What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-03-04 compared with 2021-03-05 · 60 added, 129 removed, 235 unchanged (45% of the section changed)

3 unchanged sentences

The last reported sale price for our common stock on the Nasdaq Global Select Market on March 1, 2022 was $9.85 per share.

As of March 1, 2021, there were two holders of record of the common stock, one of which was OFSAM.

The other holder of record does not identify stockholders for whom shares are held beneficially in “nominee” or “street name.”

The following table lists the high and low closing sale price for our common stock, net asset value per share, and the cash distributions per share that we have declared on our common stock for each fiscal quarter during the last two most recently completed fiscal years and the current fiscal year through March 1, 2021.

As of March 1, 2022, there were four holders of record of the common stock, one of which was OFSAM.

One holder of record does not identify stockholders for whom shares are held beneficially in “nominee” or “street name”.

The following table lists the high and low closing sale price for our common stock, NAV per share, and the cash distributions per share that we have declared on our common stock for each fiscal quarter during the last two most recently completed fiscal years and the current fiscal year through March 1, 2022.

The stock quotations are inter-dealer quotations and do not include markups, markdowns or commissions.

14 unchanged sentences

First Quarter $ 9.71 $ 11.97 $ 3.70 23.3 % -61.9 % $ 0.34

(1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales prices.

The net asset values shown are based on outstanding shares at the end of each period.

(2) The return of capital portion of these distributions for the years ended December 31, 2020 and 2019 were $-0- and $-0-, respectively.

(1) NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.

The NAVs shown are based on outstanding shares at the end of each period.

(2) Period from January 1, 2022 through March 1, 2022.

14 unchanged sentences

January 1, 2020 through December 31, 2020 — — — —

January 1, 2021 through December 31, 2021 700 6.70 700 9,992

Total 1,000 $ 7.78 1,000 $ 9,992

2 unchanged sentences

Stock Performance Graph

This graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the Russell 1000 Index and the SNL U.S.

RICs Index, for the last five fiscal years.

The graph assumes that, on December 31, 2015, a person invested $100 in our common stock, the Standard & Poor’s 500 Stock Index, the Russell 1000 Index and the SNL U.S.

This graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the Russell 1000 Index and the Standard & Poor’s BDC Index, for the last five fiscal years.

The graph assumes that, on December 31, 2016, a person invested $100 in our common stock, the Standard & Poor’s 500 Stock Index, the Russell 1000 Index and the Standard & Poor’s BDC Index.

The graph measures total stockholder return, which takes into account changes in stock price and assumes reinvestment of all dividends and distributions prior to any tax effect.

2 unchanged sentences

S&P 500 121.8 116.5 153.2 181.4 233.4

RICs 123.7 137.1 131.5 161.9 135.1

S&P BDC Index 100.6 93.6 120.0 109.3 150.3

Russell 1000 121.7 115.9 152.3 184.2 232.9

17 unchanged sentences

Base management fee reduction (0.46) % (8)

Total annual expenses, net of fee waiver 19.06 % (7)

Total annual expenses, net of fee reduction 15.17 % (7)

(1) The amounts set forth in this table do not reflect the impact of any sales load, sales commission or other offering expenses borne by the Company and its stockholders.

5 unchanged sentences

but including assets purchased with borrowed amounts, and including assets owned by any consolidated entity).

This item represents projected base management fees for the the next twelve month assuming no additional leverage is incurred.

This item represents actual base management fees incurred by us during the year ended December 31, 2021 before the effect of the base management fee reduction on certain assets and assumes net of assets of $203.7 million and leverage of $349.9 million, which reflects our net assets and leverage as of December 31, 2021.

We increased our leverage to a level below a 200% asset coverage ratio, as permitted under Section 61(a)(2) of the 1940 Act.

2 unchanged sentences

See “Management and Other Agreements — Investment Advisory Agreement”.

(4) The Part One incentive fee was estimated based on our projected results of operations for the next twelve months including the anticipated impact of additional assets purchased with the added leverage discussed in footnote (5) and assumed yields thereon, and the effects of the expected base management fee waiver discussed in footnote (3).

The Part Two incentive fee will be accrued, but not necessarily become payable, if, on a cumulative basis, the sum of net realized capital gains and losses plus net unrealized appreciation and depreciation is positive.

(4) The incentive fee in the table above is based on actual amounts incurred for the Income Incentive Fee for the year ended December 31, 2021, which includes the effects of the base management fee reduction discussed in footnote (3).

The Capital Gains Fee will be accrued, but not necessarily become payable, if, on a cumulative basis, the sum of net realized capital gains and losses plus net unrealized appreciation and depreciation is positive.

Net realized gains and losses result from sales transactions and no such transactions are currently contemplated by OFS Advisor;

and unrealized capital gains or losses result from fluctuations in the fair value of our investments, which vary substantially from period to period and cannot be reasonably predicted.

Accordingly, the Part Two fee in the table above is -0-%.

Accordingly, the assumed Capital Gains Fee in the table above is 0.0%.

The two parts of the incentive fee follows:

• The first ("Part One"), payable quarterly in arrears, equals 20.0% of our pre-incentive fee net investment income initially calculated based on values at the closing of this offering (including income that is accrued but not yet received in cash), subject to a 2.0% quarterly (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 our

pre-incentive fee net investment income equals the hurdle rate of 2.0% but then receives, as a “catch-up,” 100% of our 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 2.5%.

• The Income Incentive Fee, payable quarterly in arrears, equals 20.0% of our pre-incentive fee net investment income initially calculated based on values at the closing of this offering (including income that is accrued but not yet received

in cash), subject to a 2.0% quarterly (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 our pre-incentive fee net investment income equals the hurdle rate of 2.0% but then receives, as a “catch-up,” 100% of our 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 2.5%.

The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, OFS Advisor will receive 20.0% of our pre-incentive fee net investment income as if a hurdle rate did not apply.

1 unchanged sentence

There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle rate and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

• The second part ("Part Two"), payable annually in arrears, equals 20.0% of our realized capital gains on a cumulative basis, if any (or upon the termination of the Investment Advisory Agreement, as of the termination date), computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

• The Capital Gains Fee, payable annually in arrears, equals 20.0% of our realized capital gains on a cumulative basis, if any (or upon the termination of the Investment Advisory Agreement, as of the termination date), computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

The incentive fee is determined on a consolidated basis.

We accrue the Part Two incentive fee if, on a cumulative basis, the sum of net realized capital gains and losses plus net unrealized appreciation and depreciation is positive.

We accrue the Capital Gains Fee if, on a cumulative basis, the sum of net realized capital gains and losses plus net unrealized appreciation and depreciation is positive.

See “Management and Other Agreements — Investment Advisory Agreement.”

(5) The borrowing costs included in the table above are based on our proforma debt balances as of February 2021, see “Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments”, (which could be subject to change) at a level equivalent to a debt-to-equity ratio of up to 2.08x (equivalent to $2.08 of debt outstanding for each $1 of equity) which is also equivalent to having an asset coverage ratio of 176% (which excludes the SBA debentures as a result of exemptive relief granted to us by the SEC) as permitted under Section 61(a)(2) of the 1940 Act, and assuming a weighted average interest rate for total outstanding debt of 5.10%.

(5) Interest payments on borrowed funds is based on our estimated cost of funds on our outstanding indebtedness as of December 31, 2021, which consisted of $100.0 million of indebtedness outstanding under our BNP Facility, $69.9 million of debentures issued by our SBIC, and $180.0 million of Unsecured Notes outstanding.

Based on our outstanding indebtedness as of December 31, 2021, our estimated annualized cost of funds, which includes all interest and amortization of debt issuance costs is 4.58%.

As of December 31, 2021, our asset coverage ratio was 173% (which excludes the SBA debentures as a result of exemptive relief granted to us by the SEC) as permitted under Section 61(a)(2) of the 1940 Act.

We may borrow additional funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so.

We do not expect to issue any preferred stock during the next twelve months and, therefore, have not included the cost of issuing and servicing preferred stock in the table.

Availability under the PWB Credit Facility as of December 31, 2020, was $19.4 million based on the stated advance rate of 50% under the borrowing base, and the $0.6 million outstanding as of December 31, 2020.

As of December 31, 2021, availability under the PWB Credit Facility and BNP Facility was $25.0 million and $50.0 million, respectively, both subject to a borrowing base and other covenants.

Our stockholders will bear directly or indirectly the costs of borrowings under any debt instruments we may enter into.

(6) Includes our overhead expenses, including payments under the Administration Agreement based on our allocable portion of overhead and other expenses incurred by OFS Services.

(6) “Other Expenses” are based on actual amounts incurred for the year ended December 31, 2021 which includes our overhead expenses, including payments under the Administration Agreement based on our allocable portion of overhead and other expenses incurred by OFS Services.

See “Management and Other Agreements — Administration Agreement.”

3 unchanged sentences

(8) OFS Advisor agreed to reduce a portion of its base management fee by reducing the portion of such fee from 1.75% to 1.00% on the average total assets at the end of the two most recently completed quarters on assets held by the Company through OFSCC-FS, LLC, an indirect wholly owned subsidiary of the Company.

The base management fee reduction will be renewable on an annual basis and the amount of the base management fee reduction with respect to the OFSCC-FS Assets shall not be subject to recoupment by OFS Advisor.

The base management fee reduction is renewable on an annual basis and the amount of the base management fee reduction with respect to the OFSCC-FS Assets shall not be subject to recoupment by OFS Advisor.

(9) Estimated.

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock.

In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above.

In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at

the levels set forth in the table above.

The expense amounts assume an annual base management fee 1.75% for each year.

Transaction expenses are not included in the following example.

1 Year 3 Years 5 Years 10 Years

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

$131 $354 $536 $856

While the example assumes, as required by the applicable rules of the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%.

The incentive fee under the Investment Management Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an

insignificant impact on the expense amounts shown above, is not included in the above example.

The incentive fee under the Investment Management Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the above example.

The above illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods.

2 unchanged sentences

1 Year 3 Years 5 Years 10 Years

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

$160 $416 $604 $887

While the examples assume reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date.

The market price per share of our common stock may be at, above or below net asset value.

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return resulting entirely from net realized capital gains (all of which is subject to our incentive fee on capital gains) $140 $376 $563 $879

While the examples assume reinvestment of all distributions at NAV, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date.

The market price per share of our common stock may be at, above or below NAV.

The example should not be considered a representation of future expenses, and actual expenses may be greater or less than those shown.

3 unchanged sentences

The “ — ” indicates information that the SEC expressly does not require to be disclosed for certain types of senior securities.

The reports of our current and former independent registered public accounting firms on the senior securities table are attached as an exhibit to this Annual Report.

The report of our current independent registered public accounting firm on the senior securities table is attached as an exhibit to this Annual Report.

(dollar amounts in thousands, except per unit data)

5 unchanged sentences

4.75% Notes due 2026

December 31, 2021 $ 125,000 $ 3,870 — N/A

4.95% Notes due 2028

December 31, 2021 $ 55,000 $ 8,795 — $ 25.51

2 unchanged sentences

December 31, 2020 $ 25,000 $ 14,754 — $ 24.82

6.375% Notes due 2025

December 31, 2021 $ — $ — — $ 25.00

December 31, 2020 $ 50,000 $ 7,377 — $ 22.66

December 31, 2019 $ 50,000 $ 7,519 — $ 25.30

December 31, 2018 $ 50,000 $ 5,645 — $ 24.84

6.50% Notes due 2025

2 unchanged sentences

December 31, 2019 $ 48,525 $ 7,747 — $ 25.29

December 31, 2018 $ 48,525 $ 5,817 — $ 24.43

5.95% Notes due 2026

1 unchanged sentence

December 31, 2020 $ 54,325 $ 6,790 — $ 21.89

December 31, 2019 $ 54,325 $ 6,920 — $ 24.75

December 31, 2021 $ 100,000 $ 4,837 — N/A

December 31, 2020 $ 31,450 $ 11,728 — N/A

December 31, 2019 $ 56,450 $ 6,659 — N/A

PWB Credit Facility

4 unchanged sentences

December 31, 2017 $ 17,600 $ 11,540 — 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, 2016 $ 9,500 $ 15,821 — N/A

December 31, 2015 $ — $ — — N/A

WM Credit Facility (6)

6 unchanged sentences

December 31, 2019 $ 149,880 $ — — N/A

(dollar amounts in thousands, except per unit data)

Class and Year (8)

Total Amount Outstanding (1)

Asset Coverage Per Unit (2)

Involuntary Liquidating Preference Per Unit (3)

Average Market Value Per Unit (4)

December 31, 2018 $ 149,880 $ — — N/A

4 unchanged sentences

December 31, 2013 $ 26,000 $ — — N/A

December 31, 2012 $ — $ — — N/A

Total Senior Securities (7)

8 unchanged sentences

December 31, 2013 $ 134,955 $ 2,256 — N/A

December 31, 2012 $ 99,224 $ 2,429 — N/A

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

2 unchanged sentences

(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.

The “ — ” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

(4) 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 PWB Credit Facility, BNP Facility, WM Credit Facility or SBA debentures because these senior securities are not registered for public trading.

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.

1 unchanged sentence

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

(8) Does not include the Unsecured Notes Due February 2026.

See Recent Developments for additional information.

(9) On February 10, 2021, a redemption notice was issued.

See Recent Developments for additional information.

FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the each year in the ten-year period ended December 31, 2021.

The financial highlights as of December 31, 2020 and 2019 were audited by KPMG LLP and the financial highlights for each of the eight years in the period ended December 31, 2018 were audited by our former independent registered public accounting firms.

The financial highlights as of December 31, 2021, 2020 and 2019 were audited by KPMG LLP and the financial highlights for each of the seven years in the period ended December 31, 2018 were audited by our former independent registered public accounting firms.

Years Ended December 31,

13 unchanged sentences

— — — — — — — — 0.29 N/A (11)

Net unrealized depreciation on non-control/non-affiliate investments (4)

Income tax provision from realized gains on investments (0.08) — — — — — — — — N/A (11)

Net unrealized appreciation (depreciation) on non-control/non-affiliate investments, net of deferred taxes (4)

2.89 (0.82) (0.72) (0.19) (0.78) (0.69) 0.53 0.05 0.04 N/A (11)

14 unchanged sentences

Net asset value per share at end of year $ 15.18 $ 11.85 $ 12.46 $ 13.10 $ 14.12 $ 14.82 $ 14.76 $ 14.24 $ 14.58 $ 14.80

Years Ended December 31,

2021 2020 2019 2018 2017 2016 2015 2014 2013 2012

Per share market value, end of period

28 unchanged sentences

(4) Calculated on the average share method.

(5) The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the Offering.

(5) The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of DRIP issuances during 2020 and the follow-on public offering of 3,625,000 shares in April 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.

6 unchanged sentences

(13) Annualized.

Selected Consolidated Financial Data

The following selected financial and other 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 in this Annual Report on Form 10-K (amounts in thousands, except per share data and number of portfolio companies at period end):

For the Years Ended December 31,

2020 2019 2018 2017 2016

Statement of Operations Data:

Investment income

Interest income

$ 41,517 $ 48,902 $ 38,607 $ 28,124 $ 26,400

PIK interest income

1,528 926 1,193 1,508 1,194

Dividend income

450 502 315 482 475

Preferred equity PIK dividend income

504 899 906 1,399 1,433

1,476 1,292 1,813 1,913 1,592

Total investment income

45,475 52,521 42,834 33,426 31,094

Management fees

7,605 8,271 6,335 4,999 4,516

Incentive fees, net of waiver

1,584 4,760 4,387 2,962 3,333

Other expenses

23,991 20,439 13,727 9,588 9,100

Total expenses, net

33,180 33,470 24,449 17,549 16,949

Net investment income

12,295 19,098 18,385 15,877 14,145

Net realized gain (loss) on investments

(10,021) (3,900) (4,779) 6,833 2,404

Net unrealized appreciation (depreciation) on investments

3,317 (5,645) (4,034) (14,800) (2,721)

Loss on extinguishment of debt (820) — — — —

Loss on impairment of goodwill (1,077) — — — —

Net increase in net assets resulting from operations

3,694 9,553 9,572 7,910 13,828

Per share data:

Net asset value

$ 11.85 $ 12.46 $ 13.10 $ 14.12 $ 14.82

Net investment income

0.92 1.43 1.38 1.28 1.46

Net realized gain (loss) on investments

(0.75) (0.29) (0.36) 0.55 0.25

Net unrealized appreciation (depreciation) on investments

0.25 (0.42) (0.30) (1.19) (0.29)

Net increase in net assets resulting from operations

0.28 0.71 0.72 0.64 1.43

Distributions declared (1)

0.86 1.36 1.73 1.36 1.36

Total return based on market value (7)

(24.0) % 18.3 % 3.5 % (4.7) % 32.3 %

Balance sheet data at period end:

Investments, at fair value

$ 442,323 $ 516,931 $ 396,797 $ 277,499 $ 281,627

Cash and cash equivalents

37,708 13,447 38,172 72,952 17,659

3,782 7,810 6,452 7,327 5,744

483,813 538,188 441,421 357,778 305,030

Debt 309,185 352,478 254,826 164,823 156,343

Total liabilities

324,857 371,561 266,398 169,442 161,252

Total net assets

158,956 166,627 175,023 188,336 143,778

Other data (unaudited):

Weighted average yield on performing debt and Structured Finance Note investments (3) (6)

10.27 % 10.40 % 11.50 % 12.11 % 12.08 %

Weighted average yield on total debt and Structured Finance Note investments (4) (6)

9.15 % 9.94 % 11.12 % 11.59 % 11.72 %

Weighted average yield on total investments (5) (6)

8.56 % 9.59 % 10.49 % 10.35 % 10.88 %

Number of portfolio companies at end of year

62 85 50 37 41

(1) The return of capital portion of these distributions for the years ended December 31, 2020, 2019, 2018, 2017, 2016, and 2015, was $0, $0 $0, $0, $0.09, and $0.23, respectively.

(2) On January 1, 2016, we adopted ASU 2015-03 which requires that debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset.

Adoption of ASU 2015-03 requires the changes to be applied retrospectively.

(3) The weighted average yield on our performing debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest on our debt investments plus the annualized accretion of Net Loan Fees;

and (ii) the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, excluding debt investments in non-accrual status as of the balance sheet date.

(4) The weighted average yield on our total debt and Structured Finance Note investments is computed as (a) the sum of (i) the annual stated accruing interest on our debt investments plus the annualized accretion of Net Loan Fees and (ii) plus the annual effective yield on Structured Finance Notes divided by (b) amortized cost of our debt and Structured Finance Note investments, including debt investments in non-accrual status as of the balance sheet date.

(5) The weighted average yield on total investments is computed as (a) the sum of (i) the annual stated accruing interest on our debt investments plus the annualized accretion of Net Loan Fees, (ii) the effective yield on our performing preferred equity investments, and (iii) the annual effective yield on Structured Finance Notes, divided by (b) amortized cost of our total investment portfolio, including debt investments in non-accrual status as of the balance sheet date.

(6) 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.

(7) Calculation is ending market value less beginning market value, adjusting for distributions reinvested at prices based on the Company’s dividend reinvestment plan for the respective distributions.

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 5. Market for Registrant’s Common Equity