, the weighted-average performing income yield on interest-bearing investments increased to 13.9%, compared to 10.7% during the year ended December 31, 2022.

The increase in our investment yield was primarily due to elevated interest rates as our loan portfolio predominately consisted of floating rate loans throughout the year.

Our weighted-average debt interest costs increased to 6.0% for the year ended December 31, 2023, from 4.8% during the year ended December 31, 2022, primarily due to the increase in SOFR of approximately 70 bps during the year.

The increase in our debt interest costs was primarily due to an increase in the cost of debt on our BNP Facility resulting from SOFR rate increases.

As of December 31, 2023, we had $302.4 million of outstanding debt with a weighted-average effective interest rate of 6.1%, which we believe is a favorable financing rate compared to today’s rates.

As of December 31, 2023, 70% of our outstanding debt was fixed rate and 89% of our outstanding debt matures in 2026 and beyond.

See “—Recent Developments” for additional information regarding our outstanding debt.

During the year ended December 31, 2023, our portfolio experienced net losses of $20.4 million, comprised of net realized losses of $11.4 million and net unrealized depreciation of $9.0 million.

During the year ended December 31, 2023, our net loss of $20.4 million was primarily related to net unrealized depreciation of $14.5 million on our common equity of Pfanstiehl Holdings, Inc, and net unrealized depreciation of $4.3 million on our non-accrual loans.

Our weighted-average performing income yield on interest-bearing investments decreased from 13.9% during the year ended December 31, 2023 to 13.4% during the year ended December 31, 2024.

The decrease in our income yield was primarily due to a decrease in the effective yield of our Structured Finance Security portfolio related to the aging of subordinated note securities.

See “ — Portfolio Composition and Investment Activity ’ for additional details.

Our total outstanding debt decreased from $302.4 million at December 31, 2023 to $248.4 million at December 31, 2024.

Our weighted-average debt interest costs increased from 6.0% during the year ended December 31, 2023 to 6.4% for the year ended December 31, 2024, primarily due to the full repayment of our SBA debentures on March 1, 2024, which carried a low effective interest rate of 3.26%, and an increase in the cost of debt on our BNP Facility.

As of December 31, 2024, we had outstanding debt of $126.0 million contractually maturing in February 2026, which comprised 51% of our total outstanding debt.

See “—Liquidity and Capital Resources—Contractual Obligations and Off-Balance Sheet Arrangements” for additional details.

During the year ended December 31, 2024, our portfolio experienced net gains of $11.7 million, comprised of net unrealized appreciation of $28.9 million, partially offset by net realized losses of $17.1 million.

During the year ended December 31, 2024, our net gain of $11.7 million was primarily driven by net unrealized appreciation of $18.4 million in our common equity investment in Pfanstiehl Holdings, Inc., partially offset by net unrealized depreciation of $6.6 million on our current non-accrual loans.

As of December 31, 2024, our portfolio had non-accrual loans with an aggregate fair value of $20.8 million, or 9.3% of our total loan portfolio at fair value, compared to non-accrual loans with an aggregate fair value of $12.1 million, or 4.8% of our total loan portfolio at fair value, at December 31, 2023.

As of December 31, 2023, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 16.9% of our portfolio at fair value and 43.8% of our consolidated net assets, respectively.

Primarily due to a decline in financial operating performance during the year ended December 31, 2023, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc.

decreased by $14.5 million to $70.9 million, or $1.08 per share.

As of December 31, 2024, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 21.8% of our portfolio at fair value and 51.8% of our total net assets, respectively.

Primarily due to an improvement in financial operating performance during the year ended December 31, 2024, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc.

increased by $18.4 million, or $1.37 per common share, to $89.3 million.

The value of this investment is substantially comprised of unrealized appreciation of $89.1 million.

The valuation of this investment is based on significant unobservable inputs.

A deterioration or improvement 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, 2024, our asset coverage ratio of 169% 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, 2023, we had unused commitments of $25.0 million under our Banc of California Credit Facility and $59.5 million under our BNP Facility, respectively, each of which are subject to a borrowing base and other covenants.

As of December 31, 2023, we had unfunded commitments of $13.8 million to 10 portfolio companies.

As of December 31, 2024, we had unused commitments of $24.0 million under our Banc of California Credit Facility and $82.7 million under our BNP Facility, each of which are subject to a borrowing base and other covenants.

As of December 31, 2024, we had unfunded investment commitments of $18.8 million to 10 issuers.

On February 26, 2025, the Board declared a distribution of $0.34 per share for the first quarter of 2025, payable on March 31, 2025, to stockholders of record as of March 21, 2025.

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This includes assessments of the fair value of the investment relative to par or cost and other judgments of management.

PIK income is

included in our ICTI and, therefore, affects the amount we are required to pay to our stockholders in the form of distributions in order to maintain our tax treatment as a RIC, even though we may have not yet collected the cash.

PIK income is included in our ICTI and, therefore, affects the amount we are required to pay to our stockholders in the form of distributions in order to maintain our tax treatment as a RIC, even though we may have not yet collected the cash.

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 (“ASC 325-40”), 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.

The expected 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 at each payment date, generally quarterly.

These assumed cash flows represent significant estimates and are subject to a reasonable possibility of near-term changes due to economic and credit market conditions, and the effect of these changes could be material.

The Company ultimately may not realize income accreted on CLO subordinated note securities.

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 net 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.

Income notes associated with our Loan Accumulation Facility investments generally earn returns equal to the actual income earned on facility assets less costs of senior financing and manager costs.

We periodically evaluate the realizability of such amounts and, if necessary, subsequently adjust the estimated yield.

An optional redemption feature of a CLO allows a majority of the holders of the CLO subordinated notes issued by the CLO issuer, after the end of a specified non-call period, to cause the redemption of the CLO subordinated notes issued by the CLO with proceeds paid through either the liquidation of the CLO’s assets or a refinancing with new debt.

The optional redemption is effectively a voluntary prepayment of the CLO subordinated notes issued by the CLO prior to the stated maturity of such securities.

When the optional redemption feature has been exercised on a CLO subordinated note, distributions received are first recorded as a return of capital until its cost basis is reduced to zero and thereafter recorded as realized gains.

The principal amount of the CLO subordinated notes is not reduced for distributions received until the security is fully redeemed.

Commencing on the optional redemption date, we cease accruing income on our CLO subordinated notes that will be redeemed.

Non-accrual Loans :

We review, for placement on non-accrual status, all loans and CLO mezzanine debt investments that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected.

We review, for placement on non-accrual status, all loans and CLO mezzanine debt investments when they become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected.

When a loan is placed on non-accrual status, accrued and unpaid cash interest is reversed.

Interest income and Net Loan Fees are no longer recognized 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 amortized cost depending upon management’s judgment.

Depending upon management’s judgment, interest payments subsequently received on non-accrual investments may be recognized as interest income or applied as a reduction to amortized cost.

Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments and, in management’s judgment, it is probable that we will collect all principal and interest from the investment.

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Fair value estimates.

As of December 31, 2023, total investments of $420.3 million, representing approximately 89% of our total assets, were carried on the consolidated statement of assets and liabilities at fair value.

As of December 31, 2024, total investments of $409.7 million, representing approximately 96% of our total assets, were carried at fair value on the consolidated statement of assets and liabilities.

As discussed more fully in “Item 8.

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On September 7, 2022, pursuant to Rule 2a-5, our 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, and, as prescribed in Rule 2a-5, the Board maintains oversight of OFS Advisor in its capacity as valuation designee.

We have engaged third-party valuation firms to provide assistance to OFS Advisor in determining the fair value of the majority of our investments.

As described in “Item 8.

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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:

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;

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Second lien 34,331 33,044 36,386

Subordinated (1)

Structured Finance Securities:

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$ 409,665 $ 393,001 $ 424,698

(1) As of December 31, 2023, the fair value of our subordinated debt investment was $0.

Related Party Transactions

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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.”

See “Part 1, 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.”

See “Part 1, 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.

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.

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(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.

In addition, we may file an application for an amendment to our existing Order to permit us to participate in follow-on investments in our existing portfolio companies with private funds that do not hold any investments in such existing portfolio companies.

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

(3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing;

and (4) the proposed investment by us would not benefit OFS Advisor, the other Affiliated Funds that are participating in the investment, or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the exemptive relief and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act.

In addition, we may file an application for an amendment to our existing Order to permit us to co-invest in our existing portfolio companies with certain affiliates that are private funds even if such other funds had not previously invested in such existing portfolio companies, subject to certain conditions.

However, if filed, there is no guarantee that such application will be granted.

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We also held equity investments in 15 portfolio companies with a fair value of $108.6 million and 18 investments in Structured Finance Securities with a fair value of $76.9 million.

The following table presents our investment portfolio by each wholly owned legal entity within the consolidated group as of December 31, 2023 and 2022 (in thousands):

December 31, 2023 December 31, 2022

Amortized Cost Fair Value Amortized Cost Fair Value

OFS Capital Corporation (Parent) $ 175,146 $ 143,750 $ 195,823 $ 162,308

SBIC I LP 60,385 121,167 97,214 167,211

OFSCC-FS 165,109 152,582 178,460 168,050

OFSCC-MB 2,890 2,788 3,383 3,007

Total investments $ 403,530 $ 420,287 $ 474,880 $ 500,576

Portfolio Yields .

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

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

For the year ended December 31, 2023, the increase in our weighted-average realized yields was primarily due to elevated interest rates as our loan portfolio predominantly consisted of floating rate loans throughout the year.

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

For the year ended December 31, 2024, the decrease in our weighted-average performing income yield was primarily due to a decrease in the effective yield of our Structured Finance Security portfolio.

During the third and fourth quarter of 2024, we began rotating our Structured Finance Security portfolio, by deploying net capital of $0.6 million into higher-yielding positions with longer average reinvestment periods remaining, which we believe will improve our performing income yield.

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.

As of December 31, 2024, 91% of our total loan

portfolio, at fair value, consisted of variable rate investments, generally indexed to SOFR.

See additional information under “ Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Debt and Equity Investments .

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As of December 31, 2023, the amortized cost and fair value of unitranche investments was $141.3 million and $131.3 million, respectively.

As of December 31, 2023, approximately 100% of our loan portfolio and 60% of our total portfolio consisted of first lien and second lien loans, based on fair value.

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 the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, elevated interest and inflation rates, instability in the U.S.

and international banking systems, the risk of recession or a shutdown of U.S.

government services and related market volatility.

As of December 31, 2023, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 16.9% and 43.8% of our total portfolio at fair value and our total net assets, respectively.

Primarily due to a decline in financial operating performance during the year ended December 31, 2023, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc.

decreased by $14.5 million to $70.9 million, or $1.08 per share.

The value of this investment is substantially comprised of unrealized appreciation of $70.7 million.

A deterioration or improvement 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, 2023, the three largest industries of our debt and equity investments by fair value, were (1) Manufacturing (28.7%), (2) Health Care and Social Assistance (20.2%) and (3) Wholesale Trade (15.1%) totaling approximately 64.0% 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.

As of December 31, 2024, 100% of our loan portfolio and 55% of our total portfolio consisted of first lien and second lien loans, based on fair value.

As of December 31, 2024, the three largest industries of our debt and equity investments by fair value, were (1) Manufacturing (36.7%), (2) Health Care and Social Assistance (20.1%) and (3) Administrative and Support and Waste Management and Remediation Services (6.5%) totaling approximately 63.3% of our debt and equity investment portfolio.

For a full summary of our investment portfolio by industry, see “ Note 4, Investments ” to the consolidated financial statements included in “Item 8.

Financial Statements and Supplementary Data” of this report.

The following table presents our ten largest investments by portfolio company based on fair value as of December 31, 2023 (dollar amounts in thousands):

Portfolio Company Type Amortized Cost Fair Value % of Total Portfolio, at Fair Value

The following table presents our ten largest investments by issuer based on fair value as of December 31, 2024 (dollar amounts in thousands):

Issuer Name Type Amortized Cost Fair Value % of Total Portfolio, at Fair Value

Pfanstiehl Holdings, Inc.

Equity $ 217 $ 89,298 21.8 %

All Star Auto Lights, Inc.

Debt 27,591 27,776 6.6 %

Inergex Holdings, LLC Debt 17,002 17,128 4.2 %

SS Acquisition, LLC Debt 16,871 16,871 4.1 %

Kreg LLC Debt 17,529 16,654 4.1 %

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Honor HN Buyer Inc Debt 14,879 15,046 3.7 %

SSJA Bariatric Management LLC Debt 13,395 12,852 3.1 %

Boca Home Care Holdings, Inc.

Debt and Equity 12,499 11,724 2.8 %

One GI LLC Debt 11,219 10,718 2.6 %

Contract Datascan Holdings, Inc.

Equity 8,511 12,331 3.0 %

One GI LLC Debt 12,614 12,309 3.0 %

Boca Home Care Holdings, Inc.

Debt and Equity 11,196 10,588 2.6 %

Canyon CLO 2019-1, Ltd.

Structured Finance Security 9,492 10,296 2.5 %

Total $ 124,583 $ 215,926 52.8 %

As of December 31, 2024, approximately 4.7% and 11.2% of our total portfolio at fair value and net assets, respectively, were comprised of Structured Finance Securities managed by a single adviser.

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

Structured Finance Securities .

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Mezzanine debt 12,861 12,574 30,347 29,062

Loan accumulation facility — — 8,500 8,299

Total Structured Finance Securities $ 88,983 $ 76,875 $ 97,121 $ 79,045

Number of Structured Finance Securities 18 18 21 21

As of December 31, 2023, we had no non-performing Structured Finance Securities.

Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%, as remaining residual distributions are anticipated to be recognized as a return of capital.

During the year ended December 31, 2023, we recognized a realized loss of $1.3 million on an optionally redeemed subordinated note after it made its final distribution payment.

As of December 31, 2024, the amortized cost and fair value of non-performing Structured Finance Securities were $9.4 million and $3.4 million, respectively.

As of December 31, 2024, we had no Structured Finance Securities that have been optionally redeemed.

During the year ended December 31, 2024, we sold Structure Finance Securities for aggregate net proceeds of $20.1 million and recognized a realized loss of $3.5 million.

Investment Activity.

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Proceeds from sales or redemptions of portfolio investments 46.1 18.9

Distributions received from portfolio investments 14.5 12.2

Proceeds from distributions received from portfolio investments 15.6 14.5

Total proceeds from principal payments, sales or redemptions, and distributions received from portfolio investments $ 128.8 $ 116.4

Non-cash Investment Activity

During the year ended December 31, 2024, we wrote off our preferred and common equity investments in Master Cutlery, LLC, resulting in a net realized loss of $3.5 million.

The net realized loss of $3.5 million was fully recognized in prior fiscal years and did not impact our NAV during the current year.

During the year ended December 31, 2024, our first lien debt investment in GoTo Group underwent a restructuring, whereby our first lien debt investment was exchanged at a price equal to 77% of par for new first lien debt investments in the company.

We recognized a realized loss of $0.7 million on the debt restructure corresponding to the amount forgiven upon the exchange.

During the year ended December 31, 2024, we restructured our first lien debt investments in Avison Young Inc.

to, among other things, exchange our first lien debt investments for new first lien debt investments, preferred equity and common equity.

The cost of the existing first lien debt investments was ascribed to the new investments received in the exchange, and no realized loss was recognized.

We also invested an incremental $0.8 million in new-issue first lien debt.

During the year ended December 31, 2024, our first lien debt investment in Wellful Inc.

underwent a restructuring, under which our investment was restructured at an effective price equal to approximately 83.5% of par for a combination of cash consideration and a new first lien debt investment in the company.

We recognized a realized loss of $1.1 million on the debt restructure corresponding to the amount forgiven upon the restructuring.

See “Part 1, Item 1A.

Risk Factors—Risks Related to Our Investments—The documents governing our Broadly Syndicated Loans, the loans to our portfolio companies and the loans underlying our CLO investments may allow for “priming transactions.”

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.

For additional information regarding our risk categories, see “Part 1, 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, 2024 and 2023 (dollar amounts in thousands):

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Second lien debt 6,584 2,018

Subordinated debt 4,680 —

Total $ 39,124 $ 20,803

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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 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.

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and (b) net unrealized appreciation or depreciation on portfolio investments, net of deferred taxes.

In the period in which a realized gain or loss is recognized, such gain or loss will 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.

that period will generally be smaller.

The net unrealized appreciation or depreciation on debt securities is also reversed when those investments are redeemed or paid off prior to maturity.

Net Increase (Decrease) in Net Assets Resulting From Operations :

Net increase (decrease) in net assets resulting from operations is a key metric in assessing our performance and the overall profit or loss of our operations.

Net Asset Value :

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Prepayment and other fees 136 383 680

Management and syndication 96 393 2,235

Syndication fees 369 96 393

Total fee income 505 479 1,073

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Comparison of investment income for the years ended December 31, 2024 and 2023 .

Total interest income decreased $11.3 million during the year ended December 31, 2024 compared to the prior year, primarily due to a decrease in cash interest income of $9.5 million.

The decrease in cash interest income was primarily due a smaller average investment portfolio, at cost.

During the year ended December 31, 2024, dividend income increased $2.3 million compared to the prior year, primarily due to an increase of $2.4 million in cash dividends.

The increase in cash dividends was primarily due to non-recurring dividends of $1.9 million from TRS Services, LLC million recognized upon the sale of our preferred equity investment as well as a $0.5 million increase in dividends from our common equity investment in Pfanstiehl Holdings, Inc.

During the year ended December 31, 2024, we recognized total PIK income of $2.7 million, which represented 5.7% of total investment income.

During the year ended December 31, 2023, we recognized total PIK income of $2.6 million, which represented 4.6% of total investment income.

During the year ended December 31, 2024, we recognized $1.0 million of PIK interest on a second lien debt investment that has a loan contract comprised of only PIK interest.

Fee income is primarily comprised of unused loan commitment fees, prepayment fees and syndication fees that generally result from periodic transactions rather than from holding portfolio investments, and are considered non-recurring.

We may receive syndication fees on investments where OFS Advisor sources, structures and arranges the lending group.

During the year ended December 31, 2024, total fee income remained stable compared to the prior year.

Comparison of investment income for the years ended December 31, 2023 and 2022 .

Total interest income increased $8.4 million during the year ended December 31, 2023 compared to the prior year, primarily due to an increase in cash interest income of $6.6 million.

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During the year ended December 31, 2022, we recognized total PIK income of $1.0 million, which represented 2.0% of total investment income.

Fee income is primarily comprised of unused loan commitment fees, 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, 2023, total fee income decreased $0.6 million compared to the prior year, primarily due to a decrease in syndication and prepayment fees.

We may receive syndication fees on investments where OFS Advisor sources, structures and arranges the lending group, resulting in incremental economics relative to the other loan participants.

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 rising interest environment during 2022, our debt investments’ effective yield continually increased throughout 2022.

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.

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.

During the year ended December 31, 2023, total fee income decreased $0.6 million compared to the prior year, primarily due to a decrease in syndication and prepayment fees.

Operating expenses for the years ended December 31, 2024, 2023 and 2022, are presented below (in thousands):

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2024 2023 2022

Interest and financing expense $ 19,482 $ 17,025 $ 17,515

Interest expense $ 16,648 $ 19,482 $ 17,025

Base management fees 5,993 7,218 7,979

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Comparison of expenses for the years ended December 31, 2024 and 2023 .

Interest expense for the year ended December 31, 2024 decreased $2.8 million compared to the prior year, primarily due to a decrease of $63.6 million in our average outstanding debt balances compared to the prior year.

During the year ended December 31, 2024, we fully repaid our outstanding SBA debentures totaling $31.9 million and reduced the total amount outstanding under the BNP Facility by $23.2 million.

Base management fee expense for the year ended December 31, 2024 decreased $1.2 million compared to the prior year, primarily due to our average investment portfolio at fair value decreasing from $474.5 million during the year ended December 31, 2023 to $404.7 million during the year ended December 31, 2024.

The Income Incentive Fee for the year ended December 31, 2024 decreased $0.9 million compared to the prior year, primarily due to a decrease in our average interest-bearing investment portfolio, at cost, which reduced our net investment income during the current year.

Other expenses for the year ended December 31, 2024 decreased $0.4 million compared to the prior year, primarily due to the reduction in intangible asset amortization of $0.3 million related to the full repayment of our outstanding SBA debentures in March 2024.

Comparison of expenses for the years ended December 31, 2023 and 2022 .

Interest expense increased by $2.5 million during the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in our weighted-average debt interest costs from 4.8% to 6.0%.

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During the year ended December 31, 2023, professional fees, administration fees and other expenses remained stable compared to the prior year at $5.0 million.

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%.

Base 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 to $525.8 million during the year ended December 31, 2022, from $485.2 million during the year ended 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, 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 Capital Gains Fee previously accrued during the year ended 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.

Net realized and unrealized gain (loss) on investments.

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Year ended December 31, 2024

During the year ended December 31, 2024, our portfolio experienced net gains of $11.7 million, comprised of net unrealized appreciation of $28.9 million, net of taxes, partially offset by net realized losses of $17.1 million, net of taxes.

During the year ended December 31, 2024, our net unrealized appreciation of $28.9 million, net of taxes, primarily related to net unrealized appreciation of $18.4 million in the common equity investment in Pfanstiehl Holdings, Inc.

as well as the reversal of previously recognized unrealized depreciation on exited investments.

During the year ended December 31, 2024, we recognized net realized losses of $17.1 million, primarily due to a $7.8 million loss upon the write-off of our debt and equity investments in Master Cutlery, LLC, an aggregate net realized loss of $7.3 million upon the sale or restructure of debt investments, as well as an aggregate $3.5 million realized loss on the sale of Structured Finance Securities.

Year ended December 31, 2023

During the year ended December 31, 2023, our portfolio experienced net losses of $20.4 million, comprised of net realized losses of $11.4 million and net unrealized depreciation of $9.0 million.

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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.

Losses on Extinguishment of Debt

Year ended December 31, 2024

During the year ended December 31, 2023, we redeemed $19.0 million of SBA debentures and, as a result, we recognized a loss on extinguishment of debt of $0.2 million related to the acceleration of unamortized deferred borrowing costs and prepaid (or breakage) interest on the redeemed debentures.

During the year ended December 31, 2024, we did not recognize a loss on extinguishment of debt.

Year ended December 31, 2023

During the year ended December 31, 2022, we redeemed $19.0 million of SBA debentures and, as a result, we recognized a loss 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, 2022

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 a loss 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 a loss on extinguishment of debt of $4.3 million related to the charge-off of deferred borrowing costs on the redeemed notes.

Non-GAAP Financial Measure – Adjusted Net Investment Income

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$ 16,712 $ 1.25 $ 20,160 $ 1.50 $ 16,436 $ 1.23

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.

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Dividend income:

Preferred equity PIK dividends 332 323

PIK dividends 286 279

Cash dividends 557 11

Total dividend income 843 290

Syndication fees 263 —

Prepayment and other fees 68 15

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Net investment income 4,076 3,603

Net loss on investments (8,805) (3,395)

Loss on extinguishment of debt — (194)

Net increase (decrease) in net assets resulting from operations $ (4,109) $ 1,801

During the three months ended December 31, 2023, cash interest income decreased $2.2 million compared to the three months ended September 30, 2023, primarily due to total debt investments at cost declining 8% compared to the prior quarter, as well as the recognition of non-recurring interest on a realized Structured Finance Security during the prior quarter.

During the three months ended December 31, 2023, PIK interest income increased $0.7 million compared to the three months ended September 30, 2023, primarily due to the placement of a non-accrual loan back on accrual status and the recognition of previously reserved past-due interest.

Net gain (loss) on investments 21,399 (1,915)

Net increase in net assets resulting from operations $ 25,475 $ 1,688

During the three months ended December 31, 2024, cash interest income decreased $0.8 million compared to the three months ended September 30, 2024, primarily due to a smaller average investment portfolio, at cost, and a reduction in reference interest rates as our loan portfolio predominately consisted of floating rate loans.

During the three months ended December 31, 2024, dividend income increased $0.6 million, primarily due to a non-recurring cash dividend of $0.5 million from our common equity investment in Pfanstiehl Holdings, Inc.

Operating expenses for the three months ended December 31, 2024 and September 30, 2024 are presented below (in thousands):

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December 31, 2024 September 30, 2024

Interest and financing expense $ 4,684 $ 4,913

Interest expense $ 3,937 $ 4,022

Base management fees 1,520 1,472

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Total expenses $ 7,572 $ 7,315

During the three months ended December 31, 2023, total expenses decreased $0.5 million compared to the prior quarter, primarily due to decreases in interest expense and base management and Income Incentive fees incurred under the Investment Advisory and Management Agreement.

During the three months ended December 31, 2024, total expenses increased $0.3 million compared to the prior quarter, primarily due to an aggregate increase in base management fees and the Income Incentive Fee of $0.2 million.

Net realized and unrealized gain (loss) on investments.

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Structured Finance Securities 1,638 (1,272)

Current/deferred income tax expense (benefit) (66) 118

Net loss on investments $ (8,805) $ (3,395)

Current/deferred income tax expense (87) (232)

Net gain (loss) on investments $ 21,399 $ (1,915)

Net gain (loss) on investments for the three months ended December 31, 2024

During the three months ended December 31, 2023, our portfolio experienced net losses of $8.8 million, primarily due to net unrealized depreciation of $5.1 million on our equity investments.

During the three months ended December 31, 2023, our common equity investment in Pfanstiehl Holdings, Inc.

experienced net unrealized depreciation of $6.2 million.

During the three months ended December 31, 2024, our portfolio experienced net gains of $21.4 million, primarily due to net unrealized appreciation of $15.6 million on our common equity investment in Pfanstiehl Holdings, Inc.

Net gain (loss) on investments for the three months ended September 30, 2024

For the three months ended September 30, 2023, we recognized a net loss on investments of $3.4 million, primarily due to net unrealized depreciation of $6.8 million on our debt and equity investments, partially offset by net unrealized appreciation of $3.3 million on our Structured Finance Securities.

During the three months ended September 30, 2023, our common equity investment in Pfanstiehl Holdings, Inc.

experienced unrealized depreciation of $5.7 million.

For the three months ended September 30, 2024, we recognized a net loss on investments of $1.9 million, primarily comprised of aggregate net losses of $5.6 million on our loans and Structured Finance Securities, and partially offset by net gains of $3.7 million on our equity securities.

Portfolio Yields .

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For the three months ended December 31, 2023, the weighted average performing income yield on interest-bearing investments decreased primarily due to non-recurring interest income recognized during the prior quarter on the repayment of a loan accumulation facility.

Non-GAAP Financial Measure – Adjusted Net Investment Income

During the three months ended December 31, 2023 and September 30, 2023, we did not recognize a Capital Gains Fee that would require the disclosure of Adjusted Net Investment Income for these periods.

For the three months ended December 31, 2024, the weighted average performing income yield on interest-bearing investments increased primarily due to the rotation of our Structured Finance Security portfolio into higher-yielding positions with longer average reinvestment periods remaining during the current and prior quarter.

Liquidity and Capital Resources

At December 31, 2023, we held cash of $45.3 million, which includes cash of $28.0 million held by SBIC I LP and $4.0 million held by OFSCC-FS.

Our use of cash held by SBIC I LP was restricted by SBA regulation, including limitations on

the amount of cash SBIC I LP could distribute to the Parent.

During the year ended December 31, 2023, the Parent received income distributions of $4.5 million and a return of capital distribution of $2.5 million related to the redemption of debentures.

At December 31, 2024, we held cash of $6.1 million, which includes $4.8 million held by OFSCC-FS.

Distributions from OFSCC-FS to the Parent are restricted by the terms and conditions of the BNP Facility.

During the year ended December 31, 2024, the Parent received $11.4 million in cash distributions from OFSCC-FS.

At December 31, 2023, the Parent had $26.2 million of cash available for general corporate activities, including approximately $12.8 million and $0 million held by SBIC I LP and OFSCC-FS, respectively, that was available for distribution to the Parent.

The Parent was permitted to make unsecured loans to SBIC I LP, the aggregate of which could not exceed $35 million at any given time, and no interest could be charged on the unpaid principal balance.

There were no intercompany loans between the Parent and SBIC I LP at December 31, 2023.

On February 28, 2024, the Parent made a $3.5 million unsecured loan to SBIC I LP in order for SBIC I LP to have sufficient cash to fully redeem its outstanding SBA debentures totaling $31.9 million.

Additionally, at December 31, 2023, we had an unused commitment of $25.0 million under our Banc of California Credit Facility, as well as an unused commitment of $59.5 million under the BNP Facility, both of which are subject to borrowing base requirements and other covenants.

As of December 31, 2023, the aggregate amount outstanding of the senior securities issued by us was $302.4 million, for which our asset coverage was 160%.

The SBA debentures were 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.

Prior to surrendering our SBIC license on April 17, 2024, our use of cash held by SBIC I LP was restricted by SBA regulation, including limitations on the amount of cash SBIC I LP could distribute to the Parent.

At December 31, 2024, we had an unused commitment of $24.0 million under our Banc of California Credit Facility, as well as an unused commitment of $82.7 million under the BNP Facility, both of which are subject to borrowing base requirements and other covenants.

As of December 31, 2024, the aggregate amount outstanding of the senior securities issued by us was $248.4 million, for which our asset coverage was 169%, exceeding our minimum assert coverage requirement of 150% under the 1940 Act.

asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness.

Sources and Uses of Cash and Cash Equivalents.

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19,303 63,824 (11,255)

Net cash provided by (used in) operating activities 81,566 2,946 (12,009)

Proceeds from issuance of the Unsecured Notes, net of discounts — — 175,506

Redemptions of Unsecured Notes — — (177,850)

Net cash provided by operating activities 33,010 81,566 2,946

Distributions paid to stockholders (18,221) (17,954) (15,385)

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Repayments of SBA debentures (31,920) (19,000) (19,000)

Payment of deferred debt issuance costs and other financing costs — (1,372) (836)

Net cash provided (used) by financing activities (51,154) (31,057) 17,349

Net increase (decrease) in cash $ 30,412 $ (28,111) $ 5,340

(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 differences in proceeds from distributions received from Structured Finance Securities relative to

accretion of interest income on Structured Finance Securities.

Payment of deferred debt issuance costs — — (1,372)

Net cash used by financing activities (72,291) (51,154) (31,057)

Net increase (decrease) in cash and cash equivalents $ (39,281) $ 30,412 $ (28,111)

(1) 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, 2023, cash increased $30.4 million, primarily due to $63.8 million of net repayments on portfolio investments, partially offset by aggregate net repayments on our outstanding debt of $33.2 million.

During the year ended December 31, 2022, cash decreased $28.1 million, primarily due to the use of $31.1 million in financing activities.

Net purchases and originations/repayments and sales of portfolio investments includes the purchase and origination of portfolio investments, proceeds from principal payments on portfolio investments, proceeds from sale or redemption of portfolio investments, changes in receivable for investments sold, payable from investments purchased as reported in our statements of cash flows, as well as differences in proceeds from distributions received from Structured Finance Securities relative to accretion of interest income on Structured Finance Securities.

During the year ended December 31, 2024, cash and cash equivalents decreased $39.3 million, primarily due to aggregate net repayments on our outstanding debt of $54.1 million, partially offset by $19.3 million of net repayments on portfolio investments.

During the year ended December 31, 2023, cash and cash equivalents increased $30.4 million, primarily due to $63.8 million of net repayments on portfolio investments, partially offset by aggregate net repayments on our outstanding debt of $33.2 million.

During the year ended December 31, 2022, cash and cash equivalents decreased $28.1 million, 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, primarily due to additional debt borrowings, partially offset by an increase in purchases of portfolio investments.

SBA Debentures .

SBIC I LP had an SBIC license that allowed it to obtain leverage by issuing SBA-guaranteed debentures.

On March 1, 2024, SBIC I LP fully repaid its outstanding SBA debentures totaling $31.9 million and requested the approval of the SBA to surrender its license to operate as a SBIC.

See “—Recent Developments.”

The following table shows our outstanding SBA debentures payable as of December 31, 2023 and 2022 (dollar amounts in thousands):

SBA debentures outstanding

Pooling Date Maturity Date Fixed Interest Rate December 31, 2023 December 31, 2022

March 25, 2015 March 1, 2025 2.872 % $ 31,920 $ 50,920

SBA debentures outstanding 31,920 50,920

Unamortized deferred debt issuance costs (20) (223)

SBA debentures outstanding, net of unamortized deferred debt issuance costs $ 31,900 $ 50,697

During the year ended December 31, 2023, SBIC I LP redeemed $19.0 million of SBA debentures that were contractually due March 1, 2025.

We recognized a loss on extinguishment of debt of $0.2 million related to the charge-off of deferred borrowing costs and prepaid (or breakage) interest on the redeemed debentures.

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

Banc of California Credit Facility .

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The Banc of California Credit Facility is available for general corporate purposes including investment funding.

The maximum availability of the Banc of California Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which excludes subordinated loan investments (as defined in the BLA) and as otherwise specified in the BLA.

The Banc of California Credit Facility is guaranteed by OFSCC-MB and secured by all of our and OFSCC-MB’s current and future assets, excluding assets held by OFSCC-FS and SBIC I LP and the our partnership interests in SBIC I LP.

As of December 31, 2023, 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.

The maximum availability of the Banc of California Credit Facility is equal to 50% of the aggregate outstanding principal amount of eligible loans included in the borrowing base, which typically excludes Structured Finance Securities and as otherwise specified in the BLA.

As of December 31, 2024, OFSCC-MB and us held aggregate total assets of $179.4 million.

The BLA contains 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 contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change in investment advisor, and the occurrence of a material adverse change in our financial condition.

As of December 31, 2024, we were in compliance in all material respects with the applicable covenants.

As of December 31, 2024, the terms of the Banc of California Credit Facility were as follows (dollar amounts in thousands):

Principal Outstanding Unused Commitment Floor Rate Interest Rate Annual Commitment Fee Maturity Date

Principal Outstanding Unused Commitment Floor Rate Interest Rate Stated Coupon Annual Commitment Fee Maturity Date

Banc of California Credit Facility

$ 1,000 $24,000 5.00% Prime + 0.25% 7.75% 0.50% February 28, 2026

As of December 31, 2023, availability under the Banc of California 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 Banc of California.

The amendment, among other things:

(i) increased the maximum amount available under the Banc of California 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 Banc of California 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 Banc of California Credit Facility to:

(i) increase the maximum amount available under the Banc of California Credit Facility from $25.0 million to $35.0 million;

and (ii) extend the maturity date of the Banc of California Credit Facility from February 28, 2023 to February 28, 2024.

On December 15, 2023, we amended the Banc of California Credit Facility to:

(i) reduce the maximum amount available under the Banc of California 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.

On December 15, 2023, we amended the Banc of California Credit Facility to:

(i) extend the maturity date from February 28, 2024 to February 28, 2026;

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and (iii) eliminate the 0.50% unused line fee and replace it with an annual commitment fee of 0.50%.

On December 15, 2022, we amended the Banc of California Credit Facility to:

(i) reduce the maximum amount available under the Banc of California Credit Facility from $35.0 million to $25.0 million;

On April 22, 2022, we amended the Banc of California Credit Facility to:

(i) increase the maximum amount available under the Banc of California Credit Facility from $25.0 million to $35.0 million;

and (ii) extend the maturity date of the Banc of California Credit Facility from February 28, 2023 to February 28, 2024.

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.

Borrowings under the BNP Facility bear interest at a variable rate of SOFR plus a variable margin (2.65% floor), 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.

The reinvestment period of the BNP Facility ends on June 20, 2025, upon which the ability to access the unused commitment of the facility terminates.

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.

As of December 31, 2024, total assets held by OFSCC-FS were $151.0 million.

On June 24, 2022, OFSCC-FS amended the BNP Facility to, among other things:

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As of December 31, 2024, the BNP Facility had the following terms and balances (dollar amounts in thousands):

Principal Outstanding Unused Commitment Interest Rate Maturity

Principal Outstanding Unused Commitment Interest Rate Margin Floor Stated Coupon Maturity

BNP Facility $ 67,350 $82,650 SOFR + 2.65% 2.65% 7.16% June 20, 2027

Unsecured Notes .

At December 31, 2023 and 2022, the outstanding Unsecured Notes totaled $180.0 million and $180.0 million in aggregate principal debt, respectively.

At December 31, 2024 and 2023, the Unsecured Notes totaled $180.0 million in aggregate principal debt.

During the years ended December 31, 2024 and 2023, we did not issue, redeem or repurchase any Unsecured Notes.

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.

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 outstanding Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness.

Because the outstanding Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the Banc of California Credit Facility and BNP Facility.

In order to, among other things, reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase the outstanding Unsecured Notes for cash in open market purchases and/or privately negotiated transactions.

The Unsecured Notes are direct unsecured obligations and rank equal in right of payment with all of our current and future unsecured indebtedness.

Because the Unsecured Notes are not secured by any of our assets, they are effectively subordinated to all existing and future secured unsubordinated indebtedness (or any indebtedness that is initially unsecured as to which we subsequently grant a security interest), to the extent of the value of the assets securing such indebtedness, including, without limitation, borrowings under the Banc of California Credit Facility.

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 outstanding Unsecured Notes were repurchased during the years ended December 31, 2023 and 2022.

As of December 31, 2023, the outstanding Unsecured Notes had the following terms and balances (dollar amounts in thousands):

As of December 31, 2024, the Unsecured Notes had the following terms and balances (dollar amounts in thousands):

Unsecured Notes Principal Stated Interest Rate (1)

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(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.

(3) We may redeem the Unsecured Notes Due February 2026 in whole or in part at any time, or from time to time.

We are required to pay a “make-whole” premium if the redemption date is prior to November 10, 2025.

We may redeem the Unsecured Notes Due October 2028 in whole or in part at any time, or from time to time.

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December 31, 2022 358,337 4.75

As of December 31, 2023, we had $302.4 million of outstanding debt with a weighted-average effective interest rate of 6.1%, which we believe is a favorable financing rate compared to today’s rates.

As of December 31, 2023, 70% of our outstanding debt was fixed rate and 89% of our outstanding debt matures in 2026 and beyond.

The following table shows the scheduled maturities of the principal balances of our outstanding borrowings as of December 31, 2024:

Principal Due by Year

Debt liabilities Total 2025 2026 2027 2028 2029

Banc of California Credit Facility

$ 1,000 $ — $ 1,000 $ — $ — $ —

BNP Facility 67,350 — — 67,350 — —

Unsecured Notes 180,000 — 125,000 — 55,000 —

Total $ 248,350 $ — $ 126,000 $ 67,350 $ 55,000 $ —

As of December 31, 2024, we had $248.4 million of outstanding debt with a weighted-average effective interest rate of 6.2%.

Our Unsecured Notes Due February 2026 and the Banc of California Facility, which represents 51% of our outstanding debt, mature in February 2026.

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 19, 2023, 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).

On June 26, 2024, 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.

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A BDC generally is not permitted to incur indebtedness unless, immediately after such borrowing, it has an asset coverage ratio for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets).

However, Section 61(a)(2) of the 1940 Act provides that a BDC may reduce its asset coverage ratio, provided that certain

conditions are met.

However, Section 61(a)(2) of the 1940 Act provides that a BDC may reduce its asset coverage ratio, provided that certain conditions are met.

Specifically, Section 61(a)(2) provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% asset coverage, the BDC must either obtain:

(i) approval of the required majority of 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.

(i) approval of the required majority of 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.

On May 3, 2018, our Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act.

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

See “Item 1A.

Risk Factors—Risks Related to our Business and Structure—Because we received the approval of our Board, we became subject to 150% asset coverage effective May 3, 2019.” Additionally, effective November 26, 2013, we received exemptive relief from the SEC to exclude our SBA guaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act.

See “Part 1, Item 1A.

Risk Factors—Risks Related to our Business and Structure—Because we received the approval of our Board, we became subject to 150% asset coverage effective May 3, 2019.”

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.

We continue to monitor the current banking environment arising from recent bank failures.

We continue to monitor the current banking environment.

If the banks and financial institutions with whom we have credit facilities enter into receivership, undergo consolidation or become insolvent in the future, our liquidity may be reduced significantly.

At various times, our cash balances at third-party financial institutions exceed the federally insured limit.

Our cash balances are retained in custodian accounts with U.S.

Bank N.A and Citibank N.A., and we do not believe they are exposed to any significant credit risk.

Our cash balances at third-party financial institutions generally exceed the federally insured limit.

Our cash and cash equivalent balances are retained in custodian accounts with U.S.

Bank Trust Company, National Association and Citibank N.A., and we do not believe they are exposed to any significant credit risk.

Contractual Obligations and Off-Balance Sheet Arrangements

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At December 31, 2024, we had $18.8 million of outstanding commitments to fund portfolio investments that can be funded with our current cash or credit facilities.

The reinvestment period of the BNP Facility ends on June 20, 2025, upon which the ability to access the unused commitment of the facility terminates.

If we are unable to amend the BNP Facility to extend the reinvestment period or enter into a new credit facility, our short-term liquidity will be significantly reduced.

Long-term contractual obligations, such as our BNP Facility that matures in 2027 and has $67.4 million outstanding at December 31, 2024, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $143.0 million at December 31, 2024.

The OFSCC-FS portfolio includes Broadly Syndicated Loans in larger portfolio companies that generally can be sold over a relatively short period to generate cash.

A portion of the OFSCC-FS portfolio includes Broadly Syndicated Loans in larger portfolio companies that generally can be sold over a relatively short period to generate cash.

We cannot, however, be certain that this source of funds will be available and upon terms acceptable to us in sufficient amounts in the future.

If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than its current fair value and incur significant realized losses on our invested capital.

At December 31, 2023, we had $31.9 million of outstanding SBA debentures that matured on March 1, 2025.

On March 1, 2024, we fully repaid our outstanding SBA debentures totaling $31.9 million and requested the approval of the SBA to surrender our license to operate as a SBIC.

See “—Recent Developments .

As of December 31, 2024, we had $180.0 million of outstanding Unsecured Notes, of which $125.0 million matures on February 10, 2026.

The Unsecured Notes Due February 2026 can be repaid by issuing additional senior securities to refinance the debt.

If we refinance the Unsecured Notes Due February 2026 by issuing additional senior securities, current market rates for similar debt are higher than the stated rate of 4.75% on the Unsecured Notes Due February 2026.

We have entered into contracts with affiliates under which we will incur material future commitments:

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federal excise tax on the retained amounts.

For the years ended December 31, 2023, 2022 and 2021, we accrued U.S.

federal excise taxes of $0, $0.1 million and $0, respectively.

Each year, a statement on Form 1099-DIV identifying the source of our distributions is provided to the Company’s stockholders, as required.

For the years ended December 31, 2024, 2023 and 2022, we recognized U.S.

federal excise tax expense (benefit) of $(0.1) million, $0 and $0.1 million, respectively.

Each year, a statement on Form 1099-DIV identifying the source of our distributions is provided to our stockholders, as required.

For a detailed description of our distributions paid for the years ended December 31, 2024, 2023 and 2022, see “Item 8.

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Recent Developments

On January 28, 2025, Jeffrey A.

Cerny notified our Board of his intention to retire.

Cerny’s resignation as Chief Financial Officer and Treasurer is effective on March 31, 2025.

The resignation was not in any way related to a disagreement with us on any matter relating to our operations, policies, practices or otherwise.

Cerny will remain on the Board as a Class III Director.

On January 28, 2025, our Board voted to appoint Kyle Spina as Chief Financial Officer and Treasurer of the Company, effective as of March 31, 2025, to fill the vacancy created by the resignation of Mr.

On February 26, 2025, our Board declared a distribution of $0.34 per share for the first quarter of 2025, payable on March 31, 2025 to stockholders of record as of March 21, 2025.

On March 1, 2024, SBIC I LP fully repaid its outstanding SBA debentures totaling $31.9 million that were contractually due March 1, 2025, and requested the approval of the SBA to surrender its license to operate as a SBIC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis