What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-04 compared with 2021-03-05 · 329 added, 314 removed, 544 unchanged (54% of the section changed)

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• restrictions on our ability to enter into transactions with our affiliates;

• the impact of interest and inflation rates on our business prospects and the prospects of our portfolio companies;

• our ability to comply with SBA regulations and requirements;

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• competition for investment opportunities;

• our plans to focus on lower-yielding, first lien senior secured loans to larger borrowers and the impact 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 the impact of the coronavirus ("COVID-19") pandemic;

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

• interest rate volatility, including the decommissioning of LIBOR;

• interest rate volatility, including the transition from LIBOR to one or more alternative reference rate(s);

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

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• changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including with respect to changes from the impact of the COVID-19 pandemic;

the length and duration of the COVID-19 pandemic in the United States as well as worldwide and the magnitude of the economic impact of the outbreak;

the effect of the COVID-19 pandemic on our business, financial condition, results of operations and cash flows and those of our portfolio companies (including the expectation that a shift from cash interest to PIK interest will result from concessions granted to borrowers due to the COVID-19 pandemic), including our and their ability to achieve our respective objectives;

the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business (including our belief

that new loan activity in the market in which we operate has slowed) and on the availability of equity and debt capital and our use of borrowed money to finance a portion of our investments;

the length and duration of the COVID-19 pandemic in the United States as well as worldwide and the magnitude of the economic impact of the pandemic;

the effect of the COVID-19 pandemic on our business, financial condition,

results of operations and cash flows and those of our portfolio companies (including the expectation that a shift from cash interest to PIK interest will result from concessions granted to borrowers due to the COVID-19 pandemic), including our and their ability to achieve our respective objectives;

the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business and on the availability of equity and debt capital and our use of borrowed money to finance a portion of our investments;

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

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• uncertain valuations of our portfolio investments, including our belief that reverting back to an equal weighting of the Reunderwriting Analysis method and Synthetic Rating Analysis method more accurately captures certain data related to the observed return of market liquidity and the historic correlative relationship between these markets;

• the belief that one or more of our investments can be restored to accrual status in the near term, or otherwise;

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

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

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

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

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate.

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Distributions paid per common share 0.91 0.86 1.36

Net investment income per share during the year ended December 31, 2020 declined $0.51 from the prior year primarily due to an approximate $0.76 decline in net interest margin—total interest income less interest expense—per share.

Weighted average yield on debt and Structured Finance Notes as of December 31, 2020, declined to 9.15% from 9.94% as of December 31, 2019, due to the Company's continuing shift to lower-yielding, first lien senior secured loans of larger borrowers, as well as the placement of our loans to Online Tech Stores, LLC and 3rd Rock Gaming Holding, LLC, with an aggregate cost of $35.7 million, on non-accrual status.

The decline in net interest margin was partially offset by declines in management and incentive fees of $0.25 per share.

For the year ended December 31, 2020, our weighted-average interest costs increased to 5.32% from 4.99% in the year ended December 31, 2019, principally due to a full year’s interest on the Unsecured Notes Due October 2026 and the issuance in September 2020 of the Unsecured Notes Due September 2023.

As of December 31, 2020, approximately 90% of our debt was fixed rate.

During the year ended December 31, 2020, our portfolio experienced net losses of $6.7 million, or $0.50 per share, principally due to net losses of $6.8 million on our directly originated debt and equity investments, partially offset by net gains

of $0.1 million in our Structured Finance Notes and broadly syndicated loan investments.

The net loss in our directly originated investments was primarily due to our debt investments in 3rd Rock Gaming Holdings, LLC and Online Tech Stores, LLC, which combined for unrealized losses of $21.4 million.

The unrealized losses were offset by unrealized gains in our common equity investment in Pfanstiehl Holdings, Inc., a pharmaceutical ingredients manufacturer, which appreciated $24.2 million due to performance improvements and expansion of the valuation multiple.

Additionally, during the year ending December 31, 2020, our net asset value decreased $1.1 million, or $0.08 per share, due to the impairment of goodwill, and $0.8 million, or $0.06 per share, due to the loss on extinguishment of debt related to the prepayment of $44.6 million of SBA debentures that were contractually due in 2023 and 2024, as well the commitment reduction on the PWB Credit Facility from $100.0 million to $20.0 million.

Since OFS Advisor implemented its business continuity plan in mid-March 2020, the entire team effectively transitioned to remote work and maintained our normal functionality and we remain capable of completing our operational requirements.

Our NAV per common share increased 28% to $15.18 at December 31, 2021, from $11.85 at December 31, 2020, primarily due to net gains on our investment portfolio of $48.0 million, or $3.58 per common share.

Strong net gains for the year ended December 31, 2021, primarily resulted from better than expected performance of our portfolio companies and the continued reversal of unrealized depreciation recognized during the three months ended March 31, 2020, due to market disruptions resulting from the COVID-19 pandemic.

Net investment income per share during the year ended December 31, 2021, increased $0.08 from the prior year due to an approximate $0.04 per share increase in net interest margin (total interest income less interest expense), as well as an approximate $0.22 per share increase in dividend and fee income.

The increase in dividend and fee income was primarily due to a $1.0 million dividend from Pfanstiehl Holdings, Inc.

and $1.4 million increase in syndication fees compared to the prior year.

The increase in net interest margin was partially offset by increases in management and incentive fees of $2.3 million, or $0.17 per share, primarily due to a $1.9 million, or $0.14 per shar e, accrued Capital Gains Fee.

GAAP requires recognition of capital gains incentive fees as incurred, which includes recognition of fees on aggregate unrealized appreciation on investments.

However, fees on such unrealized capital appreciation fees are not contractually due under the terms of the Investment Advisory Agreement.

Incentive fees on unrealized appreciation are subject to reversal should such unrealized appreciation diminish prior to realization.

Excluding fees on aggregate unrealized capital appreciation, as of December 31, 2021, there is no capital gains incentive fee contractually due and currently payable under the terms of the Investment Advisory Agreement.

As of December 31, 2021, the weighted average realized yield on interest-bearing investments increased to 9.7%, compared to 9.5% as of December 31, 2020.

For the year ended December 31, 2021, our weighted-average debt interest costs decreased to 5.1% from 5.4% during the year ended December 31, 2020, primarily due to the issuance of $180.0 million in Unsecured Notes with a weighted-average effective yield of 5.4%, and the redemption of $177.9 million in Unsecured Notes with a weighted-average effective yield of 6.9%.

As of December 31, 2021, approximately 71% of our debt was fixed rate and matures in 2025 and beyond.

During the year ended December 31, 2021, our portfolio experienced net gains of $48.0 million, or $3.58 per share, primarily due to net gains of $49.6 million on our directly originated debt and equity investments, partially offset by net losses of $0.7 million in our Structured Finance Notes and Broadly Syndicated Loan investments.

The net gain in our directly originated investments was primarily due to our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, which appreciated $29.5 million due to strong operating results and expansion of the valuation multiple.

Pfanstiehl Holdings, Inc.

accounted for 13% of our portfolio at fair value and 32% of our consolidated net assets as of December 31, 2021.

During the year ended December 31, 2021, we recognized net realized gains of $4.3 million on directly originated equity investments, including a realized gain of $5.8 million on the sale of our preferred equity in TTG Healthcare, LLC.

As of December 31, 2021, our portfolio had two non-accrual loans with an aggregate fair value of $7.7 million, or 2.2% of our total debt portfolio at fair value, compared to four non-accrual loans with an aggregate fair value of $12.1 million, or 3.8% of our total debt portfolio at fair value at December 31, 2020.

Additionally, during the year ended December 31, 2021, we recognized losses of $4.6 million on the early extinguishments of debt, or $0.34 per share.

Early extinguishments of debt included the prepayment of $35.4 million of SBA debentures and the redemption of $177.9 million in the aggregate of Unsecured Notes Due September 2023, Unsecured Notes Due April 2025, Unsecured Notes Due October 2025 and Unsecured Notes Due October 2026.

Since OFS Advisor implemented its business continuity plan in mid-March 2020, OFS Advisor’s entire team effectively transitioned to remote work and we are currently capable of maintaining our normal functionality to complete our operational requirements.

We have actively monitored our portfolio companies throughout this period of economic uncertainty, which has included assessments of our portfolio companies' operational and liquidity outlook.

During the year ended December 31, 2020, we extended the maturity date of loans, rescheduled due dates of interest payments, and converted cash interest to PIK interest in order to support our portfolio companies through the COVID-19 pandemic.

As of December 31, 2020, we have unfunded commitments of $5.8 million to four portfolio companies.

During the year ended December 31, 2021, we provided nine revolvers and twelve delayed draw commitments to support our portfolio companies during the COVID-19 pandemic.

As of December 31, 2021, we have unfunded commitments of $43.7 million to fourteen portfolio companies.

During the year ended December 31, 2021, we completed $238.5 million of Portfolio Company Investments and purchased $30.4 million of Structured Finance Notes.

For details on our portfolio activity for the year ended December 31, 2021, see “Portfolio Composition and Investment Activity — Investment Activity”.

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governmental authorities.

As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which the COVID-19 pandemic will further negatively affect our portfolio companies’ operating results, or the impact that such disruptions may have on our results of operations and financial condition.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies will continue to experience financial distress and possibly default on their financial obligations to us and their other capital providers.

As such, we are unable to predict the duration and impact of additional business and supply-chain disruptions, the extent to which the COVID-19 pandemic will negatively affect our portfolio companies’ operating results, or the impact that such disruptions may have on our results of operations and financial condition.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, we expect that certain portfolio companies will experience financial distress and possibly default on their financial obligations to us and their other capital providers.

We also expect that some of our portfolio companies may significantly curtail business operations, furlough or lay-off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis.

These developments would likely result in a decrease in the value of our investment in any such portfolio company, as well as adversely affect our result of operations and cash flow, and such impacts could be material.

However, to the extent

our portfolio companies continue to be adversely impacted by the COVID-19 pandemic, our future net investment income, financial condition, results of operations and the fair value of our portfolio investments may be materially adversely impacted.

See “Item 1A.

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We are also subject to financial risks, including changes in market interest rates.

As of December 31, 2020, approximately $309 million (principal amount) of our debt investments bore interest at variable rates, which are generally LIBOR-based, and many of which are subject to reference-rate floors.

As of December 31, 2021, approximately $316 million (aggregate cost amount) of our debt investments bore interest at variable rates, which are generally LIBOR-based but will transition away from LIBOR to any one the various alternative reference rates, and many of which are subject to reference-rate floors.

We have prepared and planned for the transition away from LIBOR, incorporating alternate reference rates to be used in our credit agreements and making other preparations, and believe the impact on us from the transition will be low.

In connection with the COVID-19 pandemic, the U.S.

Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased, primarily in the second quarter of 2020.

A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the credit spread over LIBOR that we earn on our portfolio investments, or a decrease in our operating expenses, including our incentive fee and the interest costs on our liabilities indexed to LIBOR.

A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR or an alternative rate are not offset by a corresponding increase in the credit spread over LIBOR or an alternative rate that we earn on our portfolio investments, or a decrease in our operating expenses, including our incentive fee and the interest costs on our liabilities indexed to LIBOR or an alternative rate.

As of December 31, 2021, the majority of our variable rate debt investments are subject to the base rate floor, partially mitigating the impact of the recent decrease in LIBOR on our gross investment income.

However, there may be disputes between market participants regarding the interpretation and enforceability of provisions related to the economic floors in our LIBOR-based investments (or lack thereof), which may result in a loss or degradation of floor protection in the case of a transition from LIBOR to any one of the various alternative reference rates.

See “Item 1A.

Risk Factors — Risks Related to our Business and Structure” for additional information.

At December 31, 2020, our asset coverage ratio of 176% was within minimum asset coverage requirements under the 1940 Act, and we remained in compliance with all applicable financial covenants under our revolving credit facilities and outstanding debt.

During the year ended December 31, 2020, we amended the PWB Credit Facility to provide greater flexibility with financial covenants and reduced the total commitment from $50.0 million to $20.0 million.

Risk Factors — Risks Related to our Investments” for additional information.

At December 31, 2021, our asset coverage ratio of 173% was within minimum asset coverage requirements under the 1940 Act, and we remained in compliance with all applicable financial covenants under our outstanding debt.

As of December 31, 2021, we had an unused commitment of $25.0 million under our PWB Credit Facility, as well as an unused commitment of $50.0 million under our BNP Facility, both subject to a borrowing base and other covenants.

Based on fair values and net asset value at December 31, 2020, we could access these available lines of credit for a total of $111 million and remain in compliance with our asset coverage requirements.

We continue to believe that we have sufficient levels of liquidity to support our existing portfolio companies and will continue to selectively deploy capital in new investment opportunities.

Based on fair values and net asset value at December 31, 2021, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements.

We continue to believe that we have sufficient levels of liquidity to support our commitments to existing portfolio companies and will continue to selectively deploy capital in new investment opportunities.

On March 1, 2022, the Board declared a distribution of $0.28 per share for the first quarter of 2022, payable on March 31, 2022, to stockholders of record as of March 24, 2022.

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The revenue recognized on these instruments is a function of the fee or other consideration allocated to them, including amounts allocated to loan syndication fees at the time of acquisition.

Additionally, subsequent amendments to these instruments can involve both:

• a determination as to whether the amendment is

◦ of such significance to deem it the consummation of the initial investment transaction and the acquisition of new instruments (i.e., a "significant modification"), or

◦ a modification of those instruments to be recognized over their remaining lives, and

• an additional allocation of consideration among newly acquired Instruments.

These allocations are generally based on the relative fair value of the instruments at the time of the transaction, a process involving fair value estimates which is also a critical accounting policy and significant estimate.

Moreover, these allocations and determinations can differ between GAAP and federal income tax bases.

Once determined, these allocations directly affect the discount/premium and yield on debt securities, the cost and net gains/losses on equity securities, and capital structuring fees recognized in the statements of operations;

Once determined, these allocations directly affect the discount/premium and yield on debt securities, the cost and net gains/losses on equity securities, and ICTI.

These allocations require an understanding of the terms and conditions of the underlying agreements and requires significant management judgment.

Our recognition of PIK interest and dividends include assessments of collectibility, and may result in recognition of the PIK income that corresponds to the fair value of the associated investment.

If the in-kind securities received is non-accretive to overall value of the Company’s investment position (i.e., the recognition of PIK income merely results in the recognition of offsetting unrealized depreciation on the position, and no increase in the Company’s net assets), the PIK income for the in-kind securities received will be adjusted downwards, in some instances to zero.

Furthermore, the recognition of PIK interest at zero does not necessarily correspond to the placement of a loan on non-accrual status, which can result in the non-recognition of cash interest as well.

Our recognition of PIK interest includes assessment of collectibility.

In determining whether a loan should be on non-accrual status, management considers whether the in-kind securities received would be non-accretive to overall value of our investment position (i.e., the recognition of PIK income merely results in the recognition of offsetting unrealized depreciation on the position, and no increase in our net assets).

Furthermore, the non-accrual of PIK interest does not preclude the recognition of cash interest received.

Structured Finance Notes .

Recognition of interest income on our Structured Finance Notes requires development of numerous assumptions regarding the performance and behavior of the underlying loans and portfolio companies, as well as assumption regarding the actions expected by the collateral managers of the CLOs.

Income recognized under ASC Sub-topic 325-40, Beneficial Interests in Securitized Financial Assets , the authoritative accounting literature for income recognition on our Structured Finance Notes, is the constant yield-to-redemption that equates the expected cash flows from the instrument to

its cost or amortized cost.

The estimated cash flows from a subordinated note structured finance instrument are estimated, on a period-by-period basis, as

Recognition of interest income on our subordinated note and mezzanine debt investments requires development of numerous assumptions regarding the performance and behavior of the underlying loans and portfolio companies, as well as assumptions regarding the actions expected by the collateral managers of the CLOs.

The cash flows from a subordinated note structured finance instrument are estimated, on a period-by-period basis, as

• the expected cash flows from the underlying portfolio of the CLO vehicle, derived by adjusting the contractual amounts due on the portfolio investments for, among other things

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through the expected redemption of the subordinated notes, which is generally assumed to occur upon the exercise of an optional redemption by the collateral manager of the underlying CLO sometime after the reinvestment period specified in the CLO indenture.

Following the reinvestment period specified in the indenture, CLO instruments enter their amortization period during which the principle balances of the CLO senior debt tranches are reduced through amortization payment.

As the senior CLO debt tranches amortize, the management of the CLO becomes less economically viable to its collateral manager, prompting the manager to exercise options to liquidate the underlying portfolio, distribute cash to remaining tranches in order of seniority, and wind-up the CLO vehicle.

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When the amortized cost of an CLO instrument exceeds the undiscounted expected cash flows from the instrument as of the estimation date, the yield on that instrument is set to zero percent (-0-%).

The cash flow assumptions utilized in our Structured Finance Notes revenue recognition determination (our “Revenue Assumptions” generally involve the same economic considerations as the cash flow assumptions utilized in our period-end fair value estimates for these instruments (our “Fair Value Assumptions”), though on an factor-by-factor basis the assumptions will not be identical as the assumptions are developed by independent parties.

To ensure that our Revenue Assumptions and our Fair Value Assumptions are consistent, management performs period tests involving with-and-without type considerations to ensure the collection of assumptions for each purpose produce consistent cash flows in all material respects.

The cash flow assumptions utilized in our subordinated note and mezzanine debt investments revenue recognition determination (our “Revenue Assumptions”) generally involve the same economic considerations as the cash flow assumptions utilized in our period-end fair value estimates for these instruments (our “Fair Value Assumptions”), though on a factor-by-factor basis the assumptions will not be identical as the assumptions are developed by independent parties.

To ensure that our Revenue Assumptions and our Fair Value Assumptions are consistent, management performs periodic tests involving with-and-without type considerations to ensure the collection of assumptions for each purpose produce consistent cash flows in all material respects.

Fair value estimates.

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Our discounted cash flow valuations involve a determination of discount rate commensurate with the risk inherent in each investment.

Management uses two primary methods to estimate discount rates:

Management uses two primary methods to estimate discount rates on Portfolio Company Investments:

a method based upon a hypothetical recapitalization of the entity given its current operating performance and current market conditions;

and a synthetic debt rating method, which assigns a surrogate debt rating to the entity based on known industry standards for assigning such ratings and then estimates the discount rate based on observed market yields for actual rated debt.

Management may also use a relative value method to estimate yields, which involves estimating the discount rate of non-traded subject debt investments based on an expected or assumed relationship between Indicative Prices or observed prices on traded debt and the subject debt for a portfolio company.

Management may also use a relative value method to estimate yields, which involves estimating the discount rate of non-traded subject debt investments based on an expected or assumed relationship between Indicative Prices on traded debt and the subject debt for a portfolio company.

All methods for estimating the discount rate generally involve calibration of unobservable inputs utilized in estimating the discount rate on the subject investment to its internal rate of return at close or purchase date.

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Accordingly, we adjusted our depth and liquidity assessment to one based on a 5-day moving average of the metrics in our liquidity assessments as of March 31, 2020, and partially reverted, utilizing 30-day and 60-day moving average, in our June 30, 2020, and September 30, 2020, assessments respectively, as liquidity continued to return to the loan market.

We fully reverted to use of the 90-day moving average in our December 31, 2020, assessments.

One measure of liquidity in the broadly syndicated loan market is the average bid-ask spread on the Refinitiv Market Overall (North America) Loan Index which narrowed to 1.98 points at June 30, 2020, and 1.53 points at September 30, 2020, from 3.41 points at March 31, 2020, and has not yet returned to its long-term historic average of 1.0, but narrowed to 1.24 at December 31, 2020.

These changes to our depth and liquidity metrics, as well as changes in the level of the metrics themselves, led to securities with a fair value of $12.7 million and $2.9 million to transfer from Indicative Prices to models and Level 3 inputs at March 31, 2020 and June 30, 2020, respectively;

however, as of December 31, 2020, only one instrument with an aggregate amortized cost of $0.6 million remained at Level 3 within the fair value hierarchy.

We also adjusted the relative weighting of our Level 3 fair value models throughout this period of heightened economic uncertainty.

We fully reverted to use of the 90-day moving average in our December 31, 2020 assessments and throughout 2021 in our quarterly and year-end assessments.

We also adjusted the relative weighting of our Level 3 fair value models during much of 2020.

Our processes included assessments of the impact of the COVID-19 pandemic on the financial condition, results of operations or cash flows of our portfolio companies.

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Accordingly, we decreased the weighting for the synthetic debt rating method and increased the weighting for the reunderwriting analysis in the current period year, from a weighting of 50/50 to a weighting of 10/90, at March 31, 2020, and partially reverted to generally 25/75 at June 30, 2020.

We believed the overweighting to the Reunderwriting Analysis during this period more accurately captured the market in which these instruments are exchanged.

We believed the over-weighting to the reunderwriting analysis during this period more accurately captured the market in which these instruments are exchanged.

By September 30, 2020, we had fully reverted to an equal weighting of these models as we have observed a return, in all significant respects, of the historic correlative relationship between these markets.

Our equal weighting of models remained in effect throughout 2021 as markets and market factors remained stable and correlated.

The following table illustrates the impact of our fair value measures if we selected the low or high end of the range for all investments at December 31, 2021, (in thousands):

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Mezzanine bonds 2,779 2,737 2,823

Loan accumulation facility (valued at Transaction Price) 8,500 8,500 8,500

Equity investments:

Preferred equity 3,765 3,381 4,102

Common equity and warrants

52,984 48,719 56,902

Common equity, warrants and other 83,486 78,172 88,848

$ 507,099 $ 495,886 $ 518,295

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This license agreement will remain in effect for so long as the Investment Advisory Agreement with OFS Advisor is in effect.

On June 11, 2019, OFS Advisor agreed to reduce a portion of its base management fee by reducing the portion of such fee from 0.4375% per quarter (1.75% annualized) to 0.25% per quarter (1.00% annualized) of the OFSCC-FS Assets at the end of the two most recently completed calendar quarters to the extent that such portion of the OFSCC-FS Assets are financed using leverage (also calculated on an average basis) that causes the Company’s statutory asset coverage ratio to fall below 200%.

When calculating its statutory asset coverage ratio, the Company excludes its SBA guaranteed debentures from its total outstanding senior securities as permitted pursuant to exemptive relief granted by the SEC dated November 26, 2013.

Effective as of January 1, 2020 and January 1, 2021, OFS Advisor agreed to further reduce the base management fee to 0.25% per quarter (1.00% annualized) of the average value of the portion of total assets held by the Company through OFSCC-FS at the end of the two most recently completed calendar quarters without regard to the statutory asset coverage ratio.

The base management fee reduction by OFS Advisor 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.

On June 11, 2019, OFS Advisor agreed to reduce the portion of its base management fee attributable to the portion of the OFSCC-FS Assets that caused our asset coverage ratio to fall below 200%.

Specifically, under the reduction, we were required to pay 0.25% per quarter (1.00% annualized) on the average value of the portion of the OFSCC-FS Assets, at the end of the two most recently completed calendar quarters, that were financed using leverage and caused our statutory asset coverage ratio to fall below 200%.

When calculating our statutory asset coverage ratio, we exclude our SBA guaranteed debentures from our total outstanding senior securities as permitted pursuant to exemptive relief granted by the SEC dated November 26, 2013.

Additionally, effective from January 1, 2020, January 1, 2021 and January 1, 2022 through December 31, 2022, OFS Advisor agreed to continue the reduced base management fee attributable to all of the OFSCC-FS Assets, excluding cash commencing on January 1, 2022, without regard to our asset coverage.

The agreement reduced the base management fee to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets, excluding cash commencing January 1, 2022, at the end of the two most recently completed calendar quarters.

OFS Advisor’s base management fee reduction is renewable on an annual basis and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets.

This agreement was renewed for the 2022 calendar year on February 4, 2022.

OFS Advisor’s services under the Investment Advisory Agreement are not exclusive to us and OFS Advisor is free to furnish similar services to other entities, including other BDCs managed by OFS Advisor, so long as its services to us are not impaired.

OFS Advisor also serves as the investment adviser or collateral manager to CLOs and other assets, including HPCI and OCCI.

Assets & Credit Fund, an externally managed registered investment company that operates as an interval fund that invests primarily in a combination of real estate, credit and related investments.

Additionally, OFS Advisor provides sub-advisory services to CMFT Securities Investments, LLC, a wholly owned subsidiary of CIM Real Estate Finance Trust, Inc., a corporation that qualifies as a real estate investment trust, and to CIM Real Assets & Credit Fund, an externally managed registered investment company that operates as an interval fund that invests primarily in a combination of real estate, credit and related investments.

BDCs generally are prohibited under the 1940 Act from knowingly participating in certain transactions with their affiliates without the prior approval of their independent directors and, in some cases, of the SEC.

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The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so.

On August 4, 2020, we received exemptive relief from the SEC to permit us to co-invest in portfolio companies with certain Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions.

On August 4, 2020, we received the Order from the SEC to permit us to co-invest in portfolio companies with certain Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions.

The Order superseded a previous order we received on October 12, 2016 and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds.

We are generally permitted to co-invest with Affiliated Funds if under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs, through December 31, 2020, we were permitted, subject to the satisfaction of certain conditions, to co-invest in our existing portfolio companies with certain affiliates even if such other funds had not previously invested in such existing portfolio company.

Without this order, affiliated funds would not be able to participate in such co-investments with us unless the affiliated funds had previously acquired securities of the portfolio company in a co-investment transaction with us.

In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs with exemptive orders, through December 31, 2020, we were permitted, subject to the satisfaction of certain conditions, 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 company.

Without this order, such Affiliated Funds that are private funds would not be able to participate in such co-investments with us unless the Affiliated Funds had previously acquired securities of the portfolio company in a co-investment transaction with us.

Although the conditional exemptive order has expired, the SEC’s Division of Investment Management has indicated that until March 31, 2022, it will not recommend enforcement action, to the extent that any BDC with an existing co-investment order continues to engage in certain transactions described in the conditional exemptive order, pursuant to the same terms and conditions described therein.

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Portfolio Composition.

As of December 31, 2020, the fair value of our debt investment portfolio totaled $321.4 million in 49 portfolio companies, of which 95% and 5% were senior secured loans and subordinated loans, respectively, and $64.5 million in equity investments in 10 portfolio companies in which we also held debt investments and 13 portfolio companies in which we solely held an equity investment.

We had unfunded commitments of $5.8 million to four portfolio

companies at December 31, 2020.

As of December 31, 2021, the fair value of our debt investment portfolio totaled $344.6 million in 58 portfolio companies, of which 95% and 5% were senior secured loans and subordinated loans, respectively, and our equity investments totaled $87.3 million in 5 portfolio companies in which we also held debt investments and 12 portfolio companies in which we solely held an equity investment.

We had unfunded commitments of $43.7 million to fourteen portfolio companies at December 31, 2021.

We also have 17 investments in Structured Finance Notes with a fair value of $75.2 million.

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Portfolio Yields :

The weighted average yield on total investments 1 was 8.56% and 9.59% at December 31, 2020 and 2019, respectively.

The following table displays the composition of our debt investment and Structured Finance Note portfolio by yield range and its weighted average yields as of December 31, 2020 and 2019:

Yield Range Senior Secured Debt Subordinated Debt Structured Finance Notes Total Senior Secured Debt Subordinated Debt Structured Finance Notes Total

Less than 8% 29.5 % — % 1.4 % 24.0 % 20.1 % — % — % 17.3 %

8% – 10% 52.0 — 1.4 42.2 21.5 — — 18.5

10% – 12% 13.5 — — 10.9 48.8 8.6 — 42.7

12% – 14% 3.4 53.6 12.5 7.0 8.4 38.3 25.1 12.0

Greater than 14% 1.6 46.4 84.7 15.9 1.2 53.1 74.9 9.5

Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Weighted average yield – performing debt and Structured Finance Note investments (2)

8.92 % 14.88 % 16.56 % 10.27 % 9.80 % 13.52 % 15.13 % 10.40 %

Weighted average yield – total debt and Structured Finance Note investments (3)

8.38 % 5.53 % 16.56 % 9.15 % 9.57 % 10.57 % 15.13 % 9.94 %

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

(2) 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 debt investments plus the annualized accretion of Net Loan Fees;

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

(3) 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 debt investments plus the annualized accretion of Net Loan Fees and (ii) the annual effective yield on Structured Finance Notes divided by (b) the sum of the amortized cost of our debt and Structured Finance Note investments, in each case, including debt investments in non-accrual status as of the balance sheet date.

The following table presents weighted-average yields metrics for our portfolio:

Year Ended December 31,

Weighted-average performing current yield (1) :

Debt investments 8.7 % 9.4 %

Structured Finance Notes 16.2 % 16.0 %

Interest-bearing investments 10.0 % 10.0 %

Weighted-average performing income yield (2) :

Debt investments 9.5 % 9.8 %

Structured Finance Notes 16.3 % 16.1 %

Interest-bearing investments 10.6 % 10.3 %

Weighted-average realized yield :

Interest-bearing investments (3)

Total portfolio (4)

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

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

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

(4) Realized yield computed as ( a) the actual amount earned on all investments including interest, dividends and prepayment fees, amortization of Net Loan Fees, and dividends received divided by (b) the weighted-average of total investments amortized cost or cost .

As of December 31, 2021 and 2020, floating rate loans at fair value were 92% and 96% of our debt investment portfolio, respectively, and fixed rate loans at fair value were 8% and 4% of our debt investment portfolio, respectively.

Approximately 92% of our debt portfolio are variable-rate investments and a substantial amount have LIBOR floors.

At December 31, 2021, the effective yield of our performing debt investment and Structured Finance Note portfolio was 9.6%.

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.

The weighted average yield on our performing debt and Structured Finance Notes decreased from 10.40% at December 31, 2019 to 10.27% at December 31, 2020, primarily due to the decrease in LIBOR and deployment of approximately $70.6 million in new debt investments with a weighted average yield of 8.2%, partially offset by the deployment of approximately $33.5 million in new Structured Finance Notes with a weighted average yield of 16.7% and LIBOR floors on the majority of the debt portfolio.

As of December 31, 2020 and 2019, floating rate loans at fair value were 96% and 93% of our debt investment portfolio, respectively, and fixed rate loans at fair value were 4% and 7% of our debt investment portfolio, respectively.

Portfolio Company Investments .

The following table summarizes the composition of our Portfolio Company Investments as of December 31, 2020 and 2019 (dollar amounts in thousands):

The following table summarizes the composition of our Portfolio Company Investments by type as of December 31, 2021 and 2020 (dollar amounts in thousands):

December 31, 2021 December 31, 2020

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Preferred equity 9,552 3,765 18,648 11,543

Common equity and warrants 15,459 52,984 14,919 25,777

Common equity, warrants and other (2)

14,606 83,486 15,459 52,984

Total $ 382,361 $ 431,898 $ 405,163 $ 385,898

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(1) Includes debt investments in which we have entered into a contractual arrangement with co‑lenders whereby, subject to certain conditions, we have agreed to receive our principal payments after the repayment of certain co-lenders pursuant to a payment waterfall.

The aggregate amortized cost and fair value of these investments was $55,776 and $56,217 at December 31, 2020, respectively, and $65,300 and $65,337, at December 31, 2019, respectively.

The aggregate amortized cost and fair value of these investments was $3.0 million and $3.0 million, respectively at December 31, 2021, and $55.8 million and $56.2 million, respectively at December 31, 2020.

(2) As of December 31, 2021, other investments represent equity participation right investments with an aggregate cost and fair value of $4.7 million and $7.4 million, respectively.

Approximately 76% of our Portfolio Company Investments at fair value are senior securities of the borrower, rather than in the subordinated securities, preferred equity or common equity.

We believe the seniority of our debt investments in the borrowers' capital structures may provide greater downside protection against the impact of the COVID-19 pandemic.

As of December 31, 2021, our common equity in Pfanstiehl Holdings, Inc.

based on its fair value of $65.7 million,$65.5 million of which represents an unrealized gain, accounts for 13% of our total portfolio at fair value, or 32% of total net assets.

Since December 31, 2020 and December 31, 2019, Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, has appreciated $29.5 million and $53.8 million, respectively, primarily due to strong operating results, as well as multiple expansion in the pharmaceutical industry.

As of December 31, 2021, the three largest industries of our Portfolio Company Investments by fair value, were (1) Manufacturing (28.2%), (2) Professional, Scientific, and Technical Services (14.6%), and (3) Health Care and Social Assistance (12.9%), totaling approximately 55.7% of the investment portfolio.

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Financial Statements and Supplementary Data" of this report.

The following table presents our debt investment portfolio by investment size as of December 31, 2020 and 2019, (dollar amounts in thousands):

Amortized Cost Fair Value

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Up to $4,000 $ 30,427 8.2 % $ 77,809 16.3 % $ 33,149 10.3 % $ 75,033 16.6 %

$4,001 to $7,000 72,030 19.4 71,558 14.9 68,939 21.5 68,806 15.2

$7,001 to $10,000 51,874 14.0 95,567 20.0 43,735 13.6 77,978 17.3

$10,001 to $13,000 21,013 5.7 54,273 11.3 33,470 10.4 53,903 11.9

Greater than $13,000 195,711 52.7 179,494 37.5 142,078 44.2 176,095 39.0

The following table presents our ten largest debt and equity investments by portfolio company based on fair value as of December 31, 2021 (dollar amounts in thousands):

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

Pfanstiehl Holdings, Inc.

$ 217 $ 65,740 13.0 %

All Star Auto Lights, Inc.

23,005 23,052 4.5 %

Milrose Consultants, LLC 22,990 22,634 4.5 %

Kreg LLC 20,330 20,330 4.0 %

SourceHOV Tax, Inc.

19,631 19,927 3.9 %

The Escape Game, LLC 16,287 16,396 3.2 %

Inergex Holdings, LLC 15,017 15,260 3.0 %

Tolemar Acquisition, Inc.

15,166 15,166 3.0 %

SSJA Bariatric Management, LLC 13,401 13,491 2.7 %

MTE Holding Corp 11,264 12,948 2.6 %

Total $ 157,308 $ 224,944 44.4 %

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Mezzanine bonds 2,660 2,779 1,580 1,701

Loan accumulation facility 8,500 8,500 — —

Total Structured Finance Notes $ 74,951 $ 75,201 $ 55,860 $ 56,425

Number of Structured Finance Notes 17 17 12 12

The weighted average yield on Structured Finance Notes increased to 16.6% at December 31, 2020, from 15.13% at December 31, 2019 partially due to investments of $33.5 million in Structured Finance Notes with a weighted average annual effective yield of 16.7%.

Notable investments in new Structured Finance Notes during the year ended December 31, 2020, include Apex Credit CLO 2020 ($9.3 million subordinated note) and Madison Park Funding XXIII, Ltd.

($7.5 million subordinated note).

We focused on investing in subordinated note securities with longer reinvestment periods in order to take advantage of market volatility and maximize cash flows, and all current subordinated note investments have reinvestment periods ending in 2022 or beyond.

The weighted average yield on Structured Finance Notes decreased to 15.8% at December 31, 2021 from 16.6% at Dece mber 31, 2020, partially due to new investments of $30.4 million in Structured Finance Notes with a weighted average annual effective yield of 15.2%.

We focused on investing in subordinated note securities with longer reinvestment periods in order to take advantage of market volatility and maximize cash flows and 85% of current subordinated note investments have reinvestment periods ending in 2023 or beyond.

We believe longer reinvestment periods provide collateral managers with more flexibility to maximize cash flows by reinvesting loan repayments into new loans, potentially at discounted levels with higher yields and to reposition the portfolio to adapt to changing market conditions.

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The following is a summary of our Portfolio Company Investment cash investment activity for the years ended December 31, 2021, 2020 and 2019 (dollar amounts in millions):

Year Ended December 31, 2020 Year Ended December 31, 2019

Investments Equity

Investments Debt

Investments Equity

Year Ended December 31,

2021 2020 2019

Investments in new portfolio companies $ 154.2 $ 49.0 $ 147.2

Investments in existing portfolio companies 84.3 47.9 51.6

Follow-on investments 41.0 0.3 42.0 —

Restructured investments 0.9 — — —

Delayed draw and revolver funding 5.7 — 9.6 —

Total investments in existing portfolio companies 47.6 0.3 51.6 —

Total investments in new and existing portfolio companies $ 238.5 $ 96.9 $ 198.8

Number of new portfolio company investments 14 — 45 3

Number of existing portfolio company investments 25 3 29 —

Proceeds/distributions from principal payments/equity investments $ 129.6 $ — $ 60.9 $ —

Proceeds from principal payments $ 192.1 $ 129.6 $ 60.9

Proceeds from investments sold or redeemed 52.8 70.8 35.0

Total proceeds from principal payments, equity distributions and investments sold

$ 196.5 $ 3.9 $ 95.7 $ 0.2

Notable investments in new portfolio companies during the year ended December 31, 2020 include A&A Transfer Buyer, Inc.

($25.2 million senior secured loan), SourceHOV Tax, Inc.

($19.7 million senior secured loan), as well as $5.2 million senior secured loans in I&I Sales Group, LLC, respectively.

Total proceeds from principal payments, equity distributions and sales proceeds on Portfolio Company Investments $ 244.9 $ 200.4 $ 95.9

Year ended December 31, 2021

Notable investments in new portfolio companies during the year ended December 31, 2021 included Kreg LLC ($20.3 million senior secured loan), Tolemar Acquisition, Inc.

($14.9 million senior secured loan), Molded Devices, Inc.

($8.0 million

senior secured loan), Honor HN Buyer Inc.

($6.5 million senior secured loan), Electrical Components International, Inc.

($5.6 million senior secured loan) and One GI LLC ($5.4 million senior secured loan).

During the year ended December 31, 2021, the weighted-average income yield of Portfolio Company Investments in new portfolio companies was 7.7%.

During the year ended December 31, 2021, we also invested $30.4 million in Structured Finance Notes.

Non-cash Investment Activity .

On December 31, 2021, our debt and equity investments in Envocore Holdings, LLC were restructured, pursuant to which we converted our $17.2 million senior secured debt investment into two $6.4 million senior secured debt investments and preferred equity.

Our Series B and Series C preferred equity investments in Envocore Holdings, LLC were subsequently cancelled in the restructuring;

therefore, we recognized a realized loss of $0.3 million on the cancellation, of which $0.3 million was included as an unrealized loss as of December 31, 2020.

Year ended December 31, 2020

Notable investments in new portfolio companies during the year ended December 31, 2020 included A&A Transfer Buyer, Inc.

($25.2 million senior secured loan) and SourceHOV Tax, Inc.

($19.7 million senior secured loan).

During the year ended December 31, 2020, the weighted-average yield of Portfolio Company Investments in new portfolio companies was 8.2%.

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Non-cash Investment Activity .

On March 27, 2020, our debt investment in Constellis Holdings, LLC was restructured to converted our non-accrual debt investment into 20,628 common shares of equity.

On March 27, 2020, our debt investment in Constellis Holdings, LLC was restructured to convert our non-accrual debt investment into 20,628 common shares of equity.

The cost and fair value of the 20,628 common shares of equity received was $0.7 million and $0.7 million, respectively, which we recognized as the investment's cost.

On January 31, 2019, Maverick Healthcare Equity, LLC was acquired by a third party in a purchase transaction.

Proceeds from this transaction were insufficient to redeem the class of equity held by the Company.

Accordingly, we received $-0- proceeds and recognized a net loss of $0.1 million, comprised of $0.9 million realized loss net of $(0.8) million unrealized loss reversal, for the year ended December 31, 2019.

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

PIK and Cash Dividend Accruals

Payment-in-kind dividends on preferred equity securities are recognized at fair value when earned.

However, at December 31, 2020, we owned five preferred equity securities (Contract Datascan Holdings, Inc., Master Cutlery, LLC, Stancor, L.P., My Alarm Center, LLC and TRS Services, LLC), with an aggregate amortized cost and fair value of $12.4 million and $4.9 million, respectively, for which, notwithstanding the fair value of the preferred equity securities, the fair value of those securities most-recent PIK dividend as of December 31, 2020, was recognized at $-0-.

At December 31, 2019, we owned four preferred equity securities (Master Cutlery, LLC, Stancor, L.P., My Alarm Center, LLC and TRS Services, LLC), with an aggregate amortized cost and fair value of $9.9 million and $5.7 million, respectively, for which, notwithstanding the fair value of the preferred equity securities, the fair value of those securities most-recent PIK dividend as of December 31, 2019, was recognized at $-0-.

Risk Monitoring

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$ 344,646 100.0 % $ 321,371 100.0 %

During the year ended December 31, 2020, we had debt investments with risk downgrades from risk category 3 to risk category 4 with a fair value of $15.9 million at December 31, 2020.

We also had debt investments with risk downgrades from risk category 3 to risk category 5 with a fair value of $11.7 million at December 31, 2020.

During the year ended December 31, 2019, we had a debt investment with a risk upgrade from risk category 3 to risk category 2 with a fair value of $14.2 million at December 31, 2019.

We also had a debt investment with a risk upgrade from risk category 4 to risk category 3 with a fair value of $14.6 million at December 31, 2019.

We had debt investments with risk rating downgrades from risk category 3 to risk category 4 with an aggregate fair value of $34.0 million at December 31, 2019.

We also had a debt investment with risk rating downgrade from risk category 4 to risk category 6 with a fair value of $0.4 million at December 31, 2019.

All other year-over-year changes in the fair value of our debt investments within each category, were a result of new debt investments, the receipt of amortization payments on existing debt investments, repayment of certain debt investments in full, changes in the fair value of our existing debt investments within the categories, and other investment activity.

Due to continued improvement in borrower performance, the percentage of risk rated “3” investments increased from 82.2% of the debt portfolio at fair value as of December 31, 2020 to 94.2% of the debt portfolio as of December 31, 2021.

Non-Accrual Loans

At December 31, 2021, we had two loans on non-accrual status (Master Cutlery, LLC and 3rd Rock Gaming Holdings, LLC) with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $19.1 million and $7.7 million, respectively.

On April 5, 2021, we sold our subordinated debt investment in Community Intervention Services, Inc.

for $0.1 million.

We recognized a realized loss of $7.5 million on our investment in Community Intervention Services, Inc., of which $7.5 million was included as an unrealized loss as of December 31, 2020.

On November 2, 2021, Online Tech Stores, LLC assets were liquidated resulting in $-0- proceeds to us.

We wrote-off our subordinated debt investment in Online Tech Stores, LLC and recognized a realized loss of $16.1 million, of which $13.7 million was included as an unrealized loss as of December 31, 2020.

At December 31, 2020, we had four loans on non-accrual status (Community Intervention Services, Inc., Master Cutlery, LLC, 3rd Rock Gaming Holdings, LLC, and Online Tech Stores, LLC) with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $48.1 million and $12.1 million, respectively.

The change to non-accrual status for our investments in Online Tech Stores and 3rd Rock Gaming Holdings, LLC were effective January 1, 2020 and April 1, 2020, respectively.

At December 31, 2019, we had four loans on non-accrual status (Community Intervention Services, Inc., Master Cutlery, LLC, Southern Technical Institute, LLC and Constellis Holdings, LLC) with respect to all interest and Net Loan Fee amortization, with an aggregate amortized cost and fair value of $22.2 million and $0.7 million, respectively.

The change to non-accrual status for our investment in Constellis Holdings, LLC was effective November 1, 2019.

On March 27, 2020, our debt investment in Constellis Holdings, LLC was restructured.

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Accordingly, during the year ended December 31, 2020, we recognized a realized gain of $0.3 million.

As of December 31, 2020, we hold equity appreciation rights with a cost and fair value of $-0- and $4,295 respectively.

As of December 31, 2021, we hold equity participation rights in Southern Technical Institute, LLC with a cost and fair value of $-0- and $7.4 million, respectively.

Results of Operations

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One of our main objectives is to increase NII, and in turn, increase distributions to stockholders.

Total Investment Income .

We generate revenue primarily in the form of interest income on debt investments and Structured Finance Notes.

Our debt investments typically have a term of three to eight years and typically bear interest at floating rates.

As of December 31, 2020, floating rate and fixed rate loans comprised 96% and 4%, respectively, of our current debt investment portfolio at fair value.

In some cases, our investments provide for PIK interest, or PIK dividends (meaning interest or dividends paid in the form of additional principal amount of the loan or equity security instead of in cash).

Net Loan Fees are capitalized, and accreted or amortized over the life of the loan as interest income.

When we receive principal payments on a loan in an amount that exceeds its amortized cost, we recognize the excess principal payment as income in the period it is received.

From time to time, our common equity investments declare dividends, which are recognized when declared.

We also generate revenue in the form of other contractual fees, which are recognized as the related services are rendered.

In the general course of business, we receive certain non-recurring fees from portfolio companies, such as prepayment fees on loans that repaid prior to their scheduled due date, which are recognized as earned when received.

Syndication fees are received for capital structuring, loan syndication or advisory services from certain portfolio companies, which are recognized as earned upon closing of the investment.

Syndication fees are dependant on our pipeline and loan originations of middle-market loans.

Our primary operating expenses include interest expense due under our outstanding borrowings, the payment of fees to OFS Advisor under the Investment Advisory Agreement and our allocable portion of overhead expenses under the Administration Agreement.

We also incur professional fees such as legal and accounting fees in connection with compliance oblgiations under the 1940 Act and other applicable U.S.

federal and state securities law.

We also will incur standard operating costs common to BDCs such as transfer agent, custodial and board of director fees.

Additionally, we will pay interest expense on any outstanding debt under any new credit facility or other debt instrument we may enter into.

We will bear all other out-of-pocket costs and expenses of our operations and transactions, whether incurred by us directly, OFS Services or its affiliates, or on our behalf by a third party.

Net Gain (Loss) on Investments.

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and (b) net unrealized appreciation or depreciation on debt and equity investments, net of applicable taxes to the extent the investments are held through taxable wholly owned subsidiaries.

In the period in which a realized gain or loss is recognized, such gain or loss will generally be offset by the reversal of previously recognized unrealized appreciation or depreciation, and the net gain recognized in that period will

generally be smaller.

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

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As a result, annual comparisons of net increase in net assets resulting from operations may not be meaningful.

Portfolio Yield :

Portfolio yield is a key financial metric of our investment portfolio in order to obtain our investment objective of providing current income to shareholders.

The effective yield of an investment is measured by adding its coupon rate plus the accretion of its Net Loan Fees, divided by the investments cost basis.

We do not believe that our historical operating performance is necessarily indicative of our future results of operations that we expect to report in future periods.

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Cash interest income $ 28,321 $ 33,987 $ 44,649

PIK interest income 1,526 1,527 927

Net Loan Fee amortization 2,665 1,584 1,245

Accretion of interest income on Structured Finance Notes 5,877 2,861 —

Accretion of interest income on subordinated notes 9,861 5,877 2,861

Other interest income 11 69 147

Total interest income 42,384 43,044 49,829

PIK interest income 1,527 927 1,193

Preferred equity PIK dividends 505 898 906

Total PIK income 2,032 1,825 2,099

Dividend income:

Common equity dividends 450 502 315

PIK dividends 143 505 898

Cash dividends 2,024 450 502

Total dividend income 2,167 955 1,400

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Net investment income 13,450 12,295 19,098

Net loss on investments (6,704) (9,545) (8,813)

Net gain (loss) on investments 48,005 (6,704) (9,545)

Loss on extinguishment of debt (4,591) (820) —

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Total interest and PIK interest income 42,384 43,044 49,829

Less Net Loan Fees accelerations (1,640) (207) (280)

Recurring interest income $ 40,744 $ 42,837 $ 49,549

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

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

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

Acceleration of Net Loan Fees from the repayment of loans prior to their scheduled due dates of $1.6 million and $0.2 million were included in interest income for the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, accretion of interest income on Structured Finance Notes increased $4.0 million compared to the prior year primarily due to an increase in the weighted-average amount invested in subordinated notes from $35.0 million at December 31, 2020 to $59.1 million at December 31, 2021.

During the year ended December 31, 2021, total PIK income decreased $0.4 million compared to the prior year and remained under 5% of total investment income.

For the year ended December 31, 2021, cash and PIK interest of $1.7 million and $2.1 million, respectively, was not recognized in income due to reasonable doubt whether it will be collected.

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

Prepayment fees and syndication fees generally result from periodic transactions rather than from holding portfolio investments and are considered non-recurring.

During the years ended December 31, 2021 and 2020, we recognized prepayment fees of $0.8 million and $0.6 million, respectively.

We recognized syndication fees of $2.2 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively, resulting from loan originations which OFS Advisor sourced, structured, and arranged the lending group, and for which we were additionally compensated.

Comparison of investment income for the years ended December 31, 2020 and 2019 .

Interest and PIK interest income decreased approximately $6.8 million during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a $1.8 million decrease in interest income caused by a $16 million decrease in the average outstanding loan balance and a $5.0 million decrease in recurring interest income resulting from a 128 basis point decrease in the weighted average yield in our debt portfolio.

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Prepayment fees and syndication fees generally result from periodic transactions rather than from holding portfolio investments and are considered non-recurring.

During the year ended December 31, 2020, we recognized prepayment fees of $0.6 million resulting from $38.4 million of unscheduled principal payments, compared to $0.4 million from $56.8 million of unscheduled principal payments during the year ended December 31, 2019.

We recognized syndication fees of $0.7 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively, resulting from approximately $46.8 million and $91.5 million in loan originations which OFS Advisor sourced, structured, and arranged the lending group, and for which we were additionally compensated.

Comparison of investment income for the years ended December 31, 2019 and 2018 .

Interest and PIK interest income increased approximately $10.0 million during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to a $12.7 million increase in recurring interest income caused by a $103 million increase in the average outstanding loan balance and a decrease of $1.8 million in recurring interest income resulting from a 43 basis point decrease in the weighted average yield in our debt portfolio.

Acceleration of Net Loan Fees of $0.3 million and $1.1 million were included in interest income for the years ended December 31, 2019 and 2018, respectively, from the repayment of loans prior to their scheduled due dates.

During the year ended December 31, 2019, we recognized prepayment fees of $0.4 million resulting from $56.8 million of unscheduled principal payments, compared to $0.9 million from $50.0 million of unscheduled principal payments during the year ended December 31, 2018.

During the year ended December 31, 2020, we recognized prepayment fees of $0.6 million compared to $0.4 million during the year ended December 31, 2019.

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Management fees 7,669 7,605 8,271

Incentive fee, net of waivers 1,584 4,760 4,387

Income Incentive Fee, net of waivers 2,352 1,584 4,760

Capital Gains Fee 1,916 — —

Professional fees 1,670 1,993 1,814

Administration fee 1,758 1,855 1,747

General and administrative expenses 1,335 1,002 1,649

Other expenses 1,433 1,335 1,002

Total expenses, net of waivers $ 34,313 $ 33,180 $ 33,423

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

Interest expense increased by $3.0 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase of $39.4 million in average outstanding borrowings, primarily due to a full year’s interest on the Unsecured Notes Due October 2026 and the issuance in September 2020 of the Unsecured Notes Due September 2023.

Interest expense decreased by $1.3 million during the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a decrease in the weighted-average interest costs from 5.4% to 5.1%.

We reduced our weighted-average interest costs by redeeming Unsecured Notes with a weighted-average interest cost of 6.9% and issuing Unsecured Notes with a weighted-average interest cost of 5.4%.

See "Item 8.–Financial Statements– Note 7 " for details.

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

During the year ended December 31, 2021, the Income Incentive Fee expense increased $0.8 million, or $0.4 million prior to the waiver in the first quarter of 2020, compared to the year ended December 31, 2020 due to an increase in net investment income.

During the year ended December 31, 2021, net investment income increased primarily due to additional dividend and syndication fee income, as well as a decrease in interest expense.

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

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

Comparison of expenses for the years ended December 31, 2020 and 2019 .

Interest expense increased by $3.0 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to an increase of $39.4 million in average outstanding borrowings, primarily due to a full year’s interest on the Unsecured Notes Due October 2026 issued in 2019 and the issuance in September 2020 of the Unsecured Notes Due September 2023.

See "Item 8.–Financial Statements–Note 7" for details.

Management fee expense decreased by $0.7 million due to a decrease in our average total assets, primarily due to the sale of debt investments in response to the uncertainty surrounding the COVID-19 pandemic.

During the year ended December 31, 2020, Incentive fee expense decreased by $3.2 million, or $3.6 million prior to the Income Incentive Fee waiver of $0.4 million, due to a decrease in net investment income.

During the year ended December 31, 2020, Income Incentive Fee expense decreased by $3.2 million, or $3.6 million prior to the Income Incentive Fee waiver of $0.4 million, due to a decrease in net investment income.

On May 4, 2020, OFS Advisor agreed to irrevocably waive $0.4 million in Income Incentive Fees related to net investment income, that it would otherwise be entitled to receive for the three months ended March 31, 2020.

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During the year ended December 31, 2020, professional fees increased $0.2 million primarily due to an increase in external audit costs, and general and administrative expenses increased $0.3 million primarily due to the write-off of deferred offering costs relating to our prior shelf registration.

Comparison of expenses for the years ended December 31, 2019 and 2018 .

Interest expense increased by $6.6 million during the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to an increase of $100.9 million in the average amount of outstanding borrowings, primarily due to a full year’s interest on the Unsecured Notes Due October 2025, the establishment of the BNP Facility in June 2019, and the issuance in October 2019 of the Unsecured Notes Due 2026.

See "Item 8.–Financial Statements–Note 7" for details.

During the year ended December 31, 2019, management fee expense increased by $2.0 million due to an increase in our average total assets, primarily due to an increase in net investment activity from employing leverage from the BNP Facility and Unsecured Notes Due 2026.

Incentive fee expense for 2019 also increased by $0.4 million primarily due to a $0.7 million increase in net investment income relating to the increase in our leverage throughout the fiscal year.

During the year ended December 31, 2019, professional fees increased $0.6 million primarily due to the retention of third-party valuation services, as well as an increase in internal and external audit costs.

During the year ended December 31, 2019, general and administrative expenses decreased $0.6 million primarily due to non-recurring legal and other offering costs incurred during the first quarter of 2018 in connection with a foreign debt transaction that we elected not to pursue due to regulatory changes and market conditions.

Net realized and unrealized gain (loss) on investments.

Net realized and unrealized gain (loss) on investments for years ended December 31, 2020, 2019 and 2018, are presented below (in thousands):

Net realized and unrealized gain (loss) on investments, by investment type, for the years ended December 31, 2021, 2020 and 2019, are presented below (in thousands):

Years Ended December 31,

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Preferred equity 5,202 (2,708) (89)

Common equity and warrants 26,170 3,837 5,508

Common equity, warrants and other 31,794 26,170 3,837

Structured Finance Notes (314) 2,081 (1,516)

Net loss on investments $ (6,704) $ (9,545) $ (8,813)

Income tax expense on net realized investment gains (1,027) — —

Deferred income tax benefit (expense) 114 275 (416)

Net gain (loss) on investments $ 48,005 $ (6,704) $ (9,545)

Year ended December 31, 2021

During the year ended December 31, 2021, we recognized net gains of $9.7 million on senior secured debt, primarily as a result of an unrealized gain of $3.0 million on our senior secured debt investment in 3rd Rock Gaming Holding, LLC.

During the year ended December 31, 2021, we recognized net gains of $2.5 million on subordinated debt, primarily as a result of an unrealized gain of $4.5 million on our subordinated debt investment in Eblens Holdings, Inc., offset by a realized loss of $16.1 million on the write-off on our investment in Online Tech Stores, LLC, of which $2.4 million was recognized as a loss during the year ended December 31, 2021.

During the year ended December 31, 2021, we recognized net gains of $5.2 million on preferred equity investments, primarily as a result of realized gains of $3.9 million on the sale of investments.

We recognized realized gains of $5.8 million and $1.5 million on the sale of our preferred equity investments in TTG Healthcare, LLC and Neosystems Corp, respectively, offset by a realized loss of $3.1 million on the write-off of our investments in My Alarm Center, LLC.

During the year ended December 31, 2021, we recognized net gains of $31.8 million on common equity, warrants and other investments, primarily as a result of unrealized gains of $29.5 million and $3.1 million on our common equity investments in Pfanstiehl Holdings, Inc.

and our equity participation rights in Southern Technical Institute, LLC, respectively.

During the year ended December 31, 2021, we recognized an income tax provision from realized gains of $1.0 million relating to taxable net realized gains of $3.7 million on equity investments held in OFSCC-MB.

Year ended December 31, 2020

During the year ended December 31, 2020, we recognized net losses of $16.1 million on senior secured debt, primarily as a result of unrealized losses of $9.2 million and $2.8 million on our senior secured debt investments in 3rd Rock Gaming Holding, LLC, and Envocore Holdings, LLC, respectively.

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During the year ended December 31, 2020, we recognized net gains of $26.2 million on common equity and warrant investments, primarily as a result of unrealized gains of $24.2 million and $4.3 million on our common equity investment in Pfanstiehl Holdings, Inc.

and our equity appreciation rights in Southern Technical Institute, LLC, respectively, offset by a net unrealized loss of $1.2 million on our investment in Professional Pipe Holdings, LLC.

and our equity participation rights in Southern Technical Institute, LLC, respectively, offset by a net unrealized loss of $1.2 million on our investment in Professional Pipe Holdings, LLC.

Year ended December 31, 2019

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and THL Credit Wind River 2019‐3 CLO Ltd., respectively.

Year ended December 31, 2018

During the year ended December 31, 2018, we recognized net losses of $9.0 million on senior secured debt, primarily as a result of a realized loss of $3.5 million on our senior secured debt investment in Jobson recognized upon the sale in the second quarter of 2018, as well as by the negative net impact of mark-to-market adjustments in the fourth quarter relating to our Broadly Syndicated Loan investments resulting in an unrealized loss of $5.5 million.

During the year ended December 31, 2018, we recognized net losses of $3.3 million on subordinated debt, primarily as a result of a realized loss of $3.5 million on the restructuring of the Southern Technical Institute, LLC subordinated debt investment, of which $2.3 million was recognized as unrealized losses in prior years, and net unrealized depreciation of $2.1 from the negative impact of specific performance factors, principally related to Master Cutlery LLC.

During the year ended December 31, 2018, we recognized net losses of $2.0 million on preferred equity investments, primarily as a result of a $1.4 million unrealized loss on TRS Services, LLC, and other negative net impact of portfolio company-specific performance factors on other investments resulting in an additional unrealized loss of $0.6 million.

During the year ended December 31, 2018, we recognized net gains of $5.5 million on common equity and warrant investments, as a result of net realized gains of $3.7 million, primarily driven by a $4.1 million realized gain on the sale of All Metal Holdings, LLC, and the positive impact of portfolio company-specific performance factors resulting in unrealized appreciation of $1.8 million.

Loss on Impairment of Goodwill.

Year ended December 31, 2020

On December 4, 2013, in connection with the acquisition of the remaining ownership interests in SBIC I LP and SBIC I GP, LLC, making SBIC I LP a wholly owned subsidiary, we recorded goodwill of $1.1 million.

The decline in the price of our common stock and the level at which it continues to trade relative to the broader stock indices for the BDC industry, led us to conclude in the third quarter of 2020 that an impairment in the value of our goodwill was more likely than not.

Moreover, due to the discount at which our stock traded to its net asset value we concluded it was appropriate that the impairment of goodwill equal the full amount of its carrying value of $1.1 million.

The decline in the price of our common stock and the level at which it traded relative to the broader stock indices for the BDC industry, led us to conclude in the third quarter of 2020 that an impairment in the value of our goodwill was more likely than not.

Moreover, due to the discount at which our stock traded to its NAV we concluded it was appropriate that the impairment of goodwill equal the full amount of its carrying value of $1.1 million.

The loss on impairment of goodwill did not impact our management or incentive fees.

Losses on Extinguishment of Debt.

During the year ended December 31, 2020, we prepaid $44.6 million of SBA debentures that were contractually due September 1, 2023, March 1, 2024 and September 1, 2024.

Year ended December 31, 2021

During the year ended December 31, 2021, we redeemed $35.4 million of SBA debentures that were contractually due September 1, 2022, September 1, 2024 and September 1, 2025.

We recognized losses on extinguishment of debt of $0.3 million related to the charge-off of deferred borrowing costs on the prepaid debentures.

During the year ended December 31, 2021, we redeemed $177.9 million of Unsecured Notes that were contractually due in 2023, 2025 and 2026.

We recognized losses on extinguishment of debt of $4.3 million related to the charge-off of deferred borrowing costs on the redeemed notes.

Year ended December 31, 2020

During the year ended December 31, 2020, we redeemed $44.6 million of SBA debentures that were contractually due September 1, 2023, March 1, 2024 and September 1, 2024.

We recognized losses on extinguishment of debt of $0.7 million related to the charge-off of deferred borrowing costs on the prepaid debentures.

During the year ended December 31, 2020, the BLA with Pacific Western Bank was amended to reduce the total commitment under the PWB Credit Facility from $100.0 million to $20.0 million.

We recognized a loss on extinguishment of debt of $0.1 million related to the charge-off of deferred borrowing costs on the commitment reduction.

Non-GAAP Financial Measure – Adjusted Net Investment Income

On a supplemental basis, we disclose adjusted net investment income (“Adjusted NII”) (including on a per share basis), which is a financial measure calculated and presented on basis other than in accordance with GAAP.

Adjusted NII represents net investment income excluding the capital gains incentive fee in periods in which such expense occurs.

GAAP requires recognition of a capital gains incentive fee in our financial statements if aggregate net realized and unrealized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the reporting date is positive.

Such fees are subject to further conditions specified in the Investment Advisory Agreement, principally related to the realization of such net gains, before OFS Advisor is entitled to payment, and such recognized fees are subject to the risk of reversal should unrealized gains diminish to become losses.

Management believes that Adjusted NII is a useful indicator of operations exclusive of any net capital gains incentive fee, as net investment income does not include the net gains, realized or unrealized, associated with the capital gains incentive fee.

Management believes Adjusted NII facilitates analysis of our results of operations and provides greater transparency into the determination of incentive fees.

Adjusted NII is not meant as a substitute for net investment income determined in accordance with GAAP and should be considered in the context of the entirety of our reported results of operations, financial position and cash flows determined in accordance with GAAP.

The following table provides a reconciliation from net investment income (the most comparable GAAP measure) to Adjusted NII for the three months ended and years ended December 31, 2021 and December 31, 2020 (dollar amounts in thousands, except per share data):

Three Months Ended December 31, Years Ended December 31,

2021 2020 2021 2020

(000's) Per Share (000's) Per Share (000's) Per Share (000's) Per Share

Net investment income

$ 4,430 $ 0.33 $ 3,004 $ 0.22 $ 13,450 $ 1.00 $ 12,295 $ 0.92

Capital Gains Fee

1,814 0.14 — — 1,916 0.14 — —

$ 6,244 $ 0.47 $ 3,004 $ 0.22 $ 15,366 $ 1.14 $ 12,295 $ 0.92

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.

Although these non-GAAP financial measures are intended to enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

Comparison of the three months ended December 31, 2021 and September 30, 2021.

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Cash interest income $ 7,739 $ 6,771

PIK interest income 283 406

Net Loan Fee amortization 913 322

Accretion of interest income on Structured Finance Notes 1,735 1,516

Other interest income 15 —

Accretion of interest income on subordinated notes 2,547 2,645

Total interest income 11,482 10,144

PIK interest income 306 393

Preferred equity PIK dividends 116 45

Total PIK income 422 438

Dividend income:

Common equity dividends 350 —

PIK dividends — 37

Cash dividends 1,855 33

Total dividend income 1,855 70

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Loss on extinguishment of debt (2,068) (224)

Loss on impairment of goodwill — (1,077)

Net increase in net assets resulting from operations $ 17,084 $ 13,165

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Total interest and PIK interest income 11,482 10,144

Total interest and PIK interest income decreased $0.2 million during the three months ended December 31, 2020, compared to the three months ended September 30, 2020, primarily due to a $0.3 million decrease in subordinated debt interest related to $11.8 million in payoffs.

Less Net Loan Fees accelerations (628) (118)

Recurring interest income $ 10,854 $ 10,026

During the three months ended December 31, 2021, total interest income increased $1.4 million compared to the three months ended September 30, 2021, primarily due to an increase in our weighted-average performing income yield to 11.1% from 9.9% in the prior quarter.

The increase in the weighted-average performing income yield was primarily due to the acceleration of Net Loan Fees.

During the three months ended December 31, 2021, dividend income increased $1.8 million compared to the prior quarter primarily due to a $1.0 million dividend from Pfanstiehl Holdings, Inc.

and a $0.6 million dividend from Stancor, L.P.

Fee income increased $1.6 million compared to the prior quarter primarily due to an increase in syndication fees.

Operating expenses for the three months ended December 31, 2021 and September 30, 2021 are presented below (in thousands):

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Management fees 2,009 1,950

Incentive fees 693 234

Income Incentive Fee 1,543 —

Capital Gains Fee 1,814 102

Professional fees 440 354

Administration fees 416 335

General and administrative expenses 224 364

Other expenses 400 379

Total expenses $ 10,837 $ 7,354

Total expenses increased $0.4 million during the three months ended December 31, 2020 compared to the three months ended September 30, 2020 primarily due to a $0.5 million increase in incentive fees.

Total expenses increased $3.5 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021 primarily due to an increase in the Income Incentive Fee and Capital Gains Fee.

Net realized and unrealized gain (loss) on investments.

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Preferred equity 3,556 1,006

Common equity and warrants 9,347 10,837

Common equity, warrants and other 6,870 9,094

Structured Finance Notes (658) 196

Income tax expense on net realized investment gains (1,027) —

Deferred income tax benefit 214 173

Net gain on investments $ 14,722 $ 10,154

Net gain on investments decreased $6.4 million during the three months ended December 31, 2020 compared to the three months ended September 30, 2020 primarily due to a $6.9 million decrease in net gains on our senior secured debt.

Net gain on investments for the three months ended December 31, 2021

During the three months ended December 31, 2021, net gain on investments of $14.7 million was primarily due to unrealized appreciation of $10.1 million on our common equity investment in Pfanstiehl Holdings, Inc.

During the three months ended December 31, 2021, we sold our preferred equity investment in TTG Healthcare, LLC and realized a gain of $5.8 million, of which $4.6 million was recognized during the quarter.

Net gain on investments for the three months ended September 30, 2021

Our portfolio experienced net gains of $10.2 million in the third quarter of 2021, principally due to a $8.9 million, or 3.2%, improvement in the fair values of our directly originated debt and equity investments.

The net gains on our common equity investments were primarily attributable to the $6.4 million improvement in the fair value of Pfanstiehl Holdings, Inc.

Net gains for the quarter included realized gains of $3.3 million primarily on the sale of our preferred equity in Neosystems Corp.

and our common equity in Chemical Resources Holdings, Inc.

Liquidity and Capital Resources

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During the year ended December 31, 2021, the Parent received cash distributions of $10.0 million from SBIC I LP.

During the year ended December 31, 2021, the Parent also received return of capital distributions of $31.6 million related to the prepayment of debentures.

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

During the year ended December 31, 2021, the Parent received $5.8 million in cash distributions from OFSCC-FS.

At December 31, 2020, the Parent had $21.2 million of cash and cash equivalents available for general corporate activities, including approximately $18.3 million and $0.6 million held by SBIC I LP and OFSCC-FS, respectively, that was available for distribution to the Parent.

At December 31,

2021, the Parent had $40.5 million of cash and cash equivalents available for general corporate activities, including approximately $12.4 million and $0 million held by SBIC I LP and OFSCC-FS, respectively, that was available for distribution to the Parent.

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

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

Based on fair values and equity

capital at December 31, 2020, we could access $111 million and under our credit facilities and remain in compliance with our asset coverage requirements.

Based on fair values and equity capital at December 31, 2021, we could access all unused commitments under our credit facilities and remain in compliance with our asset coverage requirements.

As of March 1, 2022, we had cash on hand of approximately $9.8 million.

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

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

Sources and Uses of Cash and Cash Equivalents.

We generate cash through operations from net investment income and the net liquidation of portfolio investments, and use cash in our operations in the net purchase of portfolio investments.

Significant variations may exist between net investment income and cash from net investment income, primarily due to the recognition of non-cash investment income, including Net Loan Fee amortization, PIK interest, and PIK dividends, which generally will not be fully realized in cash until we exit the investment, as well as variation between the constant yield recognized on our Structured Finance Notes and the cash distributions received thereon.

Significant variations may exist between net investment income and cash from net investment income, primarily due to the recognition of non-cash investment income, including Net Loan Fee amortization, PIK interest, and PIK dividends, which generally will not be fully realized in cash until we exit the investment, as well as accreted interest income on Structured Finance Notes, which may not coincide with cash distributions from these investments.

As discussed in "Item 8.

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Cash from net investment income (1)

$ 15,111 $ 11,694 $ 18,293

Net (purchases and originations) repayments of portfolio investments (1)

(27,120) 68,931 (119,929)

Net cash provided by (used in) operating activities (12,009) 80,625 (101,636)

Proceeds from issuance of the Unsecured Notes, net of discounts 175,506 24,250 52,270

Redemptions of Unsecured Notes (177,850) — —

Distributions paid to stockholders (12,071) (11,365) (17,949)

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Net increase (decrease) in cash $ 5,340 $ 24,261 $ (24,725)

(1) Net purchases and originations/repayments and sales of portfolio investments include purchase and origination of portfolio investments, proceeds from principal payments on portfolio investments, proceeds from sale or redemption of portfolio investments, changes in receivable for investments sold, payable form investments purchased as reported in our statements of cash flows, as well as the excess of proceeds from distributions received from Structured Finance Notes over accretion of interest income on Structured Finance Notes.

Cash from net investment income includes all other cash flows from operating activities reported in our statements of cash flows.

Certain amounts in the prior year have been reclassified to conform with the current year presentation.

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

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Cash from net investment income .

Cash from net investment income decreased $9.6 million for the year ended December 31, 2020 compared to the prior year.

The decrease to cash from net investment income was principally due a $16.0 million decrease in the average outstanding loan balance as well a 128 basis point decrease in the weighted average yield in our debt portfolio.

Cash from net investment income increased $3.4 million for the year ended December 31, 2021 compared to the prior year.

The increase to cash from net investment income was principally due a $1.7 million increase in the recurring interest income resulting from a 42 basis point increase in the weighted average yield in our debt portfolio.

Net (purchases and originations) repayments of portfolio investments .

During the year ended December 31, 2020, net purchases and repayments of portfolio investments increased $191.9 million compared to the prior year, primarily due to an increase of $108.1 million of principal payments, sale proceeds, and distributions from Structured Finance Notes, and a decrease of $83.8 million in purchases of portfolio companies.

During the year ended December 31, 2021, net purchases and repayments of portfolio investments decreased $96.1 million compared to the prior year, primarily due to an increase of $136.3 million in purchases of portfolio companies, offset by an increase of $44.2 million of principal payments, sale proceeds, and distributions from Structured Finance Notes.

Proceeds from issuance of the Unsecured Notes, net of expenses .

During the year ended December 31, 2020, we issued $25.0 million in Unsecured Notes, with net proceeds of $24.0 million after deducting underwriting discounts and offering costs, which was a decrease of $28.0 million in Unsecured Note issuances compared to the prior year.

During the year ended December 31, 2021, we issued $178.0 million in Unsecured Notes, with net proceeds of $175.5 million after deducting underwriting discounts, which was a increase of $151.3 million in Unsecured Note issuances compared to the prior year.

Cash distributions paid .

Cash distributions decreased $6.6 million for the year ended December 31, 2020 compared to the prior year, due to the decrease in distributions declared of $0.50 per share from the prior year.

Cash distributions increased $0.7 million for the year ended December 31, 2021 compared to the prior year, due to the increase in distributions declared of $0.05 per share from the prior year.

Net borrowings (repayments) under revolving line of credits .

During the year ended December 31, 2020, net borrowings under revolving lines of credit decreased $68.9 million compared to the prior year, primarily due to the sale of debt investments response to the uncertainty surrounding the COVID-19 pandemic.

During the year ended December 31, 2021, net borrowings under revolving lines of credit increased $92.4 million compared to the prior year, primarily due to the increase in the BNP Facility’s outstanding balance from $31.5 million at December 31, 2020 to $100.0 million at December 31, 2021.

Payment of debt issuance costs and other financing costs .

Payment of debt issuance costs decreased $1.6 million for the year ended December 31, 2020 compared to the prior year, primarily due to $1.3 million of costs associated with the closing of the BNP Facility in 2019.

Payment of debt issuance costs increased $0.6 million for the year ended December 31, 2021 compared to the prior year, primarily due to the issuance of $178.0 million of Unsecured Notes.

Comparison of the years ended December 31, 2020 and 2019.

At December 31, 2019, we held cash and cash equivalents of $13.4 million, a decrease of $24.7 million from December 31, 2018.

At December 31, 2020, we held cash and cash equivalents of $37.7 million, an increase of $24.3 million from December 31, 2019.

Cash from net investment income .

Cash from net investment income decreased $9.6 million for the year ended December 31, 2020 compared to the prior year.

The decrease to cash from net investment income was principally due the decrease in net interest margin.

Net (purchases and originations) repayments of portfolio investments .

During the year ended December 31, 2019, net purchases and repayments of portfolio investments increased approximately $2.8 million compared to the prior year, primarily due to a decrease of $49.2 million of principal payments, sale proceeds and distributions received from Structured Finance Notes, offset by a increase $51.9 million in purchases of portfolio companies.

Proceeds from issuance of the Unsecured Notes, net of expenses .

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Cash distributions paid .

Cash distributions decreased $4.9 million for the year ended December 31, 2019 compared to the prior year, due to the $4.9 million special dividend paid in the first quarter of 2018 for an undistributed net long-term capital gains realized by the Company in 2017.

Cash distributions decreased $6.6 million for the year ended December 31, 2020 compared to the prior year, due to the decrease in distributions declared of $0.51 per share from the prior year.

Net borrowings (repayments) under revolving line of credits .

During the year ended December 31, 2019, net borrowings under revolving lines of credit increased $50.1 million compared to the prior year, primarily due to the establishment of the BNP Facility to purchase additional first lien senior secured loans.

As of December 31, 2019, aggregate borrowings under the BNP Facility were $56.5 million.

During the year ended December 31, 2020, net borrowings under revolving lines of credit decreased $68.9 million compared to the prior year, primarily due to the sale of debt investments in response to the uncertainty surrounding the COVID-19 pandemic.

Payment of debt issuance costs and other financing costs .

Payment of debt issuance costs increased $1.2 million for the year ended December 31, 2019 compared to the prior year, primarily due to $1.3 million of costs associated with the closing of the BNP Facility.

SBA Debentures .

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These debentures are non-recourse to us, and bear interest payable semi-annually.

The following table shows our outstanding SBA debentures payable as of December 31, 2020 and 2019 (in thousands):

The following table shows our

outstanding SBA debentures payable as of December 31, 2021 and 2020 (in thousands):

SBA debentures outstanding

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September 23, 2015 September 1, 2025 3.184 4,000 22,585

September 24, 2014 September 1, 2024 3.370 2,765 31,265

March 25, 2015 March 1, 2025 2.872 65,920 65,920

September 23, 2015 September 1, 2025 3.184 22,585 22,585

SBA debentures outstanding 69,920 105,270

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As part of our plans to focus on lower-yielding, first lien senior secured loans to larger borrowers, which we believe will improve our overall risk profile, SBIC I LP is repaying over time its outstanding SBA debentures prior to their scheduled maturity dates.

We do not expect to make new investments through SBIC I LP, other than follow-on investments.

As such, we are not making new investments through SBIC I LP, other than follow-on investments .

During the year ended December 31, 2021, we made $4.6 million of follow-on investments in two portfolio companies .

We believe that investing in more senior loans to larger borrowers is consistent with our view of the private loan market and will reduce our overall leverage on a consolidated basis.

During the year ended December 31, 2020, SBIC I LP prepaid $44,610 of SBA debentures that were contractually due September 1, 2023, March 1, 2024 and September 1, 2024.

We recognized losses on extinguishment of debt of $678 related to the charge-off of deferred borrowing costs on the prepaid debentures.

During the year ended December 31, 2021, SBIC I LP prepaid $35.4 million of SBA debentures that were contractually due September 1, 2023, March 1, 2024 and September 1, 2024.

We recognized losses on extinguishment of debt of $0.3 million related to the charge-off of deferred borrowing costs on the prepaid debentures.

The weighted-average fixed cash interest rate on the SBA debentures as of December 31, 2021 and 2020, was 2.89% and 2.98%, respectively.

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

At December 31, 2020, the BLA contained customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, a minimum tangible net asset value, a minimum quarterly net investment income after incentive fees, and a maximum debt/worth ratio.

At December 31, 2021, 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 debt/worth ratio.

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.

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PWB Credit Facility $25,000 4.00% Prime + 0.25% 0.50% February 28, 2023

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

On February 17, 2021, we executed an amendment (the “Secured Revolver Amendment”) to the BLA with Pacific Western Bank.

The Secured Revolver Amendment, among other things:

(i) increases the maximum amount available under the PWB Credit Facility from $20.0 million to $25.0 million;

(ii) decreases the interest rate floor from 5.25% per annum to 5.00% per annum;

(iii) modify certain financial performance covenants;

and (iv) extends the maturity date from February 28, 2021 to February 28, 2023.

As of December 31, 2021, availability under the PWB Credit Facility was $25.0 million, based on the stated advance rate of 50% under the borrowing base, and a $0 outstanding balance.

On February 17, 2021, we executed an amendment to the BLA with Pacific Western Bank.

The amendment, among other things:

(i) increased the maximum amount available under the PWB Credit Facility from $20.0 million to $25.0 million;

(ii) decreased the interest rate floor from 5.25% per annum to 5.00% per annum;

(iii) modified certain financial performance covenants;

and (iv) extended the maturity date from February 28, 2021 to February 28, 2023.

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

BNP Facility .

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Unsecured Notes .

In April 2018, we publicly offered the Unsecured Notes Due April 2025 with aggregate principal of $50.0 million.

The total net proceeds to us from the Unsecured Notes Due April 2025, after deducting underwriting discounts and offering costs of $1.8 million were $48.2 million.

In October and November 2018, we publicly offered the Unsecured Notes Due October 2025 with aggregate principal of $48.5 million.

The total net proceeds to us from the Unsecured Notes Due October 2025, after deducting underwriting discounts and offering expenses of $1.7 million, were $46.8 million.

In October and November 2019, we publicly offered the Unsecured Notes Due October 2026 with an aggregate principal of $54.3 million.

The total net proceeds to us from the Unsecured Notes Due October 2026, after deducting underwriting discounts and offering costs of $2.0 million were $52.3 million.

In September 2020, we publicly offered the Unsecured Notes Due September 2023 with an aggregate principal of $25.0 million.

The total net proceeds to us from the Unsecured Notes Due September 2023, after deducting underwriting discounts and offering costs of $1.0 million, were $24.0 million.

The Unsecured Notes totaled $177.9 million in aggregate principal debt, with net proceeds of $171.4 million to us.

The Unsecured Notes totaled $180.0 million and $177.9 million in aggregate principal debt at December 31, 2021 and 2020, respectively.

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

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As of December 31, 2021, the Unsecured Notes had the following terms and balances (amounts in thousands):

Unsecured Notes (6)

Principal Stated Interest Rate (1)

Unsecured Notes Principal Stated Interest Rate (1)

Effective Interest Rate (2) (%)

2020 Interest Expense (4)

Unsecured Notes Due September 2023 25,000 6.25 % 7.56 % 9/30/2023 $ 550

Unsecured Notes Due April 2025 (5)

50,000 6.375 % 6.88 % 4/30/2025 3,444

Unsecured Notes Due October 2025 (5)

48,525 6.50 % 7.01 % 10/31/2025 3,410

Unsecured Notes Due February 2026 $ 125,000 4.75 % 5.38 % 2/10/2026

Unsecured Notes Due October 2028 55,000 4.95 % 5.29 % 10/31/2028

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

(3) The Unsecured Notes Due April 2025 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after April 30, 2020.

The Unsecured Notes Due October 2025 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 31, 2020.

The Unsecured Notes Due October 2026 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after October 31, 2021.

The Unsecured Notes Due September 2023 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after September 30, 2021.

(4) Interest expense includes deferred issuance costs amortization of $0.9 million for the year ended December 31, 2020.

(5) On February 10, 2021, we issued a redemption notice.

See Recent Developments for additional information.

(6) On February 10, 2021, we issued the Unsecured Notes Due February 2026.

See Recent Developments for additional information.

(3) We may redeem the Unsecured Notes Due February 2026 in whole or in part at any time, or from time to time, at our option at par plus a "make-whole" premium, if applicable.

We may redeem the Unsecured Notes Due October 2028 in whole or in part at any time, or from time to time, at our option on or after October 31, 2023.

The average dollar borrowings and average interest rate for all debt the years ended December 31, 2021, 2020 and 2019, were as follows:

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See “ Item 1A.

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

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

This requirement limits the amount that we may borrow.

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Contractual Obligations and Off-Balance Sheet Arrangements

The following table shows our contractual obligations as of December 31, 2020 (in thousands):

Principal and Interest Payments due by period (2)

Contractual Obligations (1)

Total Less than 1

year 1-3 years 3-5 years After

PWB Credit Facility (3)

$ 605 $ 605 $ — $ — $ —

BNP Facility 37,537 1,739 3,478 32,320 —

SBA Debentures (4)

120,476 3,132 19,065 98,279

Unsecured Notes 230,059 11,136 46,882 115,022 57,019

Total $ 388,677 $ 16,612 $ 69,425 $ 245,621 $ 57,019

(1) Excludes commitments to extend credit to our portfolio companies.

(2) The PWB Credit Facility is scheduled to mature on February 28, 2021.

On February 17, 2021, the maturity date of the PWB Credit Facility was extended from February 28, 2021 to February 28, 2023.

The BNP Facility is scheduled to mature on June 20, 2024.

The SBA debentures are scheduled to mature between September 2022 and 2025.

The Unsecured Notes are scheduled to mature between September 2023 and October 2026.

(3) Contractual interest is based on LIBOR at December 31, 2020 and assumes no interim additional borrowings or repayments under the credit facilities between December 31, 2020 and maturity.

(4) SBIC I LP is repaying over time its outstanding SBA debentures prior to the scheduled maturity date of its debentures.

SBIC I LP does not expect to make new investments, other than follow-on investments.

At December 31, 2021, we had $43.0 million of cash and cash equivalents, as well as $25.0 million and $50.0 million of unfunded commitments under our PWB Credit Facility and BNP Facility, respectively, to meet our short-term contractual obligations.

Long-term contractual obligations, such as our BNP Facility that matures in 2024 and has $100.0 million outstanding at December 31, 2021, can be repaid by selling OFSCC-FS portfolio investments that have a fair value of $170.1 million at December 31, 2021.

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

At December 31, 2021, we have $69.9 million of outstanding SBA debentures that mature in 2025, which we may repay prior to their maturity dates by using proceeds from investment repayments.

The SBIC I LP investment portfolio has a fair value of $183.5 million at December 31, 2021.

We have entered into contracts with affiliates under which we will incur material future commitments—the Investment Advisory Agreement, pursuant to which OFS Advisor has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which OFS Services has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations.

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These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet.

We had $5.8 million of total unfunded commitments to four portfolio companies at December 31, 2020.

See Note 6 for details.

We had $43.7 million of total unfunded commitments to fourteen portfolio companies at December 31, 2021.

Distributions

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Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized.

In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains

using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow, received as consideration from the sale of investments are collected in cash.

In addition, gains realized for financial reporting purposes may differ from gains included in taxable income as a result of our election to recognize gains using installment sale treatment, which generally results in the deferment of gains for tax purposes until notes or other amounts, including amounts held in escrow, received as consideration from the sale of investments are collected in cash.

Taxable income includes non-cash income, such as changes in accrued and reinvested interest and dividends, which includes contractual PIK interest, and the amortization of discounts and fees.

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Recent Developments

Prepayment of SBA Debentures.

On January 5, 2021, SBIC I LP prepaid $9.8 million of SBA debentures that were contractually due September 1, 2022 and September 1, 2024.

Appointment of New Director.

On January 8, 2021, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, voted to appoint Romita Shetty as a Class II director of the Board, chair of the Nominating and Corporate Governance Committee, a member of the Audit Committee and a member of the Compensation Committee, to fill the vacancy created by the untimely death of Robert J.

Cresci on December 22, 2020.

Shetty was appointed to serve as a member of the Board until the 2023 annual meeting of stockholders, or until her successor is duly elected and qualified.

The Board and the Nominating and Corporate Governance Committee determined that Ms.

Shetty is not an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Company.

Issuance of Unsecured Notes Due February 2026 and Redemption of Notes due 2025.

On February 10, 2021, we issued the Unsecured Notes Due February 2026.

The Unsecured Notes Due February 2026 will mature on February 10, 2026, and 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.

The Unsecured Notes Due February 2026 bear interest at a rate of 4.75% per year payable semi-annually in arrears on February 10 and August 10 of each year, commencing on August 10, 2021.

The net proceeds we received from the sale of the Unsecured Notes Due February 2026 was approximately $96.6 million based on a public offering price of of 98.906% of the aggregate principal amount of the Unsecured Notes Due February 2026, after deducting the underwriting discount and commissions payable by us and estimated offering expenses payable by us.

In connection with, and using the proceeds from the issuance of the Unsecured Notes Due February 2026, on February 10, 2021, we caused notices to be issued to the holders of the Unsecured Notes Due April 2025 and the holders of the Unsecured Notes Due October 2025 regarding our exercise of our option to redeem all of the issued and outstanding Unsecured Notes Due April 2025 and Unsecured Notes Due October 2025.

We will redeem all $50.0 million in aggregate principal amount of the Unsecured Notes Due April 2025 and all $48.5 million in aggregate principal amount of the Unsecured Notes Due October 2025 on March 12, 2021 (the "Redemption Date").

The Unsecured Notes Due April 2025 and the Unsecured Notes Due October 2025 will be redeemed at 100% of their principal amount ($25 per Note), plus the accrued and unpaid interest thereon from January 31, 2021, through, but excluding, the Redemption Date.

Amendment to PWB Credit Facility.

On February 17, 2021 we executed the Secured Revolver Amendment to the BLA with Pacific Western Bank.

The Secured Revolver Amendment, among other things:

(i) increases the maximum amount available under the PWB Credit Facility from $20.0 million to $25.0 million;

(ii) decreases the interest rate floor from 5.25% per annum to 5.00% per annum;

(iii) revises the covenant restricting net losses, such that on each quarterly testing period, commencing on December 31, 2020, we shall not have incurred quarterly net losses (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 excess of $1,000,000, in three of the trailing four quarters;

and (iv) extends the maturity date from February 28, 2021 to February 28, 2023.

On January 5, 2022, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, voted to appoint Ashwin Ranganathan as a Class III director of the Board, chair of the Compensation Committee, a member of the Audit Committee and a member of the Nominating and Corporate Governance Committee, to fill the vacancy created by the retirement of Marc I.

Abrams on January 4, 2022.

Ranganathan was appointed to serve as a member of the Board until the 2024 annual meeting of stockholders, or until his successor is duly elected and qualified.

The Board and the Nominating and Corporate Governance Committee determined that Mr.

Ranganathan is not an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Company.

Declaration of a Distribution.

On March 1, 2022, our Board declared a distribution of $0.28 per share for the first quarter of 2022, payable on March 31, 2022 to stockholders of record as of March 24, 2022.

Prepayment of SBA Debentures .

On February 28, 2022, SBIC I LP prepaid $19.0 million of SBA debentures that were contractually due March 1, 2025 and September 1, 2025.

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