OFS Credit Company Inc.

12/11/2024 | Press release | Distributed by Public on 12/11/2024 11:07

Annual Report by Investment Company (Form N-CSR)

ck0001716951-20241031
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-23299
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OFS Credit Company, Inc.
(Exact name of registrant as specified in charter)
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10 South Wacker Drive, Suite 2500
Chicago, IL 60606
(Address of principal executive offices)
Bilal Rashid
Chief Executive Officer
OFS Credit Company, Inc.
10 South Wacker Drive, Suite 2500
Chicago, IL 60606
(Name and address of agent for service)
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Registrant's telephone number, including area code: (847) 734-2085
Date of fiscal year end: October 31
Date of reporting period: October 31, 2024
Item 1. Report to Stockholders
The Company's Annual Report to stockholders for the year ended October 31, 2024 is filed herewith.
OFS CREDIT COMPANY, INC.
TABLE OF CONTENTS - ANNUAL REPORT
Letter to Stockholders
1
Important Information
5
Performance Data (Unaudited)
8
Summary of Certain Portfolio Characteristics (Unaudited)
13
Statement of Assets and Liabilities as of October 31, 2024
15
Statement of Operations for the Year Ended October 31, 2024
16
Statements of Changes in Net Assets for the Years Ended October 31, 2024 and October 31, 2023
17
Statement of Cash Flows for the Year Ended October 31, 2024
18
Schedule of Investments as of October 31, 2024
19
Notes to Financial Statements
29
Report of Independent Registered Accounting Firm
51
Summary Risk Factors
52
Dividend Reinvestment Plan
56
Board Approval of the Investment Advisory Agreement
57
Additional Information
58
December 11, 2024
To Our Stockholders:
Company Overview
OFS Credit Company, Inc. ("OFS Credit", the "Company", "we" or "our") is a non-diversified, externally managed closed-end management investment company. Our primary investment objective is to generate current income, with a secondary objective to generate capital appreciation, which we seek to achieve primarily through investments in collateralized loan obligation ("CLO") equity and debt securities.
Fiscal Year 2024 Highlights
We are pleased to announce our results for the fiscal year 2024. For the year ended October 31, 2024, we paid total distributions of $1.26 per common share, resulting in a total return of 14.57% based on net asset value ("NAV")1. As of October 31, 2024, our NAV per common share was $7.18, compared to $7.55 as of October 31, 2023.
During the year ended October 31, 2024, we raised net proceeds of $32.4 million for additional investments through the sale of 4,458,057 shares of common stock pursuant to our at-the-market offering. We believe that the additional capital raised helped us take advantage of available investment opportunities in the CLO market, and to grow our investment portfolio from $168.1 million at October 31, 2023 to $214.9 million at October 31, 2024, at fair value.
In fiscal year 2024, we deployed approximately $124.2 million primarily into CLO equity and loan accumulation facility investments, while rotating out of CLO debt investments and certain CLO equity investments that were past their reinvestment period. This portfolio rotation increased our total investment portfolio's weighted-average remaining reinvestment period2 from 2.3 years at October 31, 2023 to 3.1 years at October 31, 2024. During the year ended October 31, 2024, we continued to receive cash flows from our CLO equity investments in excess of our total operating expenses and common stock distributions. See "Portfolio Overview" below for additional details on our investment portfolio.
In November 2023, we redeemed all of our issued and outstanding Series B Term Preferred Stock for approximately $3.0 million. In October 2024, we issued 1,196,000 shares of our 7.875% Series F Term Preferred Stock (Nasdaq: OCCIM) for gross proceeds of $29.9 million. The shares of Series F Term Preferred Stock are mandatorily redeemable on October 31, 2029, extending the weighted-average maturity of our outstanding preferred stock to 2.9 years as of October 31, 2024. As of October 31, 2024, we had $90.9 million of outstanding term preferred stock with a weighted-average effective interest rate of 7.08%.
For the year ended October 31, 2024, our investment portfolio produced an interest income yield3of 14.27%, with a net interest spread4of 7.85%. As of October 31, 2024, our debt-to-equity ratio5was 0.61x, which remains within our target leverage ratio of 0.50x-to-0.67x and we believe that it affords us operational flexibility to create stockholder value in the current CLO market.
Common Stock Distributions and Dividend Reinvestment Plan ("DRIP")
First Quarter 2025 Common Stock Distributions
On October 28, 2024, we declared monthly cash distributions of $0.115 per common share for each of the three months in the quarter ending January 31, 2025, which implied an annualized cash distribution rate of 19.5% based on the closing market price of $7.07 per common share on October 31, 2024.
The following schedule applies to the distributions for common stockholders of record on the close of business of each specific record date:
Month Record Date Payment Date Cash Distribution Per Share
November 2024 November 19, 2024 November 29, 2024 $0.115
December 2024 December 20, 2024 December 31, 2024 $0.115
January 2025 January 21, 2025 January 31, 2025 $0.115
Dividend Reinvestment Plan - Shares Issued at 95% of Market Price
Our DRIP offers our common stockholders the opportunity to receive a 5% discount to the market price per share of common stock at the close of regular trading on The Nasdaq Capital Market on the valuation date fixed by the Board for each distribution (i.e., the payment date).
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Portfolio Overview
As of October 31, 2024, our investment portfolio, at fair value, was comprised of total investments of $214.9 million, with a weighted-average effective yield, based on current amortized cost, of 14.30% (excluding discount accretion on CLO debt investments) consisting of:
•CLO equity investments totaling $186.7 million;
•CLO debt investments totaling $21.1 million;
•Loan accumulation facilities totaling $5.5 million; and
•Other CLO equity-related investments (fee rebates) totaling $1.6 million.
During the year ended October 31, 2024, we purchased $100.1 million of CLO equity investments, which had a weighted-average effective yield of 18.54% at October 31, 2024, based on the original purchase cost and the yield as of period end. We believe the capital that we deployed into CLO equity investments during the year will generate strong recurring cash flows, particularly during the weighted-average remaining reinvestment period of those investments of 4.2 years. During the year ended October 31, 2024, our total CLO equity and other CLO equity-related investments generated recurring cash flows of $41.1 million, and our CLO equity cash flow yield6, based on amortized cost, was 22.16%.
During the year ended October 31, 2024, we began rotating out of our CLO debt investments reducing our exposure, at fair value, from $42.0 million at October 31, 2023 to $21.1 million at October 31, 2024. We believe that, due to the recent interest rate reductions by the U.S. Federal Reserve, and potential future reductions, it was prudent to realize capital gains on certain CLO debt investments and deploy the proceeds into higher yielding CLO equity and loan accumulation facility investments. We also participated in a handful of reset and refinance transactions in our portfolio, which we believe will extend these securities cash flow streams and improve their fair values.
Loan and CLO Market Overview
Loan Market
The fiscal year ended October 31, 2024, was characterized by a lack of significant merger and acquisition activity, inflation, high interest rates, the U.S. election cycle and geopolitical risk, offset by the technical strength from: (i) inflows into structured credit (in particular AAA/CLO equity funds); (ii) return of capital from out-of-reinvestment CLOs; (iii) retail inflows; and (iv) floating rate assets as a reasonable allocation in portfolios. We observed significant market repricing activity in the underlying CLO portfolios during the fiscal year as borrowers took advantage of the technical strength to reprice their loans with those with lower rates. The Morningstar LSTA U.S. Leveraged Loan Index average bid price was $94.76 at October 31, 2023 and increased to $96.90 as of October 31, 2024. The increase in loan price levels was primarily due to: (i) greater demand from increased CLO creation stemming from repayments on senior tranches of CLOs that were out of their reinvestment period; (ii) a limited supply of loans in the market due to a lack of merger and acquisition activity, as well as refinancings of shorter-dated maturities in the market; and (iii) increased demand from retail and ETF inflows.
As issuers reported third quarter 2024 earnings, we continued to see acceptable credit profiles, and with the Federal Reserve starting to decrease interest rates, we expect interest coverage ratios to improve. However, we continued to notice an increasing number of liability management exercises performed on stressed/distressed deals during this period.
We also evaluated inflows/outflows from the two largest segments of the broadly syndicated loan ("BSL") market-CLOs and fund flows. For the year ended October 31, 2024, CLO inflows totaled $181.0 billion, while fund inflows were a modest $5.6 billion, resulting in gross inflows of $186.6 billion. This compares to net fund inflows of $82.7 billion in the same period last year. We believe that the additional $103.9 billion of inflows during our 2024 fiscal year demonstrates the strong demand we saw in the loan market due to attractive risk-adjusted yields.
Defaults as reported by Morningstar LSTA U.S. Leveraged Loan Index, excluding distressed exchanges, were generally range bound, starting at 1.43% on October 31, 2023 and ending at 0.73% on October 31, 2024, with a high-tick of 1.53% in December 2023 and low-tick of 0.73% in October 2024.
CLO Market
After a good year for CLO issuances in 2023 with $116 billion issued, the CLO market started 2024 strong with the market issuing approximately $43 billion in BSL and middle-market CLOs in the first calendar quarter of the year. This was the highest first quarter volume level since before the global financial crisis period of 2007 to 2009. The substantial CLO issuance in the first quarter prompted three bank research firms (Barclays, BofA Securities and JPMorgan) to raise their full year 2024 forecasts from $100-120 billion to $130-145 billion. AAA spread levels compressed during the first quarter of 2024 to approximately 150 basis points over SOFR, while BB spread levels compressed by 100 basis points to an average level of approximately 670 basis points over SOFR. This compression prompted an increase of new primary CLO issuance, refinancing and reset transactions. The flurry of new issuance, refinancing and reset activity created additional demand for loan collateral and, as a result, we saw significant loan repricing activity that continued throughout 2024.
During the second quarter of 2024, solid issuance trends for BSL and middle-market CLOs continued, as well as spread compression across the CLO capital structure. The second quarter saw the highest quarterly volume of issuances in CLO market
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history at $53 billion, which prompted S&P Global Ratings to increase their projection for full year issuances from $130 billion to $150 billion.
During the third quarter of 2024, the CLO market lost some issuance momentum, with new issuances falling to $38 billion as more managers were focused on reset and refinancing transactions. Year-to-date CLO new issuance volume was $142 billion at the end of third quarter. Spread levels on AAA CLO debt at quarter end were marginally tighter (-2 basis points) compared to the prior quarter end. Spread levels retraced to the tightest of the quarter after experiencing some volatility in early August where spreads had widened 2-3 basis points from the start of the quarter.
During the fourth quarter of 2024, we continued to see CLO issuances but expect a drop in volume as we head into the end of the year. We believe the compression on spread levels this year and the entrance of new investors (debt and equity) in the market has created opportunities to sell CLO debt at premiums and redeploy capital into new issue/secondary CLO equity. While arbitrage on CLO equity has weakened with limited new loan issuance and existing performing loans continuing to reprice and lower their debt costs, we expect new loan issuance to pick up in 2025. We intend to continue to invest in CLO equity and loan accumulation facilities, and to a lesser extent, CLO debt at attractive risk-adjusted levels relative to historical averages.
About Our Adviser
OFS Capital Management, LLC is our investment adviser and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended7, and, as of September 30, 2024, had approximately $3.9 billion of committed assets under management. We believe our adviser is uniquely positioned to manage the Company given its expertise in both investing in structured credit (CLO equity and debt tranches) and managing CLOs, which entails underwriting corporate loans in the broadly syndicated loan market. We believe that our commitment to the strong, long-term performance of OFS Credit is aligned with the interests of our investment adviser who, together with other insiders, owns approximately 4.1% of the Company's common stock.
We look forward to continuing this dialogue with you over the coming weeks and months and appreciate your continued support.
Chairman and Chief Executive Officer
This letter is intended to assist stockholders in understanding our performance during the year ended October 31, 2024. The views and opinions in this letter were current as of October 31, 2024. Statements other than those of historical facts included herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties, including management's belief: that the Company's debt-to-equity ratio affords the Company operational flexibility to create stockholder value in the current CLO market, when there can be no assurance that is the case; that the capital the Company deployed into CLO equity investments during the year will generate strong recurring cash flows, particularly during the weighted-average remaining reinvestment period, which cannot be guaranteed; that, due to the recent interest rate reductions by the U.S. Federal Reserve, and potential future reductions, it was prudent for the Company to realize capital gains on certain CLO debt investments and deploy the proceeds into higher yielding CLO equity and loan accumulation facility investments; that the participation by the Company in reset and refinance transactions in its portfolio will extend the cash flow streams and improve the fair values of these securities, when there can be no assurance these outcomes will materialize; that interest coverage ratios will improve; that the compression on spread levels during 2024 and the entrance of new investors (debt and equity) in the market has created opportunities to sell CLO debt at premiums and redeploy capital into new issue/secondary CLO equity; that new loan issuance will increase in 2025, when that may not occur; that the Company will continue to invest in CLO equity and loan accumulation facilities, and to a lesser extent, CLO debt at attractive risk-adjusted levels relative to historical averages; regarding the expertise of the Company's adviser; and that the Company's commitment to strong, long-term performance is aligned with the Company's adviser who, together with affiliated parties, own over 4% of the Company's common stock. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. We undertake no duty to update any forward-looking statement made herein.
1 Total return based on NAV is calculated assuming shares of common stock were purchased at the NAV at the beginning of the year, distributions were reinvested at a price obtained in the Company's DRIP, and shares were sold at the ending NAV on the last day of the year.
2 Weighted based on fair value of total investments as of October 31, 2024. The reinvestment period for loan accumulation facilities is estimated assuming the conversion to a CLO.
3 Interest income yield is calculated as total investment income earned on the investment portfolio (excluding idle cash interest income) divided by the average total investments at cost.
3
4 Net interest spread is calculated as the interest income yield less the weighted-average effective interest rate during the period on preferred stock. The weighted-average effective interest rate on preferred stock is calculated as total interest expense for the period divided by the average outstanding principal balance of preferred stock for the period.
5 Debt-to-equity ratio is calculated as the total principal of outstanding preferred stock divided by total net assets.
6 CLO equity cash flow yield is calculated as recurring CLO equity and equity-related cash distributions received during the period, excluding return of capital distributions received on CLO equity investments which have been optionally redeemed, divided by the average CLO equity and equity-related investments at cost.
7 Registration does not imply a certain level of skill or training.
[Not Part of the Annual Report]
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Important Information
This report is transmitted to the stockholders of OFS Credit Company, Inc. ("we," "us," "our," or the "Company") and is furnished pursuant to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or a recommendation or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational purposes only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company may have a registration statement relating to one or more of its securities on file with the U.S. Securities and Exchange Commission ("SEC").
An investment in the Company is not appropriate for all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques not employed by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of closed-end investment companies, such as the Company, frequently trade at a discount from their net asset value ("NAV"), which may increase investors' risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance and certain other portfolio information quoted herein represents information as of October 31, 2024. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. Investment return and principal value of an investment will fluctuate, and shares, when sold, may be worth more or less than their original cost. The Company's performance is subject to change since the end of the period noted in this report and may be lower or higher than the performance data shown herein.
About OFS Credit Company, Inc.
Investment Objectives and Strategies
We are a non-diversified, externally managed closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). Our primary investment objective is to generate current income, with a secondary objective to generate capital appreciation. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended.
Under normal market conditions, we will invest at least 80% of our assets, or net assets plus borrowings, in floating rate credit-based instruments and other structured credit investments, including: (i) CLO debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments, which include securities issued by other securitization vehicles, such as credit-linked notes and collateralized bond obligations, or "CBOs", and synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial institutions ("80% Policy"). The 80% Policy is not a fundamental policy of the Company and may be changed by our Board on 60 days' notice to our stockholders. We define "credit" to consist primarily of the debt investments and instruments described in our 80% Policy.
The CLOs in which we invest or intend to invest are collateralized by portfolios consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. As part of the 80% Policy, we may also invest in other securities and instruments that are related to these investments or that OFS Capital Management, LLC ("OFS Advisor") believes are consistent with our investment objectives, including senior debt tranches of CLOs and loan accumulation facilities. Loan accumulation facilities are short-to-medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. Investments in loan accumulation facilities have risks similar to those applicable to investments in CLOs. Loan accumulation facilities typically incur leverage between three- and six-times equity prior to a CLO's pricing. The amount that we invest in these other securities and instruments may vary from time to time and, as such, may constitute a material part of our portfolio on any given date, all as based on OFS Advisor's assessment of prevailing market conditions. The CLO securities in which we will primarily seek to invest are unrated or rated below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and below investment grade securities are also sometimes referred to as "junk" securities. In addition, the CLO equity and subordinated debt securities in which we will, or intend to, invest are highly leveraged (with CLO equity securities typically being leveraged 9 to 13 times), which magnifies our risk of loss on such investments.
These investment objectives are not fundamental policies of ours and may be changed by our Board on 60 days' notice to our stockholders.
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Investment Restrictions
Our investment objectives and our investment policies and strategies, except for the seven investment restrictions designated as fundamental policies under this caption, are not fundamental and may be changed by the Board without stockholder approval.
The following seven investment restrictions are designated as fundamental policies and as such cannot be changed without the approval of the holders of a majority of our outstanding voting securities:
1.We may not borrow money, except as permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
2.We may not engage in the business of underwriting securities issued by others, except to the extent that we may be deemed to be an underwriter in connection with the disposition of portfolio securities;
3.We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments;
4.We may not purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold and to sell real estate acquired as a result of our ownership of securities;
5.We may not make loans, except to the extent permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
6.We may not issue senior securities, except to the extent permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction; and
7.We may not invest in any security if, as a result of such investment, 25% or more of the value of our total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry except: (a) securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt securities of state and municipal governments or their political subdivisions (however, not including private purpose industrial development bonds issued on behalf of non-government issuers); or (b) as otherwise provided by the 1940 Act, as amended from time to time, and as modified or supplemented from time to time by: (i) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time; and (ii) any exemption or other relief applicable to us from the provisions of the 1940 Act, as amended from time to time. For purposes of this restriction, in the case of investments in loan participations between us and a bank or other lending institution participating out the loan, we will treat both the lending bank or other lending institution and the borrower as "issuers." For purposes of this restriction, an investment in a CLO, collateralized bond obligation, collateralized debt obligation or a swap or other derivative, will be considered to be an investment in the industry (if any) of the underlying or reference security, instrument or asset.
Principal Risks
For a description of the principal risks associated with an investment in us, please refer to Note 10 to the Financial Statements, "Principal Risks".
Forward-Looking Statements
This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
•our future operating results;
•the impact of interest and inflation rates on our business prospects and the prospects of a CLO vehicle's portfolio companies;
•our operating policy, investment strategy and their impact on the CLO vehicles in which we invest;
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•the dependence of our future success on financial institutions and the general economy and their impact on the industries in which we invest;
•the expertise of OFS Advisor;
•the ability of a CLO vehicle's portfolio companies to achieve their objectives;
•our expected financings and investments;
•the impact of current political, economic and industry conditions, including interest rate and inflation rate changes, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S. and international banking systems, the agenda of the new U.S. Presidential administration, including the potential impact of tariff enactment and tax reductions, the risk of recession or a shutdown of U.S. government services, and other conditions affecting the financial and capital markets on our business, financial condition, results of operations and the fair value of our portfolio investments;
•general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;
•the belief that the Company's cash and cash equivalent balances are not exposed to any significant credit risk because the Company makes cash and cash equivalent deposits only with high credit quality institutions;
•the ultimate realization of estimated effective yield and investment cost;
•the redemption of the outstanding shares of 6.125% Series C Term Preferred Stock, 6.00% Series D Term Preferred Stock, 5.25% Series E Term Preferred Stock or 7.875% Series F Term Preferred Stock or the repurchase by the Company of any shares of its Series C Term Preferred Stock or Series E Preferred Stock under its repurchase program;
•the potential significant difference in fair value of the investments from the values that would have been used had a ready market or observable inputs existed for such investments, or from the values that may ultimately be received or settled;
•the expectation that interest income accrued on investments in CLO debt and Loan Accumulation Facilities will be collected in cash;
•the realization of significantly less than the value at which a portfolio investment had previously been recorded if the Company were required to liquidate such investment in a forced or liquidation sale;
•the belief that the carrying amounts of our financial instruments, such as cash, cash equivalents, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk;
•the belief that certain rating agencies provide broader rating coverage across underlying loan portfolios;
•the success of our current or future borrowings, or equity offerings to fund the growth of our investment portfolio;
•the holding period of our investments;
•the impact of alternative reference rates on our business, including a reduction in the value of certain of our investments;
•the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, cybersecurity attacks and the increasing use of artificial intelligence and machine learning technology;
•the effect of new or modified laws or regulations governing our operations; and
•the timing of cash flows, if any, from our investments.
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. Important assumptions include our ability to make new investments, certain margins and levels of profitability and the availability of additional capital on favorable terms. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Summary Risk Factors" in this report. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including Annual and Semi-Annual Reports on Form N-CSR and monthly portfolio investments reports filed on Form N-PORT for the third month of each of our fiscal quarters.
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PERFORMANCE DATA
STOCK PERFORMANCE GRAPH (Unaudited)
This graph compares the return on our common stock from October 5, 2018 (the date our common stock commenced trading on The Nasdaq Capital Market) to October 31, 2024 with that of the Russell 2000 Index and the S&P BDC Index. The graph assumes that, on October 5, 2018, a person invested $10,000 in our common stock, the Russell 2000 Index and the S&P BDC Index. The graph measures total stockholder return, which takes into account changes in stock price and assumes reinvestment of all dividends and distributions prior to any tax effect.
Annualized Total Returns
1 year 3 Year 5 Year Since Inception Cumulative Since Inception
OFS Credit Company 37.82% (1.50)% 1.46% 1.50% 9.44%
S&P BDC Index 23.02% 8.72% 10.82% 10.34% 81.84%
Russell 2000 34.07% (0.05)% 8.50% 6.45% 46.16%
Graph and Table Source:S&P Capital IQ
The graph and other information under the heading "Stock Performance Graph" is "furnished" and shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and shall not be deemed incorporated by reference in any filing under the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance. The table does not reflect the deduction of taxes that a stockholder would pay on fund distributions or the sale of fund shares.
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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS (Unaudited)
Our common stock is traded on The Nasdaq Capital Market under the symbol "OCCI." The following table sets forth, for each fiscal quarter during the last two fiscal years, the NAV per share of our common stock, the intraday high and low sales prices for our common stock, such sales prices as a percentage of NAV per share, and quarterly distributions per common share. Since our initial public offering, shares of our common stock have traded at a discount and at a premium to the net assets attributable to those shares. As of December 4, 2024, our shares of common stock traded at a premium equal to approximately 1.8% of our NAV per share as of October 31, 2024. It is not possible to predict whether our common stock will trade at, above, or below NAV.
NAV(1)
Price Range
Premium (Discount) of High Sales Price to NAV(2)
Premium (Discount) of Low Sales Price to NAV(2)
Distributions per Share(3)
Period High Low
Fiscal Year 2024
Fourth Quarter $ 7.18 $ 7.78 $ 6.52 8.4 % (9.2) % $0.345
Third Quarter $ 7.24 $ 7.81 $ 7.00 7.9 % (3.3) % $0.315
Second Quarter $ 7.34 $ 7.49 $ 6.63 2.0 % (9.7) % $0.30
First Quarter $ 7.68 $ 7.25 $ 5.47 (5.6) % (28.8) % $0.30
Fiscal Year 2023
Fourth Quarter $ 7.55 $ 8.52 $ 6.15 12.8 % (18.5) %
$0.55(4)
Third Quarter $ 8.02 $ 10.15 $ 8.00 26.6 % (0.2) %
$0.55(5)
Second Quarter $ 8.48 $ 10.50 $ 8.85 23.8 % 4.4 %
$0.55(6)
First Quarter $ 10.13 $ 10.46 $ 7.88 3.3 % (22.2) %
$0.55(7)
(1)NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding common shares at the end of each period.
(2)Calculated as the respective high or low intraquarter sales price divided by quarter-end NAV.
(3)Represents distributions declared on our common stock during the specified quarter. Fiscal year 2024 distributions per share were comprised of cash distributions. Fiscal year 2023 distributions per share were comprised of cash and stock distributions.
(4)This distribution was partially paid in shares of our common stock. Stockholders had until October 17, 2023 to elect whether to receive the distribution in cash (up to an aggregate maximum cash amount of 20% of the total distribution), excluding any cash paid for fractional shares, or in shares of the Company's common stock. The distribution consisted of approximately $1.65 million in cash and 943,865 shares of common stock, or approximately 6.3% of the Company's outstanding common stock prior to the distribution. The amount of cash elected to be received was greater than the cash limit of 20% of the aggregate distribution amount, therefore resulting in the payment of a combination of cash and stock to stockholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $6.98 per share, which equaled the volume weighted average trading price per share of the Company's common stock on The Nasdaq Capital Market on October 16, 17 and 18, 2023.
(5)This distribution was partially paid in shares of our common stock. Stockholders had until July 18, 2023 to elect whether to receive the distribution in cash (up to an aggregate maximum cash amount of 20% of the total distribution), excluding any cash paid for fractional shares, or in shares of the Company's common stock. The distribution consisted of approximately $1.19 million in cash and 571,338 shares of common stock, or approximately 4.7% of the Company's outstanding common stock prior to the distribution. The amount of cash elected to be received was greater than the cash limit of 20% of the aggregate distribution amount, therefore resulting in the payment of a combination of cash and stock to stockholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $8.33 per share, which equaled the volume weighted average trading price per share of the Company's common stock on The Nasdaq Capital Market on July 17, 18 and 19, 2023.
(6)This distribution was partially paid in shares of our common stock. Stockholders had until April 12, 2023 to elect whether to receive the distribution in cash (up to an aggregate maximum cash amount of 20% of the total distribution), excluding any cash paid for fractional shares, or in shares of the Company's common stock. The distribution consisted of approximately $1.12 million in cash and 488,020 shares of common stock, or approximately 4.8% of the Company's
9
outstanding common stock prior to the distribution. The amount of cash elected to be received was greater than the cash limit of 20% of the aggregate distribution amount, therefore resulting in the payment of a combination of cash and stock to stockholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $9.18 per share, which equaled the volume weighted average trading price per share of the Company's common stock on The Nasdaq Capital Market on April 11, 12 and 13, 2023.
(7)This distribution was partially paid in shares of our common stock. Stockholders had until January 18, 2023 to elect whether to receive the distribution in cash (up to an aggregate maximum cash amount of 20% of the total distribution), excluding any cash paid for fractional shares, or in shares of the Company's common stock. The distribution consisted of approximately $1.04 million in cash and 449,158 shares of common stock, or approximately 4.8% of the Company's outstanding common stock prior to the distribution. The amount of cash elected to be received was greater than the cash limit of 20% of the aggregate distribution amount, therefore resulting in the payment of a combination of cash and stock to stockholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $9.25 per share, which equaled the volume weighted average trading price per share of the Company's common stock on The Nasdaq Capital Market on January 17, 18 and 19, 2023.
FEES AND EXPENSES (Unaudited)
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly as a stockholder. However, we caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown.
Stockholder Transaction Expenses (as a percentage of the offering price)
Sales load(1)
-
Offering expenses borne by the Company(2)
-
Distribution reinvestment plan expenses(3)
$ 15.00
Total stockholder transaction expenses
-
Estimated Annual Expenses (as a percentage of net assets attributable to common stock):
Base management fee(4)
2.82 %
Incentive fees payable under our Investment Advisory Agreement (20% of Pre-Incentive Fee Net Investment Income, subject to hurdle)(5)
2.93 %
Interest payments on borrowed funds(6)
4.33 %
Other expenses(7)
2.17 %
Total annual expenses(8)
12.25 %
(1) In the event that the securities are sold to or through underwriters, a prospectus supplement will disclose the applicable sales load, and the "Example" will be updated accordingly.
(2) The prospectus supplement corresponding to each offering will disclose the applicable offering expenses and total stockholder transaction expenses as a percentage of the offering price.
(3) The expenses of the DRIP are included in "other expenses." The plan administrator's fees are paid by us. There are no brokerage charges or other charges to stockholders who participate in the plan except that, if a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participant's account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per share brokerage commission from the proceeds. See "-Distribution Reinvestment Plan".
(4) We have agreed to pay OFS Advisor as compensation under the Investment Advisory Agreement a base management fee at an annual rate of 1.75% (0.4375% per quarter) of our Total Equity Base, which means the NAV of shares of our common stock and the paid-in capital of our preferred stock, if any, before the determination of any incentive fees for the applicable quarter. These management fees are paid by our stockholders and are not paid by the holders of preferred stock, or the holders of any other types of securities that we may issue. While we currently expect to incur leverage in the amount of approximately 33% to 40% of our total assets (i.e., $0.33 to $0.40 of leverage for every $1 of assets) over the next 12 months of operations, the type (i.e., preferred stock, bonds, bank debt, etc.) and timing of debt to be issued over the next 12 months of operations has not been determined, and may not occur. The base management fee referenced in the table above represents the estimated annualized fee based on our October 31, 2024 NAV of $148.6 million and $90.9 million of paid-in capital on outstanding preferred stock. The estimated base management fee used for the calculation in the table above differs from the actual amount incurred for the year ended October 31, 2024. See "-Note 3 Related Party Transactions".
10
(5) We have agreed to pay OFS Advisor, as compensation under the Investment Advisory Agreement, a quarterly incentive fee equal to 20% of our "Pre-Incentive Fee Net Investment Income" for the immediately preceding quarter, subject to a quarterly preferred return, or hurdle, of 2.00% of our NAV (8.00% annualized) and a catch-up feature. Pre-Incentive Fee Net Investment Income includes accrued income that we have not yet received in cash. No incentive fee is payable to OFS Advisor on realized capital gains. The incentive fee is paid to OFS Advisor as follows:
•no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.00% of our NAV;
•100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.50% of our NAV in any calendar quarter (10.00% annualized). We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.50% of our NAV) as the "catch-up." The "catch-up" is meant to provide OFS Advisor with 20% of our Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if Pre-Incentive Fee Net Investment Income meets or exceeds 2.50% of our NAV in any calendar quarter; and
•20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.50% of our NAV in any calendar quarter (10.00% annualized) is payable to OFS Advisor (that is, once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is paid to OFS Advisor).
Incentive fees in the table above assume that incentive fees we incur during the next twelve months remain consistent with the actual incentive fees incurred by us during the year ended October 31, 2024. Actual portfolio yields, which directly impact incentive fees, may significantly differ in the future. See "-Note 3 Related Party Transactions".
(6) "Interest payments on borrowed funds" represents estimated annualized dividends to be paid on our $90.9 million of outstanding preferred stock as of October 31, 2024. It also includes estimated amortization of deferred underwriting discounts, commissions, and offering expenses related to our outstanding preferred stock. This amount differs from the actual interest expense incurred during the year ended October 31, 2024. We may incur, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of preferred stock and other structures and instruments, in significant amounts and on terms that OFS Advisor and our Board deem appropriate, subject to applicable limitations under the 1940 Act. Any such borrowings do not include embedded or inherent leverage in CLO structures in which we invest or intend to invest or in derivative instruments in which we may invest. Our borrowing costs would increase in the event that we were to borrow additional money. In the event that we were to issue additional shares of preferred stock, the base management fee as a percentage of our net assets attributable to common stock would increase.
(7) "Other expenses" assumes that other expenses we incur during the next twelve months remain consistent with the actual amounts incurred during the year ended October 31, 2024. "Other expenses" includes our overhead expenses, including services under the Administration Agreement based on our allocable portion of overhead and other expenses incurred by OFS Capital Services, LLC, our administrator and an affiliate of OFS Advisor. "Other expenses" also includes ongoing administrative expenses to our independent accountants, legal counsel and compensation of independent directors.
(8) "Total annual expenses" is presented as a percentage of net assets attributable to common stockholders, because the holders of shares of our common stock will bear all of our fees and expenses, all of which are included in this fee table presentation. The indirect expenses that will be associated with our CLO equity investments are not included in the fee table presentation, but if such expenses were included in the fee table presentation, then our total annual expenses would have been 20.74%.
Example*
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we assumed we would maintain the leverage as set forth above and that our operating expenses would remain at the levels set forth in the table above.
1 Year 3 Year 5 Year 10 Year
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return $91 $262 $418 $753
*The example should not be considered a representation of future returns or expenses, and actual returns and expenses may be greater or less than those shown. While the example assumes a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The incentive fee under the Investment Advisory Agreement, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, and is therefore not included in the example. Also, while the example assumes reinvestment of all dividends at
11
net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by ninety-five percent (95%) the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See "-Distribution Reinvestment Plan" for additional information regarding our dividend reinvestment plan.
12
Summary of Certain Portfolio Characteristics (Unaudited)
As of October 31, 2024
The information below is presented on a look-through basis to the portfolios of the CLO investments held by the Company as of October 31, 2024, and reflects the aggregate underlying principal exposure of the combined portfolio of those investments. The data is estimated and unaudited and is derived from third party sources based on reported information available as of October 31, 2024.
The top ten industries of the underlying obligors on a look-through basis to the Company's CLO investments reported as of October 31, 2024, are provided below: The top ten underlying obligors on a look-through basis to the Company's CLO investments reported as of October 31, 2024, are provided below:
Top 10 Industries of Underlying Obligors Top 10 Underlying Obligors
Industry Name (as classified by Moody's) % of Total Obligor % of Total
1. Banking, Finance, Insurance & Real Estate 9.7% 1. Asurion 0.67%
2. High Tech Industries 9.4% 2. Virgin Media 0.56%
3. Services: Business 9.4% 3. Calpine 0.46%
4. Healthcare & Pharmaceuticals 8.6% 4. Mcafee 0.44%
5. Hotel, Gaming & Leisure 5.1% 5. Transdigm 0.43%
6. Chemicals, Plastics & Rubber 4.8% 6. Allied Universal Holdco 0.42%
7. Construction & Building 4.8% 7. Ineos Group 0.42%
8. Media: Broadcasting & Subscription 4.5% 8. Starfruit Topco Cooperatief Ua 0.41%
9. Services: Consumer 3.8% 9. Blackstone Mortgage Trust 0.40%
10. Telecommunications 3.7% 10. Acrisure 0.39%
Total 63.8% Total 4.60%
13
Summary of Certain Portfolio Characteristics (Unaudited)
As of October 31, 2024
The credit ratings distribution of the underlying obligors on a look-through basis to the portfolios of the Company's CLO investments and other unrated investments reported as of October 31, 2024 is provided below:
(1) CLO indentures commonly require rating of the underlying collateral by nationally recognized rating agencies. Credit ratings shown are based on those assigned by Standard & Poor's Rating Group ("S&P"), for comparison and informational purposes. This data represents underlying portfolio characteristics of the Company's CLO equity portfolio. We have presented the S&P ratings of the underlying collateral of the CLO vehicles in which we are invested at October 31, 2024, because we believe S&P generally provides broader rating coverage across the underlying loan portfolios. Further information regarding S&P's rating methodology and definitions may be found on its website (www.standardandpoors.com), which is not part of, or incorporated by reference in, this Annual Report.
(2) Underlying obligors with S&P ratings of BBB- through AA+ and CCC- through D comprise 2.0% of all obligors in the aggregate and are excluded from the chart.
The maturity distribution of the underlying obligors on a look-through basis to the portfolios of the Company's CLO investments and other unrated investments reported as of October 31, 2024 is provided below:
(3) Underlying obligors with maturity dates in 2024 and 2032 and beyond comprise less than 1.0% of all obligors and are excluded from the chart.
14
OFS Credit Company, Inc.
Statement of Assets and Liabilities
As of October 31, 2024
Assets:
Investments, at fair value (amortized cost of $254,918,653)
$ 214,850,657
Cash and cash equivalents 24,696,288
Receivable for common stock sold 518,428
Interest receivable 282,455
Other assets 426,222
Total assets 240,774,050
Liabilities:
Preferred stock (net of deferred issuance costs of $1,926,456)
88,973,544
Payable to adviser and affiliates 2,850,702
Other liabilities 343,000
Total liabilities 92,167,246
Commitments and contingencies (Note 5)
Net assets $ 148,606,804
Net assets consist of:
Common stock, par value of $0.001 per share; 90,000,000 shares authorized and 20,701,251 shares issued and outstanding
$ 20,701
Paid-in capital in excess of par 193,755,039
Total accumulated losses (45,168,936)
Total net assets $ 148,606,804
Net asset value per common share $ 7.18
See Notes to Financial Statements.
15
OFS Credit Company, Inc.
Statement of Operations
Year Ended
October 31, 2024
Investment income:
Interest income $ 32,553,569
Operating expenses:
Interest expense 4,077,437
Incentive fees 4,359,127
Base management fees 3,462,787
Administration fees 1,372,020
Professional fees 982,913
Other expenses 862,778
Total operating expenses 15,117,062
Net investment income 17,436,507
Net realized and unrealized gain (loss) on investments:
Net realized loss on investments (14,227,797)
Net change in unrealized appreciation on investments 11,812,903
Net loss on investments (2,414,894)
Net increase in net assets resulting from operations $ 15,021,613
Weighted-average common shares outstanding 16,694,376
See Notes to Financial Statements.
16
OFS Credit Company, Inc.
Statements of Changes in Net Assets
Year Ended October 31, 2024 Year Ended October 31, 2023
Changes in net assets resulting from operations:
Net investment income $ 17,436,507 $ 16,634,150
Net realized loss on investments (14,227,797) -
Net change in unrealized appreciation (depreciation) on investments 11,812,903 (18,522,509)
Net increase (decrease) in net assets resulting from operations 15,021,613 (1,888,359)
Distributions paid to common stockholders:
Common stock distributions from earnings (Note 2) (21,225,831) (21,368,481)
Common stock distributions from return of capital (Note 2) - (3,609,283)
Distributions paid to common stockholders (21,225,831) (24,977,764)
Capital share transactions:
Proceeds from sale of common stock, net of offering costs 32,403,402 32,862,951
Common stock issued in connection with dividend reinvestment plan 2,218,633 -
Common stock distributions - 19,982,158
Net increase in net assets resulting from capital transactions 34,622,035 52,845,109
Net increase in net assets 28,417,817 25,978,986
Net assets at the beginning of the year 120,188,987 94,210,001
Net assets at the end of the year $ 148,606,804 $ 120,188,987
Capital share transactions:
Common stock shares outstanding at the beginning of the year 15,917,015 9,442,550
Sale of common stock shares 4,458,057 4,022,084
Common stock issued in connection with dividend reinvestment plan 326,179 -
Common stock distributions - 2,452,381
Common stock shares outstanding at the end of the year 20,701,251 15,917,015
See Notes to Financial Statements.
17
OFS Credit Company, Inc.
Statement of Cash Flows
Year Ended
October 31, 2024
Cash flows from operating activities:
Net increase in net assets resulting from operations $ 15,021,613
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Net realized loss on investments 14,227,797
Net change in unrealized appreciation on investments (11,812,903)
Amortization of preferred stock deferred issuance costs 446,611
Amortization of original issuance discount on investments (915,973)
Write-off of deferred offering costs 16,683
Accretion of interest income on investments (24,654,878)
Purchase of portfolio investments (124,226,378)
Proceeds from the repayment of portfolio investments 35,197,882
Sale of portfolio investments 24,285,618
Distributions from portfolio investments 41,145,906
Changes in operating assets and liabilities:
Interest receivable 550,688
Other assets (50,919)
Payable to adviser and affiliates 78,235
Other liabilities 138,000
Net cash used in operating activities (30,552,018)
Cash flows from financing activities:
Proceeds from issuance of preferred stock 29,900,000
Payment of preferred stock deferred issuance costs (1,139,888)
Redemption of preferred stock (3,000,000)
Proceeds from issuance of common stock, net of commissions and fees 31,960,903
Payment of deferred offering costs (246,725)
Distributions paid to common stockholders (19,007,198)
Net cash provided by financing activities 38,467,092
Net increase in cash and cash equivalents 7,915,074
Cash and cash equivalents at the beginning of the year 16,781,214
Cash and cash equivalents at the end of the year $ 24,696,288
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest on preferred stock $ 3,630,826
Supplemental Disclosure of Non-Cash Activities:
Common stock issued in connection with dividend reinvestment plan $ 2,218,633
Amortization of deferred offering costs from the issuance of common stock 75,929
See Notes to Financial Statements.
18
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
CLO Debt Securities
Atlas Senior Loan Fund XXI, Ltd.
Mezzanine Debt - Class E 13.66% (SOFR + 9.04%) 7/20/2023 7/20/2035 $ 1,450,000 $ 1,358,456 $ 1,474,422 1.0 %
Brightwood Capital MM CLO 2023-1, Ltd.
Mezzanine Debt - Class D 11.12% (SOFR + 6.46%) 9/28/2023 10/15/2035 807,080 787,251 825,204 0.6 %
Mezzanine Debt - Class E 15.02% (SOFR + 10.36%) 9/28/2023 10/15/2035 1,882,451 1,728,293 1,926,065 1.3 %
2,689,531 2,515,544 2,751,269 1.9 %
Elevation CLO 2023-17, Ltd.
Mezzanine Debt - Class E 12.78% (SOFR + 8.16%) 11/16/2023 10/20/2036 2,000,000 1,896,642 2,028,431 1.4 %
Empower CLO 2023-2, Ltd.
Mezzanine Debt - Class E 12.91% (SOFR + 8.25%) 8/22/2023 7/15/2036 2,000,000 2,000,000 2,021,051 1.4 %
Fortress Credit BSL X Limited
Mezzanine Debt - Class E 11.83% (SOFR + 6.94%) 8/1/2023 7/23/2032 2,500,000 2,333,483 2,500,397 1.7 %
Fortress Credit BSL VII Limited
Mezzanine Debt - Class E 12.02% (SOFR + 7.14%) 8/1/2023 4/20/2033 3,750,000 3,451,548 3,750,833 2.5 %
Gallatin CLO X 2023-1, Ltd.
Mezzanine Debt - Class E 12.88% (SOFR + 8.22%) 9/7/2023 10/14/2035 4,000,000 3,820,107 4,020,743 2.7 %
Sound Point CLO 36, Ltd.
Mezzanine Debt - Class E 13.43% (SOFR + 8.81%) 8/9/2023 7/26/2036 2,500,000 2,366,255 2,533,502 1.7 %
Total CLO Debt Securities $ 20,889,531 $ 19,742,035 $ 21,080,648 14.3 %
19
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
CLO Equity Securities(6)
Allegro CLO XIV, Ltd.
Subordinated Notes 14.30% N/A 8/23/2021 10/15/2034 $ 5,000,000 $ 3,673,570 $ 2,941,716 2.0 %
Allegro CLO XV, Ltd.
Subordinated Notes 18.37% N/A 6/10/2022 7/20/2035 4,640,000 3,165,037 2,881,264 1.9 %
Allegro CLO XVI, Ltd.
Subordinated Notes 15.02% N/A 4/11/2024 4/25/2037 6,490,084 4,689,558 4,895,851 3.2 %
Anchorage Capital CLO 1-R, Ltd.
Subordinated Notes(7)(10)
0.00% N/A 10/5/2018 4/13/2031 2,100,000 185,298 75,390 0.1 %
Apex Credit CLO 2020 Ltd.
Subordinated Notes 18.21% N/A 11/16/2020 4/20/2035 6,170,000 5,074,251 4,064,834 2.7 %
Apex Credit CLO 2021 Ltd.
Subordinated Notes 18.66% N/A 5/28/2021 7/18/2034 7,140,000 5,136,281 4,281,112 2.9 %
Apex Credit CLO 2022-I Ltd.
Subordinated Notes 13.26% N/A 4/28/2022 4/22/2033 8,833,176 6,930,523 5,020,563 3.4 %
Apex Credit CLO 2024-I Ltd.
Subordinated Notes 27.07% N/A 3/7/2024 4/20/2036 3,600,000 2,537,734 3,010,098 2.0 %
Ares LXXIV CLO Ltd.
Subordinated Notes 19.85% N/A 9/12/2024 10/15/2037 10,000,000 8,746,514 8,746,514 5.9 %
Atlas Senior Loan Fund X, Ltd.
Subordinated Notes(7)(8)
0.00% N/A 10/5/2018 1/15/2031 5,000,000 2,033,362 243,591 0.2 %
20
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Atlas Senior Loan Fund XVII, Ltd.
Subordinated Notes 17.06% N/A 9/20/2021 10/20/2034 $ 6,000,000 $ 4,322,264 $ 3,105,075 2.1 %
Battalion CLO IX Ltd.
Subordinated Notes - Income(7)
0.00% N/A 10/10/2018 7/15/2031 1,079,022 488,091 140,929 0.1 %
Subordinated Notes(7)
0.00% N/A 10/10/2018 7/15/2031 1,770,978 801,068 231,303 0.2 %
2,850,000 1,289,159 372,232 0.3 %
Battalion CLO XI Ltd.
Subordinated Notes 6.79% N/A 3/20/2019 4/24/2034 5,000,000 3,343,410 2,144,472 1.4 %
Battalion CLO XV Ltd.
Subordinated Notes 29.23% N/A 5/4/2023 1/17/2033 3,500,000 1,700,110 1,736,963 1.2 %
Subordinated Notes 29.23% N/A 5/4/2023 1/17/2033 3,500,000 1,700,110 1,736,963 1.2 %
7,000,000 3,400,220 3,473,926 2.4 %
Battalion CLO XIX Ltd.
Subordinated Notes 16.02% N/A 3/16/2021 4/15/2034 5,000,000 2,693,504 2,115,307 1.4 %
BlueMountain CLO XXVI Ltd.
Subordinated Notes 29.42% N/A 8/9/2024 10/20/2034 4,000,000 2,058,256 2,148,189 1.4 %
Bridge Street CLO III Ltd.
Subordinated Notes 41.74% N/A 12/28/2022 10/20/2037 6,900,000 3,182,090 5,136,892 3.5 %
Brightwood Capital MM CLO 2023-1, Ltd.
Subordinated Notes 11.91% N/A 9/28/2023 10/15/2035 4,847,312 4,291,359 3,813,662 2.6 %
Canyon CLO 2019-1, Ltd.
Subordinated Notes 23.97% N/A 8/22/2024 7/15/2037 1,000,000 494,772 523,495 0.4 %
Crown Point CLO 4 Ltd.
Subordinated Notes(7)
0.00% N/A 3/22/2019 4/20/2031 5,000,000 2,227,050 1,039,745 0.7 %
21
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Dryden 38 Senior Loan Fund
Subordinated Notes(7)
0.00% N/A 10/5/2018 7/15/2030 $ 2,600,000 $ 1,129,410 $ 511,488 0.3 %
Dryden 76 CLO, Ltd.
Subordinated Notes 10.31% N/A 9/27/2019 10/15/2037 4,378,500 2,518,287 1,801,576 1.2 %
Dryden 83 CLO, Ltd.
Subordinated Notes 17.97% N/A 9/17/2024 4/18/2037 21,000,000 9,941,853 10,106,353 6.7 %
Dryden 87 CLO, Ltd.
Subordinated Notes 9.70% N/A 6/2/2021 5/20/2034 5,000,000 4,074,353 2,786,558 1.9 %
Dryden 95 CLO, Ltd.
Subordinated Notes 9.90% N/A 7/29/2021 8/20/2034 6,000,000 4,670,679 3,176,705 2.1 %
Dryden 98 CLO, Ltd.
Subordinated Notes 11.23% N/A 3/17/2022 4/20/2035 5,500,000 4,215,409 3,303,719 2.2 %
Dryden 112 CLO, Ltd.
Subordinated Notes 18.29% N/A 9/4/2024 11/15/2036 11,200,000 5,886,693 5,642,593 3.8 %
Eaton Vance CLO 2019-1, LLC
Subordinated Notes 18.75% N/A 10/1/2024 7/15/2037 23,250,000 11,571,254 11,405,752 7.7 %
Elevation CLO 2017-8, Ltd.
Subordinated Notes(7)(8)
0.00% N/A 10/5/2018 10/25/2030 2,000,000 616,930 27,726 - %
Elevation CLO 2021-12, Ltd.
Subordinated Notes 8.83% N/A 5/26/2021 4/20/2037 4,810,737 2,830,770 1,849,313 1.2 %
22
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Elevation CLO 2021-13, Ltd.
Subordinated Notes 3.85% N/A 6/9/2021 7/15/2034 $ 6,026,765 $ 4,159,540 $ 2,353,615 1.6 %
Elevation CLO 2021-14, Ltd.
Subordinated Notes 4.77% N/A 10/29/2021 10/20/2034 7,237,500 5,449,008 3,067,472 2.1 %
Elevation CLO 2021-15, Ltd.
Subordinated Notes 4.84% N/A 12/23/2021 1/5/2035 9,000,000 5,954,971 3,427,131 2.3 %
Empower CLO 2023-3, Ltd.
Subordinated Notes 12.81% N/A 12/21/2023 1/20/2037 10,675,000 7,093,831 6,571,600 4.4 %
Empower CLO 2024-1, Ltd.
Subordinated Notes 14.28% N/A 3/20/2024 4/25/2037 5,024,000 3,857,194 3,746,961 2.5 %
Empower CLO 2024-2, Ltd.
Subordinated Notes 15.16% N/A 6/26/2024 7/15/2037 1,350,000 1,184,789 1,184,789 0.8 %
Generate CLO 14 Ltd.
Subordinated Notes 15.50% N/A 9/27/2024 4/22/2037 21,000,000 16,268,672 16,652,373 11.2 %
Halcyon Loan Advisors Funding 2018-1 Ltd.
Subordinated Notes 2.85% N/A 3/20/2019 7/20/2031 3,000,000 1,457,190 669,438 0.5 %
HarbourView CLO VII, Ltd.
Subordinated Notes(7)(8)
0.00% N/A 10/5/2018 11/18/2026 3,100,000 1,886,533 - - %
ICG US CLO 2021-3, Ltd.
Subordinated Notes 30.03% N/A 8/8/2024 10/20/2034 6,800,000 3,125,406 3,353,912 2.3 %
23
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Invesco CLO 2021-2, Ltd.
Subordinated Notes 24.34% N/A 5/24/2024 7/15/2034 $ 6,000,000 $ 3,027,289 $ 2,938,408 2.0 %
Invesco U.S. CLO 2023-1, Ltd.
Subordinated Notes 18.90% N/A 5/31/2024 4/22/2037 9,000,000 6,408,728 6,800,907 4.6 %
Jamestown CLO XVI Ltd.
Subordinated Notes 13.21% N/A 7/29/2021 7/25/2034 3,500,000 2,477,310 2,008,801 1.4 %
LCM 31 Ltd.
Subordinated Notes 14.84% N/A 12/18/2020 7/20/2034 1,350,000 892,134 684,432 0.5 %
Madison Park Funding XXIII, Ltd.
Subordinated Notes 11.11% N/A 10/5/2018 7/27/2047 4,000,000 1,875,348 1,706,926 1.1 %
Madison Park Funding XXIX, Ltd.
Subordinated Notes 6.34% N/A 12/22/2020 10/18/2047 1,000,000 506,834 385,512 0.3 %
Marble Point CLO XX Ltd.
Subordinated Notes 11.26% N/A 4/9/2021 4/23/2051 5,125,000 3,622,663 2,658,566 1.8 %
Marble Point CLO XXI Ltd.
Subordinated Notes 11.16% N/A 8/24/2021 10/17/2051 5,250,000 3,789,206 2,729,263 1.8 %
Marble Point CLO XXIII Ltd.
Subordinated Notes 13.31% N/A 12/3/2021 1/22/2052 1,750,000 1,336,690 1,023,497 0.7 %
MidOcean Credit CLO VII
Subordinated Notes - Income(7)(8)
0.00% N/A 3/20/2019 7/15/2029 3,275,000 1,047,083 - - %
24
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
MidOcean Credit CLO VIII
Subordinated Notes - Income(7)
0.00% N/A 1/14/2019 2/20/2031 $ 3,225,000 $ 1,478,145 $ 311,803 0.2 %
MidOcean Credit CLO IX
Subordinated Notes - Income(7)
0.00% N/A 11/21/2018 7/20/2031 3,000,000 1,411,436 159,523 0.1 %
Niagara Park CLO, Ltd.
Subordinated Notes 10.64% N/A 11/8/2019 7/17/2032 4,500,000 3,003,417 2,520,960 1.7 %
OCP CLO 2017-14, Ltd.
Subordinated Notes 18.24% N/A 9/24/2024 7/20/2037 10,000,000 4,264,945 4,166,780 2.8 %
Octagon Investment Partners 39, Ltd.
Subordinated Notes(7)
0.00% N/A 2/27/2020 10/20/2030 3,600,000 1,499,016 642,812 0.4 %
Park Blue CLO 2022-II, Ltd.
Subordinated Notes 22.21% N/A 9/27/2024 7/20/2037 5,325,000 3,309,874 3,478,340 2.3 %
PPM CLO 2 Ltd.
Subordinated Notes 32.29% N/A 10/15/2024 4/16/2037 2,000,000 686,827 702,060 0.5 %
Rockford Tower CLO 2019-1, Ltd.
Subordinated Notes 22.14% N/A 8/25/2023 4/20/2034 4,500,000 2,468,556 2,109,359 1.4 %
Sound Point CLO IV-R, Ltd.
Subordinated Notes(7)(8)
0.00% N/A 11/2/2018 4/18/2031 4,000,000 599,847 - - %
Steele Creek CLO 2022-1, Ltd.
Subordinated Notes 10.25% N/A 3/28/2022 4/15/2035 5,000,000 3,346,126 2,413,258 1.6 %
25
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Trimaran CAVU 2021-2 Ltd.
Subordinated Notes 26.19% N/A 8/20/2024 10/25/2034 $ 2,000,000 $ 882,333 $ 930,188 0.6 %
Trinitas CLO VIII, Ltd.
Subordinated Notes(7)
0.00% N/A 4/28/2021 7/20/2117 2,800,000 1,333,265 344,818 0.2 %
Vibrant CLO X, Ltd.
Subordinated Notes(7)(10)
0.00% N/A 5/23/2019 10/20/2031 8,000,000 2,720,176 - - %
Vibrant CLO XIII, Ltd.
Subordinated Notes 13.70% N/A 6/3/2021 7/15/2034 5,000,000 3,814,699 3,104,680 2.1 %
Vibrant CLO XV, Ltd.
Subordinated Notes 25.49% N/A 8/21/2023 1/20/2035 4,000,000 2,480,883 2,541,345 1.7 %
Voya CLO 2017-4, Ltd.
Subordinated Notes(7)(10)
0.00% N/A 10/5/2018 10/15/2030 1,000,000 283,326 4,600 - %
Webster Park CLO, Ltd.
Subordinated Notes(7)(10)
0.00% N/A 4/23/2021 7/20/2030 3,363,000 1,207,325 579,363 0.4 %
Zais CLO 3, Limited
Subordinated Notes - Income(7)(8)
0.00% N/A 10/10/2018 7/15/2031 1,038,255 491,947 13,740 - %
Subordinated Notes(7)(8)
0.00% N/A 10/10/2018 7/15/2031 1,761,745 834,659 23,314 - %
2,800,000 1,326,606 37,054 - %
Total CLO Equity Securities $ 379,886,074 $ 228,467,071 $ 186,656,257 125.5 %
26
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
Company and
Investment(1)(2)
Interest Rate /Effective Yield(3)
Spread Above Index(4)
Initial Acquisition Date Maturity Principal
Amount 		Amortized Cost
Fair Value(5)
Percent of
Net Assets
Loan Accumulation Facilities(11)
Allegro CLO XVII, Ltd.
Loan Accumulation Facility 17.50% N/A 5/15/2024 4/22/2026 $ 5,000,000 $ 5,000,000 $ 5,000,000 3.4 %
LCM 42 Ltd.
Loan Accumulation Facility 17.50% N/A 10/31/2024 10/30/2026 500,000 500,000 500,000 0.3 %
Total Loan Accumulation Facilities $ 5,500,000 $ 5,500,000 $ 5,500,000 3.7 %
Other CLO equity-related investments
CLO other(9)
21.18% N/A $ 1,209,547 $ 1,613,752 1.1 %
Total Investments $ 406,275,605 $ 254,918,653 $ 214,850,657 144.6 %
(1) These investments are generally subject to certain limitations on resale, and may be deemed to be "restricted securities" under the Securities Act of 1933, as amended.
(2) The Company does not "control" and is not an "affiliate" of any of its portfolio investments, each as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). In general, under the 1940 Act, the Company would be presumed to "control" a portfolio investment if it owned 25% or more of its voting securities and would be an "affiliate" of a portfolio investment if the Company owned 5% or more of its voting securities.
(3) The rate disclosed on CLO equity and equity-related securities is the estimated effective yield, generally established at purchase, and re-evaluated upon the receipt of the initial distribution and each subsequent quarter thereafter. The estimated effective yield is based upon projected amounts and timing of future distributions and the projected amounts and timing of terminal principal payments at the time of estimation. The estimated effective yield and investment cost may ultimately not be realized. Projected cash flows, including the amounts and timing of terminal principal payments, which generally are projected to occur prior to the contractual maturity date, were utilized in deriving the effective yield of the investments. The rates disclosed on CLO debt securities reflect the contractual interest rate, and exclude yield related to accretion of discounts. The rate disclosed on Loan Accumulation Facilities (as defined in footnote 1) represents the estimated yield to be earned on the investment through estimated redemption. As of October 31, 2024, the Company's weighted-average effective yield on its total investments, based on current amortized cost, was 14.30% (excludes discount accretion on CLO debt investments). Excluding optionally redeemed CLOs, the weighted average effective yield on total investments, based on current amortized cost, was 14.55%.
(4) CLO debt securities bear interest at a rate determined by reference to three-month Secured Overnight Financing Rate ("SOFR") which resets quarterly. The rate provided for each CLO debt security is as of October 31, 2024.
27
OFS Credit Company, Inc.
Schedule of Investments
As of October 31, 2024
(5) The fair value of all investments was determined in good faith by OFS Advisor using significant, unobservable inputs.
(6) Subordinated notes and income notes are considered CLO equity securities. CLO equity securities are entitled to recurring distributions, which are generally equal to the residual cash flow payments made by underlying securities of the CLO less contractual payments to debt holders and CLO-fund expenses, subject to compliance with coverage tests and other provisions of the respective CLO indenture, as applicable.
(7) As of October 31, 2024, the effective accretable yield has been estimated to be 0%, as the aggregate amount of projected distributions, including projected distributions related to liquidation of the underlying portfolio upon the security's anticipated redemption, is less than current amortized cost. Projected distributions are monitored and re-evaluated quarterly. All actual distributions received will be recognized as reductions to amortized cost until such time, if and when occurring, a future aggregate amount of then-projected distributions exceeds the security's then-current amortized cost.
(8) Non-income producing. The Company has not recognized income on the security during the prior twelve-month period preceding the period-end date.
(9) Fair value represents discounted cash flows associated with fee rebates earned from CLO equity-related investments.
(10) As of October 31, 2024, the investment has been optionally redeemed and is in the process of liquidating. Remaining residual distributions are anticipated to be recognized as a return of capital up to the amount of current amortized cost, and realized gain for any amounts received in excess of current amortized cost, if applicable.
(11) Loan Accumulation Facilities are financing structures intended to aggregate loans that are expected to form part of the portfolio of a future CLO. Investments in Loan Accumulation Facilities generally earn returns equal to the actual income earned on facility assets less costs and fees incurred on senior financing and manager costs. Income and return of capital distributions from investments in Loan Accumulation Facilities are generally received upon the earlier of the closing of the CLO securitization or liquidation of the underlying portfolio.
See Notes to Financial Statements.
28
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Note 1. Organization
OFS Credit Company, Inc. (the "Company") is a Delaware corporation formed on September 1, 2017 and commenced operations on October 10, 2018. The Company is a non-diversified, externally managed, closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). The Company's investment adviser is OFS Capital Management, LLC ("OFS Advisor"), a wholly owned subsidiary of Orchard First Source Asset Management, LLC ("OFSAM").
The Company's primary investment objective is to generate current income, with a secondary objective to generate capital appreciation. Under normal market conditions, the Company invests at least 80% of its assets in floating rate credit instruments and other structured credit investments, including: (i) collateralized loan obligation ("CLO") debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments, which include securities issued by other securitization vehicles, such as credit-linked notes and collateralized bond obligations, or "CBOs", and synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial institutions ("80% Policy"). The 80% Policy is not a fundamental policy of the Company and may be changed by our Board on 60 days' notice to the Company's stockholders. The Company defines "credit" to consist primarily of the debt investments and instruments described in its 80% Policy.
The CLOs in which the Company invests are collateralized by portfolios consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. The Company may also invest in financing structures intended to aggregate loans that may be used to form the basis of a CLO vehicle, often provided by the bank that will serve as the placement agent or arranger on a CLO transaction (each, a "Loan Accumulation Facility").
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation: The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), including the provision Accounting Standards Codification ("ASC") Topic 946, Financial Services-Investment Companies, and the reporting requirements of the 1940 Act and Article 6 of Regulation S-X. In the opinion of management, the financial statements include all adjustments, consisting only of normal and recurring accruals and adjustments, necessary for fair presentation in accordance with GAAP.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accounting estimates significant to the financial statements include the recurring fair value and accretable yield estimates. Actual results could differ significantly from those estimates.
Cash and cash equivalents: The Company's cash and cash equivalents are maintained with a member bank of the Federal Deposit Insurance Corporation ("FDIC") and, at times, such balances exceed the FDIC insurance limit. The Company does not believe its cash and cash equivalent balances are exposed to any significant credit risk. As of October 31, 2024, all of the Company's cash and cash equivalents were held at U.S. Bank Trust Company, National Association.
Investments: The Company applies fair value accounting in accordance with ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework to measure fair value, and requires disclosures regarding fair value measurements. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined through the use of models and other valuation techniques, valuation inputs, and assumptions market participants would use to value the investment. Highest priority is given to prices for identical assets quoted in active markets (Level 1) and the lowest priority is given to fair value estimates based on unobservable inputs (Level 3). The availability of observable inputs can vary significantly and is affected by many factors, including the type of product, whether the product is new to the market, whether the product is traded on an active exchange or in the secondary market, and current market conditions. To the extent that the valuation is based on less observable or unobservable inputs, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by OFS Advisor in determining fair value is greatest for financial instruments classified as Level 3 (i.e., those instruments valued using non-observable inputs), which comprise the entirety of the Company's investments.
29
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
In addition, OFS Advisor regularly assesses whether arm's-length transactions have occurred in portfolio securities, including the Company's own transactions in such securities, the executed trade prices ("Transaction Prices") of which may-depending on the size of the transactions, identifiable market participants, and other factors-be considered reasonable indications of fair value for a period of time of up to six months after the transaction date or until the initial payment date.
Material changes to OFS Advisor's valuation policy are reviewed and approved by management and the Company's board of directors (the "Board"). As the Company's investments change, markets change, new products develop, and valuation inputs become more or less observable, OFS Advisor, as the valuation designee, will continue evaluating its valuation methodologies.
The Company primarily invests in equity and junior debt tranches of CLO investment vehicles, Loan Accumulation Facilities and other credit-related investments. The Company considers underlying investment portfolio performance metrics, including prepayment rates, default rates, loss-on-default and recovery rates, and estimated market yields as a primary source for discounted cash flow fair value estimates, supplemented by actual trades executed in the market at or around period-end, as well as indicative prices provided by broker-dealers in its estimate of the fair value of such investments. The Company also considers operating metrics, typically included in the governing documents of CLO vehicles, including collateralization tests, concentration limits, defaults, restructuring activity and prepayment rates on the underlying loans, if applicable. The Company engages a third-party valuation firm to provide assistance to OFS Advisor in determining the fair value of the majority of its investments.
See Note 4 for additional disclosures of the Company's fair value measurements of its financial instruments.
Investment Income
Interest income: Interest income from investments in CLO equity and equity-related securities is recognized on the basis of the estimated effective yield to expected redemption utilizing assumed cash flows in accordance with ASC Subtopic 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash flows from its CLO equity investments, and the accretable yields are generally established at purchase, and re-evaluated upon the receipt of the initial distribution and each subsequent quarter thereafter. Expected cash flows inherent in the Company's estimates of accretable yields are based on expectations of defaults and loss-on-default severity, as well as other loan-performance assumptions, impacting the loans in the underlying CLO portfolios, as well as the estimated timing of redemption and the associated liquidation price of the terminal principal payment upon redemption. These assumed cash flows represent significant estimates and are subject to a reasonable possibility of near-term change due to economic and credit market conditions, and the effect of these changes could be material. The Company ultimately may not realize income accreted on CLO equity securities.
Further, the Company may receive other CLO equity-related securities in the form of fee rebates in connection with the Company's acquisition of, subsequent amendment to, or restructuring of, CLO equity investments. The Company determines the cost basis of the security based on its estimated fair value relative to the fair value of the CLO equity investment and other securities or consideration received.
Interest income from investments in Loan Accumulation Facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with Loan Accumulation Facilities generally earn returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. Interest income is generally received upon the earlier of the closing of the CLO securitization or liquidation of the underlying portfolio. The Company periodically evaluates the realizability of such amounts and, if necessary, subsequently adjusts the estimated yield. For the year ended October 31, 2024, the Company recognized interest income of $1,135,272 from Loan Accumulation Facility investments, of which $189,608 remained accrued and included in interest receivable on the statement of assets and liabilities as of October 31, 2024.
Interest income from investments in CLO debt is recorded using the accrual basis of accounting to the extent such amounts are expected to be collected. Amortization of premiums or accretion of discounts on CLO debt investments are recognized over the expected life. Management reviews, for placement on non-accrual status, all CLO debt securities that become past due with respect to interest, and/or when there is reasonable doubt that principal or cash interest will be collected. When a CLO debt security is placed on non-accrual status, accrued and unpaid cash interest is reversed. Additionally, premiums and discounts are no longer recognized as of the date the security is placed on non-accrual status. Depending upon management's judgment, interest payments subsequently received on non-accrual investments may be recognized as interest income or applied as a reduction to amortized cost. Interest accruals and discount accretion are resumed on non-accrual investments only when they are brought current with respect to interest payments and, in the judgment of management, it is probable that the Company will collect all principal and interest from the investment. As of October 31, 2024, the Company had no CLO debt investments on non-accrual status.
Net realized and unrealized gain or loss on investments: Investment transactions are reported on a trade-date basis. Unsettled trades as of the balance sheet date are reported as payable for investments purchased or receivable for investments sold. Primary market new issue trades or resets are recorded on the closing and issuance of the security. Realized gains and losses on
30
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of the investment on a specific-identification basis. An optional redemption feature of a CLO allows a majority of the holders of the CLO equity securities issued by the CLO issuer, after the end of a specified non-call period, to cause the redemption of the CLO equity securities issued by the CLO with proceeds paid either through the liquidation of the CLO's assets or through a refinancing with new debt. The optional redemption is effectively a voluntary prepayment of the CLO equity securities issued by the CLO prior to the stated maturity of such securities. When the optional redemption feature has been exercised on a CLO equity security, distributions received are first recorded as a return of capital until its cost basis is reduced to zero and then as realized gains thereafter. The principal amount of the CLO equity security is not reduced for distributions received until the security is fully redeemed. Commencing on the optional redemption date, the Company ceases accruing income on its CLO equity securities that will be redeemed. As of October 31, 2024, the Company held four CLO equity securities, which had been optionally redeemed, with an amortized cost and fair value of $4,396,125 and $659,353, respectively.
Investments are reported at fair value as determined in good faith by OFS Advisor, under the active supervision of the Board. See Note 4 for additional information. The Company reports changes in the fair value of investments as change in net unrealized appreciation (depreciation) on investments in the statement of operations.
Deferred issuance costs:Deferred issuance costs represent underwriting discounts, fees and other direct incremental costs incurred in connection with the Company's mandatorily redeemable preferred stock. Deferred issuance costs are presented as a direct reduction of the related liability on the statement of assets and liabilities. Deferred issuance costs are amortized to interest expense over the term of the related mandatorily redeemable preferred stock.
Deferred offering costs: Offering costs include legal, accounting and other expenses pertaining to the registration of securities. Offering costs are deferred and, as the registration statement capacity is utilized and securities are sold, a portion of the costs are charged as a reduction to capital when a common stock offering occurs or as common stock is issued under an equity distribution agreement, or allocated to deferred issuance costs when a preferred stock or debt offering occurs. Deferred costs are periodically reviewed and charged to expenses if the related registration statement is withdrawn or if an offering is unsuccessful.
Interest expense: Due to its mandatory redemption requirements, the Company accounts for its preferred stock as liabilities under ASC Topic 480, Distinguishing Liabilities from Equity. Dividends on mandatorily redeemable preferred stock are recorded as interest expense on the statement of operations. Interest expense is recorded on an accrual basis as incurred.
Income taxes: The Company has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify for tax treatment as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements, and timely distribute at least 90% of its annual investment company taxable income ("ICTI"), to its stockholders. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which generally relieves the Company from U.S. federal income taxes.
The Company may be liable for 4% excise tax on a portion of income unless it timely distributes at least 98% of its ICTI, or 98.2% of net capital gains, to its stockholders. However, the Company may choose to retain a portion of ICTI in an amount less than that which would trigger U.S. federal income tax liability under Subchapter M of the Code. Excise taxes are recognized when the Company determines it is probable distributions of estimated taxable income will not meet the distribution thresholds for avoidance of such tax. See Note 7 for additional details.
The Company evaluates tax positions taken in the course of preparing its tax returns to determine whether they are "more-likely-than-not" to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold could result in greater and undistributed ICTI, income and excise tax expense, and, if involving multiple years, a re-assessment of the Company's RIC status. GAAP requires recognition of accrued interest and penalties related to uncertain tax benefits as income tax expense. There were no uncertain income tax positions at October 31, 2024.
Distributions: Distributions to stockholders are recorded on the applicable record date. The amount, timing and form of distributions is determined by the Board each quarter. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. Distributions paid in excess of current or accumulated ICTI and net realized gains are generally considered returns of capital to stockholders.
Net investment income determined in accordance with tax regulations may differ from net investment income for financial reporting purposes. Differences may be temporary or permanent. Permanent differences result in a reclassification between capital accounts. Additionally, certain short-term capital gains may be reported as ordinary income for tax purposes. Distributions paid by the Company in accordance with RIC requirements are subject to re-characterization for tax purposes.
The tax character of distributions paid to stockholders, as set forth in the statements of changes in net assets and in the financial highlights, reflect estimates made by the Company as our fiscal year end differs from the calendar year period on which the character of distributions is determined for 1099-DIV reporting purposes. Actual results may vary as the tax character of
31
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
distributions is unknown until it is determined annually as of the end of each calendar year and, if required, reported to stockholders on Form 1099-DIV. Accordingly, the final tax character of distributions may differ materially from the estimates presented herein.
Issuance of common stock:The sale and issuance of common stock shares pursuant to the Company's At-the-Market Offering (as defined in Note 9) are recorded on the trade date. Such shares generally settle one business day following the trade date and are entitled to distributions on applicable record dates following settlement. Unsettled share issuances are accrued and are included in receivable for common stock sold on the statement of assets and liabilities. Shares issued under the dividend reinvestment plan are recorded on the applicable dividend payment date.
Concentration of credit risk: Aside from the Company's investments, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalent deposits at financial institutions. At various times during the year, the Company's cash and cash equivalent deposits exceed the FDIC insured limit. The Company places cash and cash equivalent deposits only with high credit quality institutions, which OFS Advisor believes will mitigate the risk of loss due to credit risk. Management believes the risk of loss related to the Company's cash and cash equivalent deposits is minimal. If underlying funds and managers fail to perform according to the terms of the indentures and collateral management agreements and the collateral or other security for those instruments proved to be of no value to the Company, the amount of loss due to credit risk from the Company's investments is equal to the Company's recorded investments and the unfunded commitments disclosed in Note 5.
New Accounting Pronouncements and Rule Issuances
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 enhances the disclosures required for reportable segments on an annual and interim basis. ASU 2023-07 is effective on a retrospective basis for annual periods beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.
Note 3. Related Party Transactions
Investment Advisory and Management Agreement: OFS Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company pursuant to an investment advisory and management agreement (the "Investment Advisory Agreement"). On June 6, 2024, the Board unanimously voted to approve the continuation of the Investment Advisory Agreement for one year. Under the terms of the Investment Advisory Agreement, OFS Advisor is responsible for: (i) determining the composition of the portfolio, the nature and timing of the changes to the portfolio and the manner of implementing such changes; (ii) identifying, evaluating and negotiating the structure of the investments made (including performing due diligence on prospective investments); (iii) closing and monitoring the investments made; and (iv) providing other investment advisory, research and related services as required. OFS Advisor is a subsidiary of OFSAM and a registered investment advisor under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). OFS Advisor's services under the Investment Advisory Agreement are not exclusive, and it and its members, officers and employees are free to furnish similar services to other persons and entities so long as its services to the Company are not impaired. OFS Advisor also serves as the investment adviser to other funds, separately-managed accounts and other assets, including OFS Capital Corporation and Hancock Park Corporate Income, Inc. Additionally, OFS Advisor serves as a sub-advisor to investment companies managed by an affiliate.
OFS Advisor receives fees for providing services, consisting of two components: a base management fee ("Base Management Fee") and an incentive fee ("Incentive Fee"). The Base Management Fee is calculated and payable quarterly in arrears and equals an annual rate of 1.75% of the Company's "Total Equity Base", defined as the sum of the net asset value of the Company's common stock and the paid-in capital of the Company's preferred stock. Base Management Fees are paid by the holders of our shares of common stock and are not paid by holders of preferred stock, or the holders of any other types of securities that the Company may issue. Base Management Fees for any partial calendar quarter are prorated based on the number of days in such quarter. The Base Management Fee does not increase when the Company borrows funds, but will increase if the Company issues preferred stock. The Base Management Fee is calculated before the determination of any Incentive Fee for the quarter, as further described below.
The Incentive Fee is calculated and payable quarterly in arrears and equals 20% of the Company's "Pre-Incentive Fee Net Investment Income" for the immediately preceding quarter, subject to a preferred return, or "hurdle," and a "catch up" feature. For this purpose, "Pre-Incentive Fee Net Investment Income" means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from an investment) accrued during the calendar quarter, minus the Company's operating expenses for the quarter (including the Base Management Fee, expenses payable under the administrative services agreement to OFS Capital
32
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Services, LLC ("OFS Services"), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee Net Investment Income includes accrued income that the Company has not yet received in cash, as well as any such amounts received (or accrued) in kind. Pre-Incentive Fee Net Investment Income does not include any capital gains or losses, and no incentive fees are payable in respect of any capital gains and no incentive fees are reduced in respect of any capital losses.
In calculating the Incentive Fee for any given calendar quarter, Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company's NAV at the end of the immediately preceding calendar quarter, is compared to a hurdle of 2.0% of the Company's NAV per quarter (8.0% annualized) (the "Hurdle Rate"). For such purposes, the Company's quarterly rate of return is determined by dividing its Pre-Incentive Fee Net Investment Income by its reported NAV as of the prior period end. The Company's net investment income used to calculate this part of the incentive fee is also included in the calculation of the Total Equity Base which is used to calculate the Base Management Fee. The Incentive Fee with respect to the Company's Pre-Incentive Fee Net Investment Income in each calendar quarter as follows:
(A) no Incentive Fee in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the hurdle of 2.0% of NAV;
(B) 100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle but is less than 2.5% of NAV in any calendar quarter (10.0% annualized). The Company refers to this portion of the Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.5% of our NAV) as the "catch-up." The "catch-up" is meant to provide OFS Advisor with 20% of Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this net investment income meets or exceeds 2.5% of NAV in any calendar quarter; and
(C) 20.0% of that portion of the Company's pre-Incentive Fee net investment income, if any, with respect to which the rate of return exceeds 2.5% in such quarter (10.0% annualized) is payable to OFS Advisor (that is, once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income thereafter is due to OFS Advisor).
There will be no accumulation of amounts on the Hurdle Rate from quarter to quarter, no claw back of amounts previously paid if the rate of return in any subsequent quarter is below the Hurdle Rate and no delay of payment if the rate of return in any prior quarters was below the Hurdle Rate. Incentive Fees will be adjusted for any share issuances or repurchases during the calendar quarter, and any partial quarter Incentive Fee will be prorated based on the number of days in such quarter.
Administration Agreement: OFS Services, an affiliate of OFS Advisor, provides the administrative services necessary for the Company to operate. OFS Services furnishes the Company with office facilities and equipment, necessary software licenses and subscriptions, and clerical, bookkeeping and record keeping services at such facilities pursuant to an administrative services agreement (the "Administration Agreement"). On June 6, 2024, the Board unanimously voted to approve the continuation of the Administration Agreement for one year. Under the Administration Agreement, OFS Services performs, or oversees the performance of, the Company's required administrative services, which include being responsible for the financial records that the Company is required to maintain and preparing reports to its stockholders and all other reports and materials required to be filed with the Securities and Exchange Commission or any other regulatory authority. In addition, OFS Services assists the Company in determining and publishing its NAV, oversees the preparation and filing of its tax returns and the printing and dissemination of reports to its stockholders, and generally oversees the payment of the Company's expenses and the performance of administrative and professional services rendered to the Company by others. Payment under the Administration Agreement is equal to an amount based upon the Company's allocable portion (subject to the review and approval of the Board) of OFS Services's overhead in performing its obligations under the Administration Agreement, including, but not limited to, rent, information technology services and the Company's allocable portion of the cost of its officers, including its chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, corporate secretary and their respective staffs. To the extent that OFS Services outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to OFS Services. The Administration Agreement may be renewed annually with the approval of the Board, including a majority of our directors who are not "interested persons." The Administration Agreement may be terminated by either party without penalty upon 60 days' written notice to the other party.
Equity Ownership: As of October 31, 2024, OFS Advisor and its affiliates held 850,926 shares of common stock, which is approximately 4.1% of the Company's outstanding shares of common stock.
33
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Expenses recognized under agreements with OFS Advisor and OFS Services and distributions paid to affiliates for the year ended October 31, 2024 are presented below:
Incentive fees $ 4,359,127
Base management fees 3,462,787
Administration fees 1,372,020
Common stock distributions to affiliates 1,059,902
34
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Note 4. Fair Value of Financial Instruments
The Company's investments are carried at fair value and determined in accordance with ASC 820 and a documented valuation policy that is applied in a consistent manner. Pursuant to Rule 2a-5 of the 1940 Act ("Rule 2a-5"), the Board designated OFS Advisor as the valuation designee to perform fair value determinations relating to the Company's investments, and the Board maintains oversight of OFS Advisor in its capacity as valuation designee, as prescribed in Rule 2a-5.
As of October 31, 2024, all of the Company's investments are classified as Level 3 under ASC Topic 820. The following table provides the primary quantitative information about valuation techniques and the Company's significant unobservable inputs to its Level 3 fair value measurements. In addition to the techniques and unobservable inputs noted in the table below and in accordance with OFS Advisor's valuation policy, OFS Advisor, as valuation designee, may also use other valuation techniques and methodologies when determining the fair value measurements of the Company's investment assets. The table below is not intended to be all-inclusive and only presents the most significant unobservable input(s) relevant to the valuation designee's determination of fair value.
Investment Type Fair Value Valuation Techniques Unobservable Input
Range
(Weighted average)(1)
CLO Equity $ 176,065,602
Discounted Cash Flows(2)
Constant Default Rate 2.00% - 3.00% (2.02%)
Constant Prepayment Rate 25.00% - 25.00% (25.00%)
Reinvestment Spread - SOFR 3.15% - 6.00% (3.50%)
Reinvestment Price
99.00% - 99.50%(3)
Reinvestment Floor 0.50% - 0.75% (0.51%)
Recovery Rate 65.00% - 65.00% (65.00%)
Discount Rate 12.00% - 55.00% (19.93%)
CLO Equity 9,931,302 Market Approach Transaction Price
CLO Equity 659,353 Market Approach
NAV Liquidation(4)
Loan Accumulation Facility 500,000 Market Approach Transaction Price
Loan Accumulation Facility 5,000,000 Market Approach
NAV Liquidation(4)
CLO Debt 21,080,648
Discounted Cash Flows(2)
Constant Default Rate 2.00% - 3.00% (2.13%)
Constant Prepayment Rate 25.00% - 25.00% (25.00%)
Reinvestment Spread - SOFR 3.30% - 6.23% (3.96%)
Reinvestment Price
99.00% - 99.50%(3)
Reinvestment Floor 0.50% - 0.75% (0.53%)
Recovery Rate 65.00% - 65.00% (65.00%)
Discount Margin 6.00% - 9.85% (8.01%)
Other CLO equity-related investments 1,613,752
Discounted Cash Flows(2)
Discount Margin 8.41% - 9.96% (9.33%)
Total $ 214,850,657
(1) Weighted average is calculated based on the fair value of investments.
(2) The cash flows utilized in the discounted cash flow calculations assume: (i) liquidation of (a) certain distressed investments and (b) all investments currently in default held by the issuing CLO at their current market prices; and (ii) redeployment of proceeds at the issuing CLO's assumed reinvestment rate.
(3) A weighted average is not presented as the input in the discounted cash flow model varies over the life of an investment.
(4) NAV liquidation represents the fair value, or estimated expected residual value, of the investment.
Due to the inherent uncertainty of determining the fair value of Level 3 investments, the fair value of the investments may differ significantly from the values that would have been used had a ready market or observable inputs existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions, and otherwise are less liquid than publicly traded instruments. If the Company were
35
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
required to liquidate a portfolio investment in a forced or liquidation sale, the Company might realize significantly less than the value at which such investment had previously been recorded, and the Company may realize significant realized losses of invested capital. The Company's investments are subject to market risk as a result of economic and political developments, including impacts from interest rate and inflation rate changes, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S. and international banking systems, the agenda of the new U.S. Presidential administration, including the potential impact of tariff enactment and tax reductions, the risk of recession or a shutdown of U.S. government services and related market volatility. Market risk is directly impacted by the volatility and liquidity in the markets in which certain investments are traded and can affect the fair value of the Company's investments. Changes in interest rates, including potential additional interest rate reductions approved by the U.S. Federal Reserve, may impact the Company's investment income, cost of funding and the valuation of its investment portfolio.
The following table presents changes in the investment measured at fair value using Level 3 inputs for the year ended October 31, 2024:
CLO Equity CLO Debt Loan Accumulation Facilities Other CLO Equity -Related Investments Total
Level 3 assets, October 31, 2023 $ 119,610,273 $ 41,998,433 $ 5,540,417 $ 948,605 $ 168,097,728
Net realized gain (loss) on investments (14,793,107) 565,310 - - (14,227,797)
Net change in unrealized appreciation on investments(1)
10,471,050 983,332 - 358,521 11,812,903
Accretion of interest income on investments 24,463,184 - - 191,694 24,654,878
Amortization of original issuance discount on investments - 915,973 - - 915,973
Purchase of portfolio investments(2)
100,115,888 1,880,000 21,735,195 495,295 124,226,378
Proceeds from the repayment of portfolio investments (2,672,270) (10,750,000) (21,775,612) - (35,197,882)
Sale of portfolio investments (9,773,218) (14,512,400) - - (24,285,618)
Distributions from portfolio investments (40,765,543) - - (380,363) (41,145,906)
Level 3 assets, October 31, 2024 $ 186,656,257 $ 21,080,648 $ 5,500,000 $ 1,613,752 $ 214,850,657
(1) For the year ended October 31, 2024, the net change in unrealized appreciation in the Company's statement of operations attributable to the Company's Level 3 assets still held at the end of the period was $(1,245,502).
(2) Includes proceeds of $21,763,092 from the repayment of loan accumulation facility investments reinvested in the associated CLO securities.
Portfolio Concentration: The following table presents the Company's investments based on fair value that comprise greater than 10% of the Company's total net assets as of October 31, 2024:
Percentage of Total
Investment Name Investment Type Amortized Cost Fair Value Fair Value Net Assets
Generate CLO 14 Ltd.(1)
CLO Equity $ 16,268,672 $ 16,652,373 7.8 % 11.2 %
The following table presents the Company's investments based on fair value managed by a single collateral manager that comprise greater than 10% of the Company's total net assets as of October 31, 2024:
Percentage of Total
Collateral Manager (Investment Series) Amortized Cost Fair Value Fair Value Net Assets
PGIM, Inc. (Dryden) $ 32,436,684 $ 27,328,992 12.7 % 18.4 %
Apex Credit Partners LLC (Apex) 19,834,097 16,540,839 7.7 11.1
AXA Investment Managers (Allegro) 16,528,165 15,718,831 7.3 10.6
(1) Generate Advisors, collateral manager of Generate CLO 14, Ltd., manages investments that comprise greater than 10% of the Company's total net assets, but is excluded from the above collateral manger table.
36
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Other Financial Assets and Liabilities
GAAP requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments, such as cash, cash equivalents, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk.
The following table presents the carrying values and fair values of the Company's preferred stock as of October 31, 2024:
Description
Carrying Value(1)
Fair Value
6.125% Series C Term Preferred Stock $ 22,752,983 $ 22,659,600
6.00% Series D Term Preferred Stock 2,973,385 2,883,095
5.25% Series E Term Preferred Stock 34,468,638 33,389,860
7.875% Series F Term Preferred Stock 28,778,538 29,828,240
Total preferred stock $ 88,973,544 $ 88,760,795
(1) Carrying value is calculated as the outstanding principal amount less unamortized deferred issuance costs. See Note 2 for details.
The following table presents the fair value measurements of the Company's preferred stock and indicates the fair value hierarchy of the significant inputs utilized by the Company to determine such fair values as of October 31, 2024:
Description
Level 1(1)
Level 2
Level 3(2)
Total
6.125% Series C Term Preferred Stock $ 22,659,600 $ - $ - $ 22,659,600
6.00% Series D Term Preferred Stock - - 2,883,095 2,883,095
5.25% Series E Term Preferred Stock 33,389,860 - - 33,389,860
7.875% Series F Term Preferred Stock 29,828,240 - - 29,828,240
Total preferred stock, at fair value $ 85,877,700 $ - $ 2,883,095 $ 88,760,795
(1) For Level 1 measurements, fair value is estimated by using the closing price of the security on The Nasdaq Capital Market as of the date presented.
(2) For Level 3 measurements, fair value is estimated through discounting remaining payments at current market rates for similar instruments at the measurement date through the legal maturity date.
Note 5. Commitments and Contingencies
The following table presents the Company's unfunded commitments to fund investments as of October 31, 2024:
Investment Name Investment Type Commitment
Wildwood Park CLO, Ltd.(1)
CLO Equity $ 4,225,040
LCM 42 Ltd. Loan Accumulation Facility 2,000,000
Total $ 6,225,040
(1) Represents a primary market new issue trade that was recorded in November 2024 upon the closing and issuance of the security.
As of October 31, 2024, the Company had cash and cash equivalents of $24,696,288 to fund these investments.
Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnification. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company believes the risk of any material obligation under these indemnifications to be low.
Under the Company's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company.
Legal and regulatory proceedings:From time to time, the Company may be involved in legal proceedings in the normal course of its business. Although the outcome of such litigation, if applicable, cannot be predicted with any certainty, management is of the opinion, based on the advice of legal counsel, that final disposition of any litigation should not have a material adverse effect on the financial position of the Company as of October 31, 2024.
37
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Note 6. Mandatorily Redeemable Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock, at a par value of $0.001 per share, and at October 31, 2024 had 3,636,000 shares of preferred stock outstanding. During the year ended October 31, 2024, the average dollar borrowings and average effective interest rate for the Company's preferred stock was $63,590,164 and 6.41%, respectively. The Company may recognize a loss related to the acceleration of unamortized deferred issuance costs upon early redemption of any outstanding shares of preferred stock. No loss was was recognized for the year ended October 31, 2024.
6.60% Series B Term Preferred Stock
On November 19, 2020, through a private placement, the Company issued 120,000 shares of its 6.60% Series B Term Preferred Stock due 2023 (the "Series B Term Preferred Stock") at a price per share of $24.40625, resulting in gross proceeds of $2,928,750.
The offering was consummated pursuant to the terms of a purchase agreement (the "Series B Purchase Agreement") dated November 19, 2020 by and between the Company and the purchaser named therein (the "Series B Purchaser"). The Series B Purchase Agreement provided for the Series B Term Preferred Stock to be issued to the Series B Purchaser in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(a)(2) thereof and Regulation D thereunder. The Company relied upon this exemption from registration based in part on representations made by the Series B Purchaser.
During the year ended October 31, 2024, the Company paid distributions of approximately $0.08 per share of Series B Term Preferred Stock.
The shares of Series B Term Preferred Stock had a liquidation preference of $25 per share and were subject to mandatory redemption on November 19, 2023.
On October 5, 2023, the Company delivered a notice to the Series B Purchaser regarding the redemption of all of the issued and outstanding Series B Term Preferred Stock on November 19, 2023 (the "Redemption Date"). The Company redeemed all outstanding shares of the Series B Term Preferred Stock on the Redemption Date for a redemption price of $25 per share, plus the accumulated but unpaid dividends per share from November 1, 2023 to, but excluding, the Redemption Date. The total redemption price for all shares of the Series B Term Preferred Stock, including the accumulated unpaid dividends, was $3,009,900.
6.125% Series C Term Preferred Stock
In April 2021, the Company issued 920,000 shares of its 6.125% Series C Term Preferred Stock due 2026 (the "Series C Term Preferred Stock"). The shares of Series C Term Preferred Stock have a liquidation preference of $25 per share and are mandatorily redeemable on April 30, 2026. The Company may, at its sole option, redeem the outstanding shares of Series C Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
During the year ended October 31, 2024, the Company paid distributions of approximately $1.53 per share of Series C Term Preferred Stock.
6.00% Series D Term Preferred Stock
On June 10, 2021, through a private placement, the Company issued 120,000 shares of its 6.00% Series D Term Preferred Stock due 2026 (the "Series D Term Preferred Stock") at a price per share of $24.50, resulting in gross proceeds of $2,940,000. The shares of Series D Term Preferred Stock have a liquidation preference of $25 per share and are subject to mandatory redemption on June 10, 2026. The Company may, at its sole option, redeem the outstanding shares of Series D Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
38
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
The offering was consummated pursuant to the terms of a purchase agreement (the "Series D Purchase Agreement") dated June 10, 2021 by and between the Company and the purchaser named therein (the "Series D Purchaser"). The Series D Purchase Agreement provided for the Series D Term Preferred Stock to be issued to the Series D Purchaser in a private placement in reliance on an exemption from registration under the Securities Act, provided by Section 4(a)(2) thereof and Regulation D thereunder. The Company relied upon this exemption from registration based in part on representations made by the Series D Purchaser. The Series D Term Preferred Stock has not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
During the year ended October 31, 2024, the Company paid distributions of approximately $1.50 per share of Series D Term Preferred Stock.
5.25% Series E Term Preferred Stock
In December 2021, the Company issued 1,400,000 shares of its 5.25% Series E Term Preferred Stock (the "Series E Term Preferred Stock"). The shares of Series E Term Preferred Stock have a liquidation preference of $25 per share and are mandatorily redeemable on December 31, 2026. The Company may, at its sole option, redeem the outstanding shares of Series E Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
During the year ended October 31, 2024, the Company paid distributions of approximately $1.31 per share of Series E Term Preferred Stock.
7.875% Series F Term Preferred Stock
In October 2024, the Company issued 1,196,000 shares of its 7.875% Series F Term Preferred Stock (the "Series F Term Preferred Stock") for net proceeds of $28,760,112 after deducting underwriting costs and offering expenses. The shares of Series F Term Preferred Stock have a liquidation preference of $25 per share and are mandatorily redeemable on October 31, 2029. At any time on or after October 31, 2026, the Company may, at its sole option, redeem the outstanding shares of Series F Term Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at the liquidation preference plus an amount equal to accumulated but unpaid dividends, if any, on such shares (whether or not earned or declared, but excluding interest on such dividends) to, but excluding, the date fixed for such redemption.
During the year ended October 31, 2024, the Company paid distributions of approximately $0.16 per share of Series F Term Preferred Stock.
39
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
For the year ended October 31, 2024, the components of interest expense, cash paid for interest, effective interest rate and average outstanding balance for the Company's preferred stock was as follows:
Series B Term Preferred Stock Series C Term Preferred Stock Series D Term Preferred Stock Series E Term Preferred Stock Series F Term Preferred Stock Total
Stated interest expense $ 14,900 $ 1,408,748 $ 180,000 $ 1,837,500 $ 189,678 $ 3,630,826
Amortization of deferred issuance costs 1,786 164,811 16,524 245,065 18,425 446,611
Total interest expense $ 16,686 $ 1,573,559 $ 196,524 $ 2,082,565 $ 208,103 $ 4,077,437
Cash paid for interest expense $ 14,900 $ 1,408,748 $ 180,000 $ 1,837,500 $ 189,678 $ 3,630,826
Effective interest rate(2)
n/m(1)
6.84% 6.55% 5.95% 8.49% 6.41%
Average outstanding balance $ 139,344 $ 23,000,000 $ 3,000,000 $ 35,000,000 $ 2,450,820 $ 63,590,164
Shares outstanding - period end - 920,000 120,000 1,400,000 1,196,000 3,636,000
Optional redemption date
n/m(1)
Currently Callable Currently Callable Currently Callable October 31, 2026
Mandatory redemption date
n/m(1)
April 30, 2026 June 10, 2026 December 31, 2026 October 31, 2029
(1) Not meaningful. On November 19, 2023, the Company redeemed all outstanding shares of its Series B Term Preferred Stock.
(2) The effective interest rate on preferred stock is calculated as total interest expense for the period divided by the average outstanding principal balance of preferred stock for the period.
The following table shows the scheduled maturities of the principal balances of the Company's outstanding preferred stock as of October 31, 2024:
Payments due by period
Description Total Less than
1 year 		1 to 3 years 3 to 5 years After 5 years
Series C Term Preferred Stock $ 23,000,000 $ - $ 23,000,000 $ - $ -
Series D Term Preferred Stock 3,000,000 - 3,000,000 - -
Series E Term Preferred Stock 35,000,000 - 35,000,000 - -
Series F Term Preferred Stock 29,900,000 - - 29,900,000 -
Total $ 90,900,000 $ - $ 61,000,000 $ 29,900,000 $ -
Preferred Stock Repurchase Program
On December 7, 2021, the Board authorized a program under which the Company may repurchase up to $10.0 million of its outstanding shares of the Company's Series C Term Preferred Stock and Series E Term Preferred Stock. On December 5, 2023, the Board extended the repurchase program for an additional two-year period. Under this program, the Company may, but is not obligated to, repurchase its outstanding Series C Term Preferred Stock and Series E Term Preferred Stock in the open market from time to time through December 7, 2025. The timing and the amount of Series C Term Preferred Stock and Series E Term Preferred Stock to be repurchased will depend on a number of factors, including then-existing market conditions, liquidity, prospects for future access to capital, contractual restrictions, alternative investment opportunities and other factors. In addition, any repurchases will also be conducted in accordance with the 1940 Act. There are no assurances that the Company will engage in any repurchases. During the year ended October 31, 2024, no shares of preferred stock were repurchased under the program.
Note 7. Federal Income Taxes
The Company has elected, and intends to qualify annually, to be taxed as a RIC under Subchapter M of the Code. To maintain its tax treatment as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its ICTI. Additionally, to avoid a 4% U.S. federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of: (i) 98% of its ordinary income for such calendar year; (ii) 98.2% of its net capital gains for the period ending October 31 of that calendar year; and (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. Maintenance of the Company's RIC status also requires adherence to certain source of income and asset diversification requirements provided under the Code. The Company has met the source of income and asset diversification requirements as of October 31, 2024, and intends to continue to meet these requirements.
40
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
As of October 31, 2024, the Company has accrued refunds of $189,547 related to tax-year 2022 and 2023 excise tax overpayments.
The Company's ICTI differs from the net increase (decrease) in net assets resulting from operations primarily due to differences in income recognition for CLO equity investments, the treatment of distributions on preferred stock, the recognition of non-deductible excise tax expense and the recognition of unrealized appreciation/depreciation on investments. These differences can be permanent or temporary in nature. GAAP requires the recognition of an estimated constant yield for CLO equity investments. U.S. federal income tax rules, however, require recognition of income reported to the Company by the underlying CLO fund in the tax period reported on applicable tax statements. Distributions on mandatorily redeemable preferred stock are reported as interest expense under GAAP but are treated as either dividends or return-of-capital distributions for federal income tax purposes.
For the year ended October 31, 2024, the Company recorded a reclassification between its capital accounts of $3,945,199 for permanent book-tax income differences related to nondeductible deferred issuance costs amortization on preferred stock and prior year provision-to-return true-ups. These reclassifications have no effect on total net assets or net asset value per common share. As of October 31, 2024, the Company had estimated undistributed ICTI of $2,135,543 and a non-expiring capital loss carry-forward of $19,404,393.
As of October 31, 2024, the estimated tax-basis cost of investments and associated tax-basis gross unrealized appreciation (depreciation) inherent in the fair value of investments based on known and estimated GAAP-tax basis differences were as follows:
Tax-basis amortized cost of investments $ 242,750,741
Tax-basis gross unrealized appreciation on investments 8,641,995
Tax-basis gross unrealized depreciation on investments (36,542,079)
Tax-basis net unrealized depreciation on investments (27,900,084)
Fair value of investments $ 214,850,657
The Company distributed $24,856,657 for the year ended October 31, 2024, consisting of common stock distributions and the cash portion of mandatorily redeemable preferred stock interest, which is considered a distribution for federal income tax purposes. The final tax character of distributions will not be determined until the end of the calendar year and the tax character of all distributions will be reported to stockholders on Form 1099-DIV, if required, after the end of each calendar year. Distributions declared prior to December 31stand paid on or prior to January 31stof the following year, are generally included in such tax reporting to the recipient in the year declared.
41
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Note 8. Financial Highlights
The following is a schedule of financial highlights for the periods indicated:
Year Ended October 31, 2024 Year Ended October 31, 2023 Year Ended October 31, 2022 Year Ended October 31, 2021 Year Ended October 31, 2020 Year Ended October 31, 2019 Period from October 10 (commencement) through October 31, 2018
(per share data)
Net asset value per share at beginning of period $ 7.55 $ 9.98 $ 14.00 $ 11.58 $ 14.98 $ 20.11 $ 20.00
Income (loss) from investment operations:
Net investment income(1)
1.04 1.46 1.58 1.22 1.58 1.66 0.08
Loss on redemption of preferred stock(1)
- - (0.05) - - - -
Net realized loss on investments(1)
(0.85) - - - - - -
Net unrealized gain (loss) on investments(1)
0.71 (1.62) (3.18) 2.59 (2.71) (4.69) 0.03
Total income (loss) from investment operations 0.90 (0.16) (1.65) 3.81 (1.13) (3.03) 0.11
Distributions:
Common stock distributions from net investment income(2)
(1.26) (1.88) (2.20) (0.16) (1.19) - -
Common stock distributions from tax return of capital(2)
- (0.32) - (1.98) (0.88) (2.12) -
Total distributions (1.26) (2.20) (2.20) (2.14) (2.07) (2.12) -
Issuance of common stock(3)
(0.01) (0.07) (0.17) 0.75 (0.20) 0.02 -
Net asset value per share at end of period $ 7.18 $ 7.55 $ 9.98 $ 14.00 $ 11.58 $ 14.98 $ 20.11
Per share market value at end of period $ 7.07 $ 6.18 $ 9.55 $ 13.60 $ 9.83 $ 16.91 $ 18.78
Total return based on market value(4)
37.82 % (16.43) % (13.64) % 60.70 % (29.07) % 1.84 % (6.10) %
Total return based on net asset value(5)
14.57 % (2.30) % (12.33) % 40.43 % (5.68) % (15.75) % 0.55 %
Shares outstanding at end of period
20,701,251 15,917,015 9,442,550 7,719,307 3,580,663 3,061,858 2,505,000
Weighted average shares outstanding
16,694,376 11,416,615 8,238,545 5,329,914 3,237,905 2,601,037 2,505,000
Ratio/Supplemental Data
Net asset value at end of period
$ 148,606,804 $ 120,188,987 $ 94,210,001 $ 108,100,995 $ 41,475,608 $ 45,855,308 $ 50,386,507
Ratio of total operating expenses to average net assets(6)(7)(8)
12.20 % 13.12 % 13.02 % 12.10 % 13.65 % 9.41 % 4.42 %
Ratio of net investment income to average net assets(7)(9)(10)
14.08 % 15.52 % 12.90 % 8.70 % 11.70 % 9.00 % 7.17 %
Portfolio turnover rate(11)
56.64 % 30.90 % 33.80 % 51.00 % 8.60 % 28.80 % 5.10 %
Asset coverage of preferred stock(12)
263.48 % 287.80 % 247.20 % 314.84 % 294.57 % 315.12 % N/A
42
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
(1)Calculated on the average share method.
(2)The final tax character of the Company's earnings cannot be determined until the end of the calendar year and may vary from the estimates as set forth in the statements of changes in net assets and disclosed above and in Note 9. Each common stockholder, if required, will receive a Form 1099-DIV following the end of each calendar year, which will reflect the actual amounts of taxable ordinary income, capital gain and return of capital paid by the Company. The figures above have not been adjusted to reflect the final tax character of any particular period, as applicable.
(3)The issuance of common stock on a per share basis reflects the incremental net asset value change as a result of the issuance of shares of common stock under the Equity Distribution Agreement (as defined below), the issuance of shares of common stock in the Company's August 2019 rights offering, the issuance of shares of common stock in the Company's March 2021 public offering, the issuance of shares of common stock as common stock distributions, the anti-dilutive (dilutive) impact from changes in weighted-average shares outstanding during the period, and the difference between the per share amount distributed to common stockholders of record and the per share amount distributed based on the weighted-average shares of common stock outstanding during the applicable period.
(4)Total return based on market value is calculated assuming shares of common stock were purchased at the market price at the beginning of the period, distributions were reinvested at a price obtained in the Company's dividend reinvestment plan, and shares were sold at the closing market price on the last day of the period. Total return is not annualized for a period of less than one year.
(5)Total return based on net asset value is calculated assuming shares of common stock were purchased at the net asset value at the beginning of the period, distributions were reinvested at a price obtained in the Company's dividend reinvestment plan, and shares were sold at the ending net asset value on the last day of the period. Total return is not annualized for a period of less than one year.
(6)Ratio of total expenses before management fee waiver to average net assets was 9.87% and 6.17% for the year ended October 31, 2019 and period ended October 31, 2018, respectively.
(7)Annualized for periods less than one year.
(8)Ratio of total expenses (before the one-time adjustment to reflect shares issued by the Company during the fiscal year ended October 31, 2021) to average net assets was 12.83% and 12.36% for the year ended October 31, 2022 and 2021, respectively.
(9)Ratio of net investment income before management fee waiver to average net assets was 8.54% and 5.42% for the year ended October 31, 2019 and period ended October 31, 2018, respectively.
(10)Ratio of net investment income (before the one-time adjustment to reflect shares issued by the Company during the fiscal year ended October 31, 2021) to average net assets was 13.09% and 8.95% for the year ended October 31, 2022 and 2021, respectively.
(11)Portfolio turnover rate is calculated using the lesser of period-to-date sales, repayments and distributions from portfolio investments or period-to-date purchases over the average of portfolio investments at fair value.
(12)Under the provisions of the 1940 Act, the Company is permitted to issue senior securities, including preferred stock, provided that the Company maintains an asset coverage of at least 200%. Asset coverage is calculated as the ratio of the Company's total consolidated assets, less all liabilities and indebtedness not represented by senior securities, over the aggregate amount of the Company's outstanding senior securities representing indebtedness.
43
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Note 9. Capital Transactions
At-the-Market Program
On January 24, 2020, the Company entered into an equity distribution agreement by and among the Company, OFS Advisor, and OFS Services, on the one hand, and Ladenburg Thalmann & Co. Inc., as a placement agent, on the other hand, as amended (the "Equity Distribution Agreement"), relating to the sale of shares in an offering of its common stock (the "At-the-Market Offering"). The original equity distribution agreement provided that the Company may offer and sell shares of its common stock in the At-the-Market Offering having an aggregate offering price of up to $25.0 million.
On June 12, 2024, the Equity Distribution Agreement was amended to, among other things: (i) add Lucid Capital Markets, LLC as an additional placement agent; and (ii) increase the amount of common stock that the Company may offer to sell pursuant to such agreement up to an aggregate offering price of $150.0 million (which amount includes all of the shares previously sold pursuant to the Equity Distribution Agreement to date).
For the year ended October 31, 2024, the Company sold 4,458,057 shares of its common stock in the At-the-Market Offering for net proceeds of $32,403,402, after deducting commissions and fees of $401,631 and offering costs of $75,929.
As of October 31, 2024, the Company may issue additional shares in the At-the-Market Offering of approximately $44.9 million.
Common Stock Distributions
The following table summarizes distributions paid on common shares for the year ended October 31, 2024:
Record Date Payment Date Distribution Per Share Total Distribution Cash Distribution Value of DRIP Shares Issued DRIP Shares Issued
DRIP Share Issuance Price(1)
December 22, 2023 December 29, 2023 $ 0.20 $ 3,183,404 $ 3,050,618 $ 132,786 21,637 $ 6.137
January 24, 2024 January 31, 2024 0.10 1,593,865 1,530,060 63,805 9,727 6.560
February 19, 2024 February 29, 2024 0.10 1,594,838 1,441,530 153,308 23,054 6.650
March 19, 2024 March 29, 2024 0.10 1,597,143 1,438,847 158,296 23,272 6.802
April 19, 2024 April 30, 2024 0.10 1,599,470 1,409,594 189,876 28,472 6.669
May 21, 2024 May 31, 2024 0.105 1,686,381 1,501,305 185,076 26,221 7.059
June 18, 2024 June 28, 2024 0.105 1,698,276 1,509,185 189,091 27,645 6.840
July 19, 2024 July 31, 2024 0.105 1,738,767 1,506,577 232,190 33,899 6.850
August 20, 2024 August 30, 2024 0.115 1,993,997 1,714,456 279,541 39,872 7.011
September 20, 2024 September 30, 2024 0.115 2,192,458 1,883,020 309,438 43,958 7.040
October 21, 2024 October 31, 2024 0.115 2,347,232 2,022,006 325,226 48,422 6.717
$ 1.26 $ 21,225,831 $ 19,007,198 $ 2,218,633 326,179 $ 6.802
(2)
(1) DRIP shares are issued at 95% of the closing market price on the applicable payment date. Such amounts could be below then current NAV, and if so, would be dilutive to non-participating stockholders.
(2) Represents the weighted-average issuance price of DRIP shares during the year ended October 31, 2024.
During the year ended October 31, 2024, the Company distributed $21,225,831, or $1.26 per common share. The estimated tax character of distributions paid for the year ended October 31, 2024, represents $1.26 from ordinary income. These amounts and sources of distributions reported are not being provided for U.S. tax reporting purposes as the fiscal period does not correspond to the required tax reporting period. The tax attributes of distributions are determined annually as of the end of each calendar year based, in part, on the taxable income for the fiscal year, estimated taxable income subsequent to the fiscal year end, and distributions paid. The estimated tax character of each distribution paid is reported to stockholders, if required, on Form 1099-DIV following the close of the calendar year. The final tax character of the Company's earnings cannot be determined until tax returns are prepared after the end of the fiscal year. The information provided is based on available estimates, and may differ from amounts reported on Form 1099-DIV and as finally determined on the Company's tax return, when filed.
44
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
On October 28, 2024, the Board declared the following cash distributions on common shares for each of the three months in the quarter ending January 31, 2025:
Month Record Date Payment Date Cash Distribution Per Share
November 2024 November 19, 2024 November 29, 2024 $0.115
December 2024 December 20, 2024 December 31, 2024 $0.115
January 2025 January 21, 2025 January 31, 2025 $0.115
Dividend Reinvestment Program
The Company adopted a dividend reinvestment plan, as amended, that provides for reinvestment of its common stock distributions on behalf of the common stockholders (the "Amended DRIP"), unless a common stockholder elects to receive cash.
For stockholders participating in the Amended DRIP, the number of shares to be issued to a stockholder in connection with any distribution will be determined by dividing the total dollar amount of the distribution payable to such stockholder by an amount equal to ninety five percent (95%) of the market price per share of common stock at the close of regular trading on The Nasdaq Capital Market on the valuation date (i.e., the payment date) fixed by the Board for such distribution.
Note 10. Principal Risks
The following list is not intended to be a comprehensive list of all principal risks associated with the Company. See "Summary of Risk Factors" for additional risks associated with the Company.
Fair Valuation of Our Portfolio Investments. Typically, there will not be a public market, or readily available market quotations, for the type of investments in which the Company invests. As a result, the Company will value these securities at least quarterly, or more frequently as may be required from time to time, at fair value. The Company's determination of the fair value of its investments, requiring significant management judgment and estimation, has a material impact on its net earnings through the recording of unrealized appreciation or depreciation of investments and may cause its NAV on a given date to materially understate or overstate the value that the Company may ultimately realize on one or more of its investments.
Accretable Yield Estimates of Our CLO Equity Investments. CLO equity securities do not carry a stated coupon and rely on residual cash flows after the payment of debt costs and fund expenses of the CLO. Interest income from investments in CLO equity securities is recognized on the basis of the estimated effective yield to expected redemption utilizing assumed cash flows. The estimated effective yield on our CLO equity investments requires significant management judgment and estimation. Interest income recognized on CLO investments is not contractually due to the Company and may not ultimately be realized in actual cash returns. The ultimate returns of CLO equity securities may be highly dependent on terminal liquidating payments many years after the initial investment period and, accordingly, actual returns cannot be known until the investment is sold or finally liquidates.
Key Personnel Risk. The Company is dependent upon the key personnel of OFS Advisor for its future success.
Conflicts of Interest Risk. The Company's executive officers and directors, and OFS Advisor and its officers and employees, including the senior investment team, have several conflicts of interest as a result of the other activities in which they engage.
Incentive Fee Risk. The Company's incentive fee structure may incentivize OFS Advisor to pursue investments on its behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement and to use leverage in a manner that adversely impacts the Company's performance.
Tax Risks. If the Company fails to qualify for tax treatment as a RIC under the Code for any reason or becomes subject to U.S. federal income tax, the resulting U.S. federal income tax, imposed at corporate rates, could substantially reduce its net assets, the amount of income available for distribution and the amount of its distributions.
Distributions and Dividend Risk. The Company may reduce, defer or eliminate its distributions and choose to incur U.S. federal excise tax in order to preserve cash and maintain flexibility.
Stock Dividend Risk. In the past, the Company has declared, and may in the future declare, taxable dividends that are payable to its stockholders in cash or in shares of its common stock at the election of stockholders subject to a limitation on the total amount of cash that may be distributed. In addition, if a significant number of the Company's stockholders determine to sell shares of its stock in order to pay taxes owed on distributions, it may put downward pressure on the trading price of the Company's stock.
45
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
Market Risks. The economic disruption and downturn in the capital markets and the credit markets resulting from interest rate and inflation rate changes, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S. and international banking systems, the agenda of the new U.S. Presidential administration, including the potential impact of tariff enactment and tax reductions, the risk of recession or a shutdown of U.S. government services may impair the Company's ability to raise capital, the availability of suitable investment opportunities for the Company and may negatively affect its business.
Events Outside of the Company's Control. Events outside of the Company's control, including public health crises, have negatively affected and could continue to negatively affect its CLO investments and its results of operations.
Non-Diversification Risk. The Company is a non-diversified investment company under the 1940 Act and may hold a narrower range of investments than a diversified fund under the 1940 Act. The Company may also be concentrated in investments issued by a certain collateral managers, which may heighten cross-collateralization risks.
Leverage Risk. The use of leverage, whether directly or indirectly, through investments such as CLO equity or subordinated debt securities may magnify the Company's risk of loss. CLOs are typically highly leveraged vehicles (typically 9 - 13 times), and therefore the CLO equity and subordinated debt securities in which the Company invests or intends to invest are subject to a higher risk of loss since the use of leverage magnifies losses. Additionally, CLO equity investments are the first-loss positions in these structures.
Risks of Investing in CLOs and Other Structured Finance Securities. CLO and structured finance securities present risks similar to other credit investments, including default (credit), interest rate and prepayment risks. In addition, CLOs and other structured finance securities are typically governed by a complex series of legal documents and contracts, which increases the possibility of disputes over the interpretation and enforceability of such documents. For example, some documents governing the loans underlying our CLO investments may allow for "priming transactions," in connection with which majority lenders or debtors can amend loan documents to the detriment of other lenders, amend loan documents in order to move collateral, or amend documents in order to facilitate capital outflow to other parties/subsidiaries in a capital structure, any of which may adversely affect the rights and security priority of the CLOs in which the Company is invested. In addition, a collateral manager or trustee of a CLO may not properly carry out its duties to the CLO, potentially resulting in loss to the CLO. CLOs are also leveraged vehicles and are subject to leverage risk.
Risks of Investing in the Subordinated or Equity Tranche of CLOs. The Company may invest in the subordinated notes that comprise a CLO's equity tranche, which are junior in priority of payment and are subject to certain payment restrictions generally set forth in an indenture governing the notes. In addition, CLO equity and subordinated notes generally do not benefit from any creditors' rights or ability to exercise remedies under the indenture governing the notes. The subordinated notes are not guaranteed by another party. Subordinated notes are subject to greater risk than the secured notes issued by the CLO. CLOs are typically highly levered, typically utilizing 9 - 13 times leverage, and therefore the CLO equity and subordinated debt securities in which the Company invests or intends to invest are subject to a higher risk of loss. There can be no assurance that distributions on the assets held by the CLO will be sufficient to make any distributions or that the yield on the subordinated notes will meet the Company's expectations.
First Loss Risk of CLO Equity and Subordinated Securities. CLO equity and subordinated debt securities that the Company may acquire are subordinated to more senior tranches of CLO debt. If a CLO breaches a covenant, excess cash flow that would otherwise be available for distribution to the CLO equity tranche investors is diverted to prepay CLO debt investors in order of seniority until such time as the covenant breach is cured. If the covenant breach is not or cannot be cured, the CLO equity investors (and potentially other debt tranche investors) may experience a partial or total loss of their investment. For this reason, CLO equity investors are often referred to as being in a first loss position. CLO equity and subordinated debt securities are subject to increased risks of default relative to the holders of superior priority interests in the same securities. Though not exclusively, the Company will typically be in a first loss or subordinated position with respect to realized losses on the assets of the CLOs in which it is invested.
CLO Rating Downgrade Risk. Ratings agencies have undergone, and may in the future undergo, reviews of CLO tranches and their broadly syndicated loans due to disruptions on the economic market. Such reviews have, in some cases, resulted in downgrades of broadly syndicated loans. Downgrades by rating agencies of broadly syndicated loans could adversely impact the financial performance of the CLO vehicles in which the Company has invested and their ability to pay equity distributions to the Company in the future.
High Yield Investment Risks. The CLO equity and subordinated debt securities that the Company will acquire are typically unrated or rated below investment grade and are therefore considered "high yield" or "junk" securities and are considered speculative with respect to timely payment of distributions or interest and reinvestment or repayment of principal. The senior secured loans and other credit-related assets underlying CLOs are also typically high yield investments that are below
46
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
investment grade. Investing in CLO equity and subordinated debt securities and other high yield investments involves greater credit and liquidity risk than investment grade obligations, which may adversely impact the Company's performance. High-yield investments, including collateral held by CLOs in which the Company invests, generally have limited liquidity. As a result, prices of high-yield investments have at times experienced significant and rapid decline when a substantial number of holders (or a few holders of a significantly large "block" of the securities) decide to sell. In addition, the Company (or the CLOs in which it invests) may have difficulty disposing of certain high-yield investments because there may be a thin trading market for such securities.
Limited Investment Opportunities Risk. The market for CLO securities is more limited than the market for other credit related investments. Sufficient investment opportunities for the Company's capital may not be available.
Interest Rate Risk. The price of certain of the Company's investments may be significantly affected by changes in interest rates. Although senior secured loans are generally floating rate instruments, the Company's investments in senior secured loans through CLOs are sensitive to interest rate levels and volatility. Although CLOs are generally structured to mitigate the risk of interest rate mismatch, there may be some difference between the timing of interest rate resets on the assets and liabilities of a CLO. Such a mismatch in timing could have a negative effect on the amount of funds distributed to CLO equity investors, and may in turn adversely affect the Company's cash flows and results of operations. In addition, changes in interest rate spreads can have a material impact the Company's investment income, cost of funding and the valuation of its investment portfolio.
Credit Risk. If (1) a CLO in which the Company invests, (2) an underlying asset of any such CLO or (3) any other type of credit investment in the Company's portfolio declines in price or fails to pay interest or principal when due because the issuer or debtor, as the case may be, experiences a decline in its financial status, the Company's income, NAV and/or market price may be adversely impacted.
Prepayment Risk. The assets underlying the CLO securities in which the Company invests are subject to prepayment by the underlying corporate borrowers. In addition, the CLO securities and related investments in which it invests are subject to prepayment risk. If the Company, or a CLO collateral manager of a CLO in which the Company invests, is unable to reinvest prepaid amounts in a new investment with an expected rate of return at least equal to that of the investment repaid or in a short time period following prepayment, the Company's investment performance will be adversely impacted.
Liquidity Risks. To the extent the Company invests in illiquid instruments, it may not be able to sell such investments at prices that reflect its assessment of their fair value or the amount paid for such investments by it. Specifically, the subordinated or equity tranche CLO securities the Company intends to acquire are illiquid investments and subject to extensive transfer restrictions, and no party is under any obligation to make a market for subordinated notes. At times, there may be no market for subordinated notes, and the Company may not be able to sell or otherwise transfer subordinated notes at their fair value, or at all, in the event that it determines to sell them.
Counterparty Risks. The Company may be exposed to counterparty risk, which could make it difficult for it or the CLOs in which it invests to collect on obligations, thereby resulting in potentially significant losses.
Loan Accumulation Facilities Risk. Investments in loan accumulation facilities, which acquire loans on an interim basis that are expected to form part of a CLO, may expose the Company to market, credit and leverage risks. In particular, in the event a planned CLO is not consummated, or the loans held in a loan accumulation facility are not eligible for purchase by the CLO, the Company may be responsible for either holding or disposing of the loans. This could expose the Company primarily to credit and/or mark-to-market losses and other risks. Investments in Loan Accumulation Facilities face other risks similar to CLO equity investments.
Currency Risk. Although the Company intends to primarily make investments denominated in U.S. dollars, it may make investments denominated in other currencies. The Company's investments denominated in currencies other than U.S. dollars will be subject to the risk that the value of such currency will decrease in relation to the U.S. dollar.
Risks Related to an Investment in Our Securities. The following are risks related to investments in the Company's securities:
•Shares of closed-end management investment companies, including the Company, have in the past frequently traded at discounts to their net asset values and have traded at or near historic lows as a result of concerns over liquidity, leverage restrictions and distribution requirements. The Company cannot assure that the market price of shares of its common stock will not decline below its net asset value per share.
•The Company's common stock price may be volatile and may decrease substantially.
•Any amounts that the Company uses to service its preferred dividends, or that it uses to redeem its preferred stock, will not be available for distributions to its common stockholders.
47
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
•The Company's common stock is subject to a risk of subordination relative to holders of its debt instruments and holders of its preferred stock.
•Holders of the Company's preferred stock have the right to elect two members of the Company's Board and class voting rights on certain matters.
Note 11. Subsequent Events
For the period from November 1, 2024 to December 11, 2024, the Company sold 874,425 shares of its common stock pursuant to the At-the-Market Offering for total net proceeds of $6,171,015, after deducting commissions and fees of $70,830.
48
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
SUPPLEMENTAL INFORMATION
Senior Securities Tables
Information about the Company's senior securities is shown in the following table as of and for the dates noted.
Class and Year
Total Amount Outstanding(1)
Asset Coverage Per $1,000(2)
Asset Coverage Per Unit(3)
Involuntary Liquidation Preference Per Unit(4)
Average Market Value Per Unit(5)
6.875% Series A Term Preferred Stock(6)
October 31, 2022 $ - $ - $ - $ - N/A
October 31, 2021 21,316,500 3,148 78.71 25.00 $ 25.15
October 31, 2020 21,316,500 2,946 73.64 25.00 23.72
October 31, 2019
21,316,500 3,151 78.78 25.00 25.46
6.60% Series B Term Preferred Stock(7)
October 31, 2024 - - - - N/A
October 31, 2023 3,000,000 2,878 71.95 25.00 N/A
October 31, 2022 3,000,000 2,472 61.80 25.00 N/A
October 31, 2021 3,000,000 3,148 78.71 25.00 N/A
6.125% Series C Term Preferred Stock
October 31, 2024 23,000,000 2,635 65.87 25.00 24.06
October 31, 2023 23,000,000 2,878 71.95 25.00 23.29
October 31, 2022 23,000,000 2,472 61.80 25.00 24.79
October 31, 2021 23,000,000 3,148 78.71 25.00 25.22
6.00% Series D Term Preferred Stock
October 31, 2024 3,000,000 2,635 65.87 25.00 N/A
October 31, 2023 3,000,000 2,878 71.95 25.00 N/A
October 31, 2022 3,000,000 2,472 61.80 25.00 N/A
October 31, 2021 3,000,000 3,148 78.71 25.00 N/A
5.25% Series E Term Preferred Stock
October 31, 2024 35,000,000 2,635 65.87 25.00 22.98
October 31, 2023 35,000,000 2,878 71.95 25.00 22.38
October 31, 2022 35,000,000 2,472 61.80 25.00 23.99
7.875% Series F Term Preferred Stock
October 31, 2024 29,900,000 2,635 65.87 25.00 24.94
(1) Total amount of each class of senior securities outstanding at the end of the period presented.
(2) The asset coverage ratio for a class of senior securities representing indebtedness is calculated as the total assets, less all liabilities and indebtedness not represented by senior securities, divided by the aggregate amount of outstanding senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the "Asset Coverage Per $1,000."
(3) The Asset Coverage Per Unit is expressed in terms of a ratio per share of the aggregate amount of outstanding senior securities. When expressing in terms of dollar amounts per share, the asset coverage ratio is multiplied by the involuntary liquidation preference per unit of $25.
(4) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.
49
OFS Credit Company, Inc.
Notes to Financial Statements
October 31, 2024
(5) Average market value per unit for the Series C Term Preferred Stock, Series E Term Preferred Stock and Series F Term Preferred Stock represent the average of the daily closing prices as reported on The Nasdaq Capital Market during the period presented. Not applicable to the Series A Term Preferred Stock, Series B Term Preferred Stock and Series D Term Preferred Stock because these senior securities are not registered for public trading or are fully redeemed.
(6) On December 10, 2021, all outstanding shares of the Series A Term Preferred Stock were redeemed at 100% of their principal amount ($25 per share), plus the accrued and unpaid dividends through December 9, 2021. The total amount of the redemption, plus accrued dividends, was $21,353,138.
(7) On November 19, 2023, all outstanding shares of the Series B Term Preferred Stock were redeemed at 100% of their principal amount ($25 per share), plus accrued and unpaid dividends through November 18, 2023. The total amount of the redemption, plus accrued dividends, was $3,009,900.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
OFS Credit Company, Inc.:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of OFS Credit Company, Inc. (the Company), including the schedule of investments, as of October 31, 2024, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years in the six-year period then ended and the period from October 10, 2018 (commencement of operations) through October 31, 2018. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Company as of October 31, 2024, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the six-year period then ended and the period from October 10, 2018 through October 31, 2018 in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of October 31, 2024, by correspondence with custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
Accompanying Supplemental Information
We have also previously audited, in accordance with the standards of the PCAOB, the statements of assets and liabilities of the Company, including the schedules of investments, as of October 31, 2023, 2022, 2021, 2020, and 2019, and the related statements of operations and cash flows for the years then ended and the related statements of changes in net assets for each of the years in the four-year period ended October 31, 2022 (none of which is presented herein), and we expressed unqualified opinions on those financial statements. The senior securities tables on page 49 under the caption "Senior Securities Tables" (the "Senior Securities Tables") have been subjected to audit procedures performed in conjunction with the audit of the Company's respective financial statements. The Senior Securities Tables are the responsibility of the Company's management. Our audit procedures included determining whether the Senior Securities Tables reconcile to the respective financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the Senior Securities Tables. In forming our opinion on the Senior Securities Tables, we evaluated whether the Senior Securities Tables, including their form and content, are presented in conformity with the instructions to Form N-2. In our opinion, the Senior Securities Tables are fairly stated, in all material respects, in relation to the respective financial statements as a whole.
We have served as the auditor of the Company since 2018.
Chicago, Illinois
December 11, 2024
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SUMMARY RISK FACTORS
The risk factors described below are a summary of the principal risk factors associated with an investment in the Company. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in our prospectus, as supplemented from time to time, and the other reports and documents filed by us with the SEC. Specifically, see "Risk Factors"in our prospectus filed with the SEC on May 24, 2024.
Risks Related to Our Business and Structure
•Our investment portfolio is recorded at fair value and OFS Advisor, our "valuation designee," determines the fair value of our investments in good faith pursuant to Rule 2a-5 under the 1940 Act. As a result, there will be uncertainty as to the value of our portfolio investments, and the participation of OFS Advisor's professionals in our valuation process could result in a conflict of interest.
•Our financial condition and results of operations depend on OFS Advisor's ability to effectively manage and deploy capital.
•We are dependent upon OFS senior professionals for our future success and upon their access to the investment professionals and partners of OFSAM and its affiliates.
•OFS Advisor and OFS Services each has the right to resign on 60 days' notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
•Our success will depend on the ability of OFS Advisor to attract and retain qualified personnel in a competitive environment.
•Our incentive fee structure may incentivize OFS Advisor to make certain investments, including speculative investments, use leverage when it may be unwise to do so, refrain from de-levering when it would otherwise be appropriate to do so, or include optimistic assumptions in the determination of net investment income.
•We may be obligated to pay OFS Advisor incentive compensation even if we incur a loss.
•We may pay an incentive fee on income we do not receive in cash.
•OFS Advisor's liability is limited under the Investment Advisory Agreement, and we have agreed to indemnify OFS Advisor against certain liabilities, which may lead OFS Advisor to act in a riskier manner on our behalf than it would when acting for its own account.
•The Investment Advisory Agreement and the Administration Agreement were not negotiated on an arm's length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
•Our Board may change our operating policies and strategies without stockholder approval, the effects of which may be adverse.
•We will be subject to U.S. federal income tax at corporate rates if we are unable to maintain our tax treatment as a RIC.
•There is a risk that holders of our equity securities may not receive distributions or that our distributions may not grow or may be reduced over time.
•We may choose to pay distributions in our own common stock, in which case, our stockholders may be required to pay U.S. federal income tax in excess of the cash distributions they receive.
•We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
•Because we expect to distribute substantially all of our ordinary income and net realized capital gains to our stockholders, we may need additional capital to finance our growth and such capital may not be available on favorable terms or at all.
•Events outside of our control, including public health crises, interest rate and inflation rate changes and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations.
•Global economic, political and market conditions may adversely affect our business, ability to secure debt financing, results of operations and financial condition, including our revenue growth and profitability.
•Adverse developments in the credit markets may impair our ability to secure debt financing.
•Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us.
•We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us.
•We may enter into reverse repurchase agreements, which are another form of leverage.
•Provisions of the Delaware General Corporation Law and our Amended and Restated Certificate of Incorporation and Bylaws could deter takeover attempts and have an adverse effect on the price of our securities.
•Increased geopolitical unrest, terrorist attacks, acts of war, global health emergencies or natural disasters may impact the businesses in which we invest and harm our business, operating results and financial condition.
•The impact of legal, tax and regulatory changes in the United States is uncertain and may directly affect financial institutions and the global economy.
•Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
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•Global climate change may impact the businesses in which we invest and harm our business, operating results and financial condition.
Risks Related to Our Investments
•Investing in senior secured loans indirectly through CLO securities involves particular risks.
•Our investments in CLO securities and other structured finance securities involve certain risks.
•Our investments in subordinated or equity CLO securities are more likely to suffer a loss of all or a portion of their value in the event of a default.
•Our portfolio of investments may lack diversification among CLO securities or underlying obligors, which may subject us to a risk of significant loss if one or more of these CLO securities experience a high level of defaults on collateral.
•Our portfolio is focused on CLO securities, and the CLO securities in which we invest may hold loans that are concentrated in a limited number of industries.
•Failure by a CLO in which we are invested to satisfy certain tests will harm our operating results.
•Our investments in CLO securities may be less transparent to us and our stockholders than direct investments in the collateral.
•CLO investments involve complex documentation and accounting considerations, and as a result, the risk of dispute over interpretation or enforceability of the documentation may be higher relative to other types of investments.
•The application of the risk retention rules to CLOs under Section 941 of the Dodd-Frank Act and other similar European Union and United Kingdom laws may have broader effects on the CLO and loan markets in general, potentially resulting in fewer or less desirable investment opportunities for us.
•Our investments in CLO securities may be subject to special anti-deferral provisions that could result in us incurring tax or recognizing income prior to receiving cash distributions related to such income.
•If a CLO in which we invest fails to comply with certain U.S. tax disclosure requirements, such CLO may be subject to withholding requirements that could materially and adversely affect our operating results and cash flows.
•Increased competition in the market or a decrease in new CLO issuances may result in increased price volatility or a shortage of investment opportunities.
•We and our investments are subject to interest rate risk.
•The lack of liquidity in our investments may adversely affect our business.
•We are subject to risks associated with defaults on an underlying asset held by a CLO.
•We are subject to risks associated with Loan Accumulation Facilities.
•We are subject to risks associated with the bankruptcy or insolvency of an issuer or borrower of a loan that we hold or of an underlying asset held by a CLO in which we invest.
•We may be exposed to risks if we invest in the securities of new issuers.
•We and our investments may be subject to currency risk.
•We and our investments are subject to risks associated with non-U.S. investing.
•Any unrealized depreciation we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution or to make payments on our other obligations.
•A portion of our income and fees may not be qualifying income for purposes of the income source requirement.
•Downgrades by rating agencies of broadly syndicated loans could adversely impact the financial performance of the CLO vehicles in which we have invested and their ability to pay equity distributions to the Company in the future.
Risks Related to an Investment in Our Securities
•Our shares of common stock have traded at a discount from NAV and our Series C Term Preferred Stock, Series E Term Preferred Stock and Series F Term Preferred Stock may not trade at favorable prices.
•The market price of our common stock may fluctuate and decrease significantly.
•We cannot assure you that we will be able to successfully deploy the proceeds of any offering conducted pursuant to a prospectus within the timeframe we have contemplated.
•If we issue additional preferred stock, the NAV and market value of our common stock will likely become more volatile.
•Any amounts that we use to service our indebtedness or preferred dividends, or that we use to redeem our preferred stock, will not be available for distributions to our common stockholders.
•Our common stock is subject to a risk of subordination relative to holders of our debt instruments and holders of our preferred stock.
•Holders of any preferred stock we might issue would have the right to elect members of our Board and class voting rights on certain matters.
•You may not receive distributions or our distributions may decline or may not grow over time.
The risk factor entitled "We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us." in the Base Prospectus is replaced in its entirety as follows:
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We may leverage our portfolio, which would magnify the potential for gain or loss on amounts invested and will increase the risk of investing in us.
We may incur, directly or indirectly, through one or more special purpose vehicles, indebtedness for borrowed money, as well as leverage in the form of derivative transactions, preferred stock and other structures and instruments, in significant amounts and on terms that OFS Advisor and our Board deem appropriate, subject to applicable limitations under the 1940 Act. Any such borrowings do not include embedded or inherent leverage in the CLO structures in which we intend to invest or in derivative instruments in which we may invest. Such leverage may be used for the acquisition and financing of our investments, to pay fees and expenses and for other purposes. Any such leverage we incur may be secured and/or unsecured and senior and/or subordinated. Moreover, CLOs by their very nature are leveraged vehicles. Accordingly, there may be a layering of leverage in our overall structure.
Leverage creates risks which may adversely affect the return for the holders of shares of our common stock, including:
•The likelihood of greater volatility of NAV and market price of shares of our common stock;
•Fluctuations in the interest rates on borrowings and short-term debt;
•Increased operating costs, which may reduce our total return to the holders of shares of our common stock;
•The fees and expenses attributed to leverage, including all offering and operating expenses relating to any preferred stock, will be borne by holders of shares of our common stock; and
•The potential for a decline in the value of an investment acquired through leverage while our obligations under such leverage remain fixed.
The more leverage is employed, the more likely a substantial change will occur in our NAV. Accordingly, any event that adversely affects the value of an investment would be magnified to the extent leverage is utilized. For instance, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could also negatively affect our ability to make dividend payments on shares of our common stock. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. The cumulative effect of the use of leverage with respect to any investments in a market that moves adversely to such investments could result in a substantial loss that would be greater than if our investments were not leveraged.
As a registered closed-end management investment company, we are generally required to meet certain asset coverage ratios, defined under the 1940 Act, with respect to any senior securities. With respect to senior securities representing indebtedness (i.e., borrowings or deemed borrowings), other than temporary borrowings as defined under the 1940 Act, we are required to have an asset coverage ratio of at least 300%, as measured at the time of borrowing and calculated as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount of our outstanding senior securities representing indebtedness. With respect to senior securities that are stocks (i.e., shares of preferred stock, including our Series C Term Preferred Stock, Series D Term Preferred Stock, Series E Term Preferred Stock and Series F Preferred Stock), we are required to have an asset coverage ratio of at least 200%, as measured at the time of the issuance of any such shares of preferred stock and calculated as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) over the aggregate amount of our outstanding senior securities representing indebtedness plus the aggregate liquidation preference of any outstanding shares of preferred stock. As of October 31, 2024, we had $23.0 million of the Series C Term Preferred Stock principal outstanding with a preferred rate equal to 6.125% per annum issued in April of 2021, $3.0 million of the Series D Term Preferred Stock principal outstanding with a preferred rate equal to 6.00% per annum issued in June of 2021, $35.0 million of the Series E Term Preferred Stock principal outstanding with a preferred rate equal to 5.25% per annum issued in December of 2021, and $29.9 million of the Series F Term Preferred Stock principal outstanding with a preferred rate equal to 7.875% per annum issued in October of 2024.
If our asset coverage ratio declines below 300% (or 200%, as applicable), we would not be able to incur additional debt or issue additional preferred stock and could be required by law to sell a portion of our investments to repay some debt when it is disadvantageous to do so, which could have a material adverse effect on our operations, and we would not be able to make certain distributions or pay dividends. The amount of leverage that we employ will depend on OFS Advisor's and our Board's assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
In addition, any debt facility into which we may enter would likely impose financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.
The risk factor entitled "Regulations governing our operation as a registered closed-end management investment company affect our ability to raise additional capital and the way in which we do so. Raising debt capital may expose us to risks, including the typical risks associated with leverage." in the Base Prospectus is replaced in its entirety as follows:
Regulations governing our operation as a registered closed-end management investment company affect our ability to raise additional capital and the way in which we do so. Raising debt capital may expose us to risks, including the typical risks associated with leverage.
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We may in the future issue debt securities or additional preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a registered closed-end management investment company, to issue senior securities provided we meet certain asset coverage ratios (i.e., 300% for senior securities representing indebtedness and 200% in the case of the issuance of preferred stock under current law). If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness (including by redeeming shares of our Series C Term Preferred Stock, our Series D Term Preferred Stock, our Series E Term Preferred Stock, our Series F Term Preferred Stock, or of a portion of any future series of preferred stock or notes that may be outstanding) at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our stockholders.
The risk factor entitled "Our shares of common stock have traded at a discount from NAV and our Series C Term Preferred Stock and Series E Term Preferred Stock may not trade at favorable prices." in the Base Prospectus is replaced in its entirety as follows:
Our shares of common stock have traded at a discount from NAV and our Series C Term Preferred Stock, Series E Term Preferred Stock and Series F Term Preferred Stock may not trade at favorable prices.
Shares of closed-end investment companies frequently trade at a market price that is less than the NAV that is attributable to those shares. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share may decline. It is not possible to accurately predict whether any shares of our common stock will trade at, above, or below NAV. During times of market disruption and instability, shares of closed-end investment companies, including shares of our common stock, have traded below NAV as a result of concerns over liquidity, leverage restrictions and distribution requirements. If our common stock trades below its NAV, we will generally be unable to issue additional shares of our common stock. If additional funds are not available to us, we could be forced to curtail or cease our new investment activities, and our NAV could decrease and our level of distributions could be impacted. Additionally, as a result of volatile market conditions, we cannot provide any assurance that our Series C Term Preferred Stock, Series E Term Preferred Stock and Series F Term Preferred Stock will trade at favorable prices.
The risk factor entitled "Holders of any preferred stock we might issue would have the right to elect members of our Board and class voting rights on certain matters." in the Base Prospectus is replaced in its entirety as follows:
Holders of any preferred stock we might issue would have the right to elect members of our Board and class voting rights on certain matters.
Except as otherwise provided in our Amended and Restated Articles of Incorporation, Certificate of Designation for the Series C Term Preferred Stock, the Certificate of Designation for the Series D Term Preferred Stock, the Certificate of Designation for the Series E Term Preferred Stock, the Certificate of Designation for the Series F Term Preferred Stock or as otherwise required by law, (1) each holder of our preferred stock is entitled to one vote for each share of preferred stock held by such holder on each matter submitted to a vote of our stockholders and (2) the holders of all outstanding shares of preferred stock and shares of common stock will vote together as a single class; provided that holders of preferred stock, voting separately as a class, will elect two of our directors and will be entitled to elect a majority of our directors if we fail to pay dividends on any outstanding shares of preferred stock in an amount equal to two full years of dividends and continuing during that period until we correct that failure. Holders of shares of our preferred stock will also vote separately as a class on any matter that materially and adversely affects any preference, right or power of holders of shares of our preferred stock.
The risk factor entitled "Events outside of our control, including public health crises, elevated interest and inflation rates and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations." in the Base Prospectus is replaced in its entirety as follows:
Events outside of our control, including public health crises, interest rate and inflation rate changes and significant market volatility, have negatively affected, and could continue to negatively affect, our CLO investments and our results of operations.
Periods of market volatility may continue to occur in response to changes in interest rates and inflation rates, public health crises, or other events outside of our control. These types of events will continue to lead to disruptions in local, regional, national and global markets and economies, may lead to a recession, and have adversely affected, and will continue to adversely affect, our operating results.
In the recent past, inflation rates, food and energy costs increased, reflecting labor market, supply chain and transportation disruptions. In the fall of 2024, the U.S. Federal Reserve decreased interest rates several times and may continue to do so.
Any of the foregoing factors, or other cascading effects of changing interest and inflation rates, will materially increase our costs, negatively impact our investment income and damage our results of operations and liquidity position, possibly to a significant degree. These impacts, the duration of which remains uncertain, have affected and will continue to adversely affect the Company's operating results.
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DIVIDEND REINVESTMENT PLAN
On June 1, 2023, the Board adopted an amended and restated dividend reinvestment plan that provides for reinvestment of our distributions and other distributions on behalf of our common stockholders (the "Amended DRIP"), unless a common stockholder elects to receive cash as provided below. As a result, if our Board authorizes, and we declare, a cash distribution, then our common stockholders who have not "opted out" of our Amended DRIP will have their cash distribution automatically reinvested in additional shares of common stock, rather than receiving the cash distribution.
No action is required on the part of a registered holder of common stock to have their cash distribution reinvested in shares of our common stock. A registered holder of common stock may elect to receive an entire distribution in cash by notifying Equiniti Trust Company, LLC, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to holders of common stock. The plan administrator will set up an account for shares acquired through the Amended DRIP for each holder of common stock who has not elected to receive distributions in cash and hold such shares in non-certificated form. Upon request by a holder of common stock participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant's account, issue a certificate registered in the participant's name for the number of whole shares and a check for any fractional share.
Those common stockholders whose common shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We primarily use newly issued shares of our common stock to implement the Amended DRIP, whether shares of our common stock are trading at a premium or at a discount to net asset value. However, we reserve the right to direct the plan administrator to purchase shares in the open market in connection with our implementation of the plan. The number of shares to be issued to a holder of common stock is determined by dividing the total dollar amount of the distribution payable to such holder of common stock by ninety-five percent (95%) of the market price per share of common stock at the close of regular trading on The Nasdaq Capital Market on the valuation date fixed by the Board for such distribution (i.e., the payment date). Market price per share of common stock on that date will be the closing price for such shares on The Nasdaq Capital Market or, if no sale is reported for such day, at the average of their reported bid and asked prices. The number of shares to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of our holders of common stock have been tabulated.
There will be no brokerage charges or other charges to common stockholders who participate in the Amended DRIP. The plan administrator's fees will be paid by us. If a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the common shares held by the plan administrator in the participant's account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus a $0.10 per common share brokerage commission from the proceeds.
Holders of common stock who receive distributions in the form of stock are subject to the same U.S. federal tax consequences as are holders of common stock who elect to receive their distributions in cash; however, since their cash distributions will be reinvested, such holders of common stock will not receive cash with which to pay any applicable taxes on reinvested distributions. A holder of common stock's basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the holder of common stock. Any stock received in a distribution will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. holder of common stock's account.
Participants may terminate their accounts under the Amended DRIP by notifying the plan administrator via its website at equiniti.com/us/ast-access, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator. Such termination will be effective immediately if the participant's notice is received by the plan administrator not less than 10 days prior to any distribution record date; otherwise, such termination will be effective only with respect to any subsequent distribution. The Amended DRIP may be terminated by us upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any distribution by us. All correspondence concerning the Amended DRIP should be directed to the plan administrator by mail to Equiniti Trust Company, LLC, Attn: Data Entry, 55 Challenger Road, Floor 2, Ridgefield Park, NJ 07660, or by Equiniti's EQ Shareholder Services Call Center at (800) 937-5449.
If a common stockholder withdraws or the plan is terminated, such common stockholder will receive the number of whole shares in their account under the plan and a cash payment for any fraction of a share in their account.
If a common stockholder holds shares with a brokerage firm that does not participate in the plan, such common stockholder will not be able to participate in the plan and any distribution reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
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BOARD APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
On June 6, 2024, our Board, including a majority of Directors who are not "interested persons" within the meaning of Section 2(a)(19) of the 1940 Act (the "Independent Directors"), unanimously voted to approve the continuation of the Investment Advisory Agreement at a virtual meeting. In reliance upon certain exemptive relief granted by the SEC in connection with the global COVID-19 pandemic, our Board undertook to ratify the Investment Advisory Agreement at its next in-person meeting. In reaching a decision to approve the continuation of the Investment Advisory Agreement, the Board reviewed a significant amount of information, including reports prepared by third parties and the management of the Company, as well as information prepared by OFS Advisor in response to an information request sent by the Company on behalf of the Board. The Board engaged in a detailed discussion of the materials with OFS Advisor's management and relevant third parties. The Board then considered and concluded, among other things:
•The nature, quality and extent of the advisory and other services to be provided to us by OFS Advisor, including the responses in a questionnaire regarding OFS Advisor's investment process and OFS Advisor's policies and guidelines currently in place to monitor and manage the risk and volatility associated with the Company's portfolio, and the qualifications and abilities of the professional personnel of OFS Advisor and the compensation structure for such personnel, and concluded that such services are satisfactory;
•The investment performance of OFS Advisor, and concluded that the investment performance of OFS Advisor was satisfactory;
•Comparative data with respect to advisory fees or similar expenses paid by other management investment companies with similar investment objectives, and concluded that the total advisory fees paid by the Company to OFS Advisor were reasonable;
•Our projected operating expenses and expense ratio compared to management investment companies with similar investment objectives, and concluded that our projected operating expenses were reasonable;
•Any existing and potential sources of indirect income to OFS Advisor from their relationship with the Company and the profitability of that relationship, and concluded that OFS Advisor's profitability was not excessive with respect to us;
•The services to be performed and the personnel performing such services under the Investment Advisory Agreement, and concluded that the services to be performed and the personnel performing such services were satisfactory;
•The organizational capability and financial condition of OFS Advisor and its affiliates, and concluded that the organizational capability and financial condition of OFS Advisor were satisfactory; and
•The possibility of obtaining similar services from other third-party service providers or through an internally managed structure, and concluded that our current externally managed structure with OFS Advisor as our investment advisor was satisfactory.
Based on the information reviewed and the discussions detailed above, the Board, including all of the Independent Directors, concluded that the fees payable to OFS Advisor pursuant to the Investment Advisory Agreement were reasonable, and comparable to the fees paid by other management investment companies with similar investment objectives, in relation to the services to be provided. The Board did not assign relative weights to the above factors or the other factors considered by it. Individual members of the Board may have given different weights to different factors.
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Additional Information
Management
Our Board is responsible for the overall management and supervision of our business and affairs, including the appointment of advisers and sub-advisers. Pursuant to the Investment Advisory Agreement, our Board has appointed OFS Advisor as our investment adviser. Our prospectus includes additional information about our directors and is available without charge, upon request by calling (847) 734-2085, or on the Securities and Exchange Commission website at http://www.sec.gov.
The investment committees of OFS Advisor (the "Advisor Investment Committees"), which include the Structured Credit Investment Committee of OFS Advisor (the "Structured Credit Investment Committee"), are responsible for the overall asset allocation decisions and the evaluation and approval of investments of OFS Advisor's advisory clients that invest in CLO securities.
The purpose of the Structured Credit Investment Committee is to evaluate and approve our prospective investments, subject at all times to the oversight of our Board. The Structured Credit Investment Committee, which is comprised of Richard Ressler (Chairman), Jeffrey A. Cerny, Bilal Rashid, Glen Ostrander and Kenneth A. Brown, is responsible for the evaluation and approval of all the investments made by us. The members of the senior investment team of OFS Advisor (the "Senior Investment Team") are our portfolio managers who are primarily responsible for the day-to-day management of the portfolio. The Senior Investment Team is supported by a team of analysts and investment professionals.
Information regarding the Structured Credit Investment Committee is as follows:
Name(1)
Age Position
Richard Ressler 66 Chairman of the Structured Credit Investment Committee
Bilal Rashid(2)
53 President and Senior Managing Director of OFS Advisor
Jeffrey A. Cerny(2)
61 Senior Managing Director and Chief Financial Officer of OFS Advisor
Glen Ostrander(2)
50 Managing Director of OFS Advisor
Kenneth A. Brown(2)
51 Managing Director of OFS Advisor
(1) The address for each member of the Structured Credit Investment Committee is c/o OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
(2) Member of the Senior Investment Team.
The Board of Directors
We have three classes of directors, currently consisting of one Class I director, two Class II directors and two Class III directors. At each annual meeting of stockholders, directors are elected for a full term of three years to succeed those whose terms are expiring. The terms of the three classes are staggered in a manner so that only one class is elected by stockholders annually.
The Board currently consists of five members, Messrs. Rashid and Cerny, Catherine M. Fitta, Kathleen M. Griggs and Romita Shetty. The term of one class expires each year. The term of Mr. Rashid expires at the 2025 annual meeting, the terms of Ms. Shetty and Ms. Fitta expire at the 2026 annual meeting and the terms of Ms. Griggs and Mr. Cerny expire at the 2027 annual meeting. Mses. Shetty and Griggs also serve as preferred stock directors. Subsequently, each class of directors will stand for election at the conclusion of its respective term. Such classification may prevent replacement of a majority of the directors for up to a two-year period.
The directors and our officers are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. The "Independent Directors" consist of those directors who are not "interested persons," as that term is defined under the 1940 Act, of the Company. Conversely, "Interested Director(s)" consist of those directors who are "interested persons" of the Company. Certain of our officers and directors also are officers or managers of OFS Advisor.
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Information regarding our Board is as follows:
Name, Address(1) and Age
Position(s) Held with the Company, Term of Office and Length of Time Served Principal Occupation, Other Business Experience During the Past Five Years
Number of Portfolios in Fund Complex Overseen by Director(2)
Other Directorships Held by Director
Independent Directors
Kathleen M. Griggs (3)(4)(5)(6)
Age: 69
Director; 2018 - Current
Ms. Griggs has been a managing director of Griggs Consulting, LLC, a consulting and advisory firm, since 2014. Prior to that, Ms. Griggs served as the Chief Financial Officer of j2 Global, Inc. from 2007 to 2014. Ms. Griggs also previously served as a Director, Audit Committee Chair and Governance Committee member for Chad Therapeutics, Inc. from 2001 to 2009. Ms. Griggs received a Bachelor of Science degree in Business Administration from the University of Redlands and a Master of Business Administration from the University of Southern California in Los Angeles. Ms. Griggs's term as a Class III director expires in 2027.
Ms. Griggs, the chair of our audit committee, brings to our Board years of accounting expertise. Her knowledge of accounting principles, financial reporting rules and regulations, the evaluation of financial results and the oversight of the financial reporting process makes her an asset to our Board.
1
None
Independent Directors
Catherine M. Fitta
(3)(4)(5)
Age: 53
Director; 2021 - Current
Ms. Fitta currently serves as Principal of Burren Green, a management and technology consulting practice she established in 2015. From 2008 to 2012, Ms. Fitta served as EMEA Head, Business Planning & Technology for Barclays Global Banking Division, and from 2012 to 2015, was Global Head, Business Planning & Technology. Ms. Fitta also worked at Lehman Brothers from 2007 to 2008 as Deputy Global Head, Business Planning & Technology where she managed business and technical staff across various geographies and architected the division's first IT Governance Council. During her tenure as Chief Integration Officer, Criminal Justice for the New York City's Mayor's Office from 2003 to 2007, she led strategic planning and execution for technology integration across 17 criminal justice agencies in New York City and New York State. From 2002 to 2003, Ms. Fitta also worked as a functional manager on engagements within the Public Sector & Health Care Practices at Deloitte Consulting. Since 2002, through various consulting, operating and governance-related roles across sectors and geographies, Ms. Fitta has spear-headed an array of programs that fueled strategic business transformations and addressed myriad compliance, audit, risk and regulatory matters. Ms. Fitta earned her Master of Business Administration from Columbia Business School and her Bachelor of Arts in the Classics cum laude from Harvard University. Ms. Fitta is NACD (National Association of Corporate Directors) Directorship Certified™. Ms. Fitta's term as a Class II director expires in 2026.
Ms. Fitta, the chair of our nominating and corporate governance committee, has vast management experience and expertise across various sectors and industries, including financial services, which qualifies her for service on our Board. Ms. Fitta is a strategist and results-oriented problem-solver whose understanding of operations, technology and risk management enhances the diverse skillset and composition of our Board.
1
 		None
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Name, Address(1) and Age
Position(s) Held with the Company, Term of Office and Length of Time Served Principal Occupation, Other Business Experience During the Past Five Years
Number of Portfolios in Fund Complex Overseen by Director(2)
Other Directorships Held by Director
Independent Directors
Romita
Shetty (3)(4)(5)(6)

Age: 58
Director; 2018 - Current
Ms. Shetty is a partner of DA Management, an investment firm, which invests across public and private markets (including venture capital) in both equity and debt and owns DA Capital, an investment advisor. She currently serves on the board of directors of OFS Capital Corporation ("OFS Capital"). Ms. Shetty has over 30 years of experience in fixed income and credit. At DA Capital, she has focused on special situations, structured credit and private investments. She participates in portfolio company boards and management and leads The Shopping Lab, an innovative consumer and data business that includes the Grocery Buddy app. She has also served in a management capacity as President of DA Capital Asia Pte Ltd. In 2007-2008, she ran the Global Special Opportunities group at Lehman Brothers, which invested proprietary capital. Prior to that, she co-ran the North American structured equity and credit markets and the Global Alternative Investment product businesses at RBS from 2004 to 2006. Previously, Ms. Shetty worked at JP Morgan from 1997 to 2004 where she ran their Global Structured Credit Derivatives as well as Financial Institutions Solutions and CDO businesses. She started her career at Standard & Poor's in 1990 where she worked on a wide variety of credit ratings, including municipal bonds, financial institutions and asset-backed securities and managed a part of their ABS ratings business. Ms. Shetty holds a Bachelor of Arts (Honors) in History from St. Stephens College, India and a Master of International Affairs from Columbia University. Ms. Shetty's term as a Class II director expires in 2026.

Ms. Shetty, the chair of our compensation committee, has deep experience in fixed income and credit management and expertise in the Company's intended investments qualifies her for service on our Board. Ms. Shetty's background has enabled her to cultivate an enhanced understanding of operations and strategy with an added layer of risk management experience that is an important aspect of the composition of our Board. 		2
OFS Capital, a business development company ("BDC") managed by OFS Advisor
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Name, Address(1) and Age
Position(s) Held with the Company, Term of Office and Length of Time Served Principal Occupation, Other Business Experience During the Past Five Years
Number of Portfolios in Fund Complex Overseen by Director(2)
Other Directorships Held by Director
Interested Directors
Bilal Rashid
Age: 53
Director (Since 2017); Chairman (Since 2018); and President and Chief Executive Officer (Since 2017)
Mr. Rashid has served as our Chairman of the Board since 2018 and President and Chief Executive Officer since 2017. He is also Chairman of the Board, President and Chief Executive Officer of Hancock Park Corporate Income, Inc. ("Hancock Park") and Chairman of the Board and Chief Executive Officer of OFS Capital, a member of the board of trustees of CIM Real Assets & Credit Fund ("CIM RACR"), an affiliate of the Company which is sub-advised by OFS Advisor, President and a Senior Managing Director of Orchard First Source Capital, Inc. ("OFSC") and OFS Advisor, Chief Executive Officer and President of Orchard First Source Asset Management Holdings, LLC ("OFSAM Holdings") and a member of OFSAM Holdings's executive committee. He also serves on various investment committees of OFS Advisor and its affiliates. Mr. Rashid has more than 25 years of experience in investing as it relates to corporate credit and structured credit, investment banking and debt capital markets. Over the years, he has advised and arranged financing for investment management companies and commercial finance companies including business development companies. Prior to joining OFSC in 2008, Mr. Rashid was a managing director in the global markets and investment banking division at Merrill Lynch. Before joining Merrill Lynch in 2005, he was a vice president at Natixis Capital Markets, which he joined as part of a large team move from Canadian Imperial Bank of Commerce ("CIBC"). Prior to CIBC, he worked as an investment analyst in the project finance area at the International Finance Corporation, which is part of the World Bank. Prior to that, Mr. Rashid was a financial analyst at Lehman Brothers. Mr. Rashid has a Bachelor of Science in Electrical Engineering from Carnegie Mellon University and a Master of Business Administration from Columbia University. Mr. Rashid's term as a Class I director expires in 2025.
Through his years of work in investment banking, capital markets and in sourcing, leading and managing investments, Mr. Rashid has developed expertise and skills that are relevant to understanding the risks and opportunities that we face and which are critical to implementing our strategic goals and evaluating our operational performance.
4 OFS Capital, a BDC managed by OFS Advisor, Hancock Park, another BDC managed by OFS Advisor and CIM RACR, a registered investment company sub-advised by OFS Advisor
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Name, Address(1) and Age
Position(s) Held with the Company, Term of Office and Length of Time Served Principal Occupation, Other Business Experience During the Past Five Years
Number of Portfolios in Fund Complex Overseen by Director(2)
Other Directorships Held by Director
Interested Directors
Jeffrey A. Cerny
Age: 61
Director (Since 2017); Chief Financial Officer and Treasurer (Since 2017)
Mr. Cerny has served as our Chief Financial Officer and Treasurer since 2017. Mr. Cerny also serves as the Chief Financial Officer and Treasurer of Hancock Park, as a director, Chief Financial Officer and Treasurer of OFS Capital Corporation, a Senior Managing Director and Chief Financial Officer of OFS Advisor, a Senior Managing Director, Chief Financial Officer and Treasurer of OFSC, as a Vice President and Chief Financial Officer of OFSAM Holdings and as a member of OFSAM Holdings's executive committee. He also serves on various investment committees of OFS Advisor and its affiliates.
Mr. Cerny oversees the finance and accounting functions of the aforementioned entities as well as underwriting, credit monitoring and CLO portfolio compliance for OFS Advisor's syndicated senior loan business. Prior to joining OFSC in 1999, Mr. Cerny held various positions at Sanwa Business Credit Corporation, American National Bank and Trust Company of Chicago and Charter Bank Group, a multi-bank holding company. Mr. Cerny holds a Bachelor of Science in Finance from Northern Illinois University, a Masters of Management in Finance and Economics from Northwestern University's J.L. Kellogg School of Management, and a Juris Doctor from DePaul University's School of Law. Mr. Cerny is NACD (National Association of Corporate Directors) Directorship Certified™ and has received a CERT Certificate in Cyber Oversight through the NACD's Cyber Oversight Program. Mr. Cerny's term as a Class III director expires in 2027.
Mr. Cerny brings to our Board extensive accounting and financial experience and expertise. He is also an experienced investor, including lending, structuring and workouts which makes him an asset to our Board. The breadth of his background and experience enables Mr. Cerny to provide unique insight into our strategic process and into the management of our investment portfolio.
2
OFS Capital, a BDC managed by OFS Advisor
(1) The address of each director is 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
(2) The "Fund Complex" includes the Company, OFS Capital and Hancock Park, each of which is advised by OFS Advisor, and CIM RACR, which is sub-advised by OFS Advisor.
(3) Member of the Audit Committee.
(4) Member of the Compensation Committee.
(5) Member of the Nominating and Corporate Governance Committee.
(6) Preferred stock director.
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Compensation of Directors
The following table sets forth the compensation paid to our directors for the year ended October 31, 2024:
Name of Director
Fees Earned(2)
All Other Compensation Total Compensation from OFS Credit Total Compensation from Fund Complex
Independent Directors
Catherine M. Fitta $ 66,250 $ - $ 66,250 $ 66,250
Kathleen M. Griggs
66,250 - 66,250 66,250
Romita Shetty(3)
66,250 - 66,250 166,250
Interested Directors
Bilal Rashid(1)
- - - -
Jeffrey A. Cerny(1)
- - - -
(1) No compensation is paid to directors who are "interested persons."
(2) For the first three fiscal quarters of 2024, each independent director received a prorated quarterly fee payment based on an annual fee of $50,000. For the fourth fiscal quarter of 2024, the annual fee for each independent director increased to $75,000 because the Company's NAV of $148.6 million at quarter end exceeded the $125.0 million threshold to trigger this increase. In addition, the chairman of each committee receives an annual fee of $10,000 for additional services in this capacity. We also reimbursed our independent directors for reasonable out-of-pocket expenses incurred in attending our Board and committee meetings, which is not considered fees earned or compensation. We have obtained directors' and officers' liability insurance on behalf of our directors and officers.
(3) Independent director of OFS Capital Corporation (Nasdaq: OFS), a BDC managed by OFS Advisor.
Director Ownership of Company Shares
The table below sets forth the dollar range of the value of shares of our common stock that are owned beneficially by each director as of October 31, 2024. For purposes of this table, beneficial ownership is defined to mean a direct or indirect pecuniary interest.
Name of Director
Dollar Range of Equity
Securities in the Company(1)
Independent Directors
Catherine M. Fitta None
Kathleen M. Griggs
$10,001 - $50,000
Romita Shetty
None
Interested Directors
Bilal Rashid
Over $100,000(2)
Jeffrey A. Cerny
Over $100,000(2)
(1) Dollar ranges are as follows: None, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000 and over $100,000.
(2) Messrs. Rashid and Cerny beneficially own securities of the Company through their indirect ownership of an affiliate of OFS Advisor. Messrs. Rashid and Cerny each own shares of the Company's common stock directly and each may be deemed to beneficially own the shares of the Company's common stock that OFSAM Holdings owns.
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Officers Who Are Not Directors
Information regarding the Company's officers who are not directors is as follows:
Name Age Position
Kyle Spina
38
Chief Accounting Officer
Mukya S. Porter
50
Chief Compliance Officer
Tod K. Reichert
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Corporate Secretary
We do not pay any direct compensation to our officers who are not directors. We have entered into the Administration Agreement pursuant to which OFS Services, our administrator, performs, or arranges for the performance of, our required administrative services, among other things. Payment under the Administration Agreement is equal to an amount based upon our allocable portion (subject to the review and approval of the Board) of OFS Services's overhead in performing its obligations under the Administration Agreement, including, but not limited to, rent, information technology services and our allocable portion of the cost of our officers who are not directors, and their respective staffs.
The following is information concerning the business experience of our officers.
Kyle Spina currently serves as the Chief Accounting Officer of OFS Credit, Hancock Park and OFS Capital Corporation and Vice President and Controller of Fund Accounting and Reporting of OFS Advisor and OFSC. Mr. Spina has over 15 years of experience in public and private accounting. Prior to joining OFSC in April 2021, Mr. Spina held multiple controllership roles, serving as Assistant Controller of Credit Funds for Thoma Bravo, LP from 2020 to 2021 and Controller and Accounting Manager for Fidus Investment Corporation (NASDAQ: FDUS) and affiliates from 2016 to 2020. Mr. Spina began his career in public accounting from 2009 to 2016, including serving as an Audit Manager at BDO from 2014 to 2016, focusing on audits of public companies. Mr. Spina graduated from Purdue University with a Bachelor of Science degree in Accounting and Management and has been an active Certified Public Accountant since 2010.
Mukya S. Portercurrently serves as the Chief Compliance Officer of OFS Credit, Hancock Park, OFS Capital Corporation, OFSC and OFS Advisor, in which capacity she oversees the compliance and risk management functions. Ms. Porter has approximately 20 years of experience advising investment advisers, broker dealers and other financial institutions. Prior to joining OFSC, Ms. Porter served as a Senior Vice President of Compliance at Oaktree Capital Management, an alternative investment adviser, from 2012 to 2016, where she was responsible for oversight of the firm's code of ethics program and the day-to-day management of an affiliated limited-purpose broker dealer. Prior to Oaktree, Ms. Porter held the position of Vice President and Senior Compliance Officer at Pacific Investment Management Company, from 2010 to 2012 and prior to that, from 2004 to 2010, worked, first, as a Vice President in the Legal department at Morgan Stanley Global Wealth Management and, subsequently, as a Vice President of Compliance at Morgan Stanley Investment Management. Ms. Porter received a Bachelor of Science degree, magna cum laude, in Biology from Howard University in 1996 and a J.D. from the University of California, Berkeley School of Law in 2001.
Tod K. Reichertcurrently serves as the Corporate Secretary of OFS Credit, Hancock Park and OFS Capital Corporation, and as Managing Director, Chief Administrative Officer and General Counsel of OFS Advisor and OFSC, in which capacity he oversees the legal and operational functions of the firm. Mr. Reichert has over 25 years of experience as a strategic business partner, providing advice on general corporate governance and transactional matters, with a focus on securities laws, compliance, corporate finance, debt and equity investments, and mergers and acquisitions. Prior to joining OFSC, Mr. Reichert served as General Counsel, Chief Compliance Officer and Corporate Secretary of MCG Capital Corporation (Nasdaq: MCGC), managing the legal and compliance departments, overseeing complex litigation, and providing securities law, disclosure and transactional advice to the Board and senior management team, while serving as a member of the MCG credit committee and SBIC investment committee. Prior to joining MCG, Mr. Reichert worked as an attorney in private practice in New York, Princeton and Boston. Mr. Reichert received his J.D. from the Rutgers University School of Law - Newark and his BFA from the University of North Carolina. Mr. Reichert is NACD (National Association of Corporate Directors) Directorship Certified™ and has received a CERT Certificate in Cyber Oversight through the NACD's Cyber Oversight Program.
Conflicts of Interest
Subject to certain 1940 Act restrictions on co-investments with affiliates, OFS Advisor will offer us the right to participate in investment opportunities that it determines are appropriate for us in view of our investment objective, policies and strategies and other relevant factors. Such offers will be subject to the exception that, in accordance with OFS Advisor's allocation policy, we might not participate in each individual opportunity but will, on an overall basis, be entitled to participate fairly and equitably over time with other entities managed by OFS Advisor and its affiliates.
To the extent that we compete with entities managed by OFS Advisor or any of its affiliates for a particular investment opportunity, OFS Advisor will allocate investment opportunities across the entities for which such opportunities are appropriate, consistent with: (i) its internal allocation policy; (ii) the requirements of the Investment Advisers Act of 1940, as
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amended; and (iii) certain restrictions under the 1940 Act and rules thereunder regarding co-investments with affiliates. OFS Advisor's allocation policy is intended to ensure that we may generally share fairly and equitably with other investment funds or other investment vehicles managed by OFS Advisor or its affiliates in investment opportunities that OFS Advisor determines are appropriate for us in view of our investment objective, policies and strategies and other relevant factors, particularly those involving a security with limited supply or involving differing classes of securities of the same issuer that may be suitable for us and such other investment funds or other investment vehicles. Under this allocation policy, if two or more investment vehicles with similar or overlapping investment strategies are in their investment periods, an available opportunity will be allocated based on the provisions governing allocations of such investment opportunities in the relevant organizational, offering or similar documents, if any, for such investment vehicles. In the absence of any such provisions, OFS Advisor will consider the following factors and the weight that should be given with respect to each of these factors:
•investment guidelines and/or restrictions, if any, set forth in the applicable organizational, offering or similar documents for the investment vehicles;
•the status of tax restrictions and tests and other regulatory restrictions and tests;
•risk and return portfolio of the investment vehicles;
•suitability/priority of a particular investment for the investment vehicles;
•if applicable, the targeted position size of the investment for the investment vehicles;
•level of available cash for investment with respect to the investment vehicles;
•total amount of funds committed to the investment vehicles; and
•the age of the investment vehicles and the remaining term of their respective investment periods, if any.
When not relying on exemptive relief from the SEC that permits us to co-invest in portfolio companies with certain other funds managed by OFS Advisor and certain of its affiliates ("Affiliated Funds") provided we comply with certain conditions (the "Order"), priority as to opportunities will generally be given to clients that are in their "ramp-up" period, or the period during which the account has yet to reach sufficient scale such that its investment income covers its operating expenses, over the accounts that are outside their ramp-up period but still within their investment or re-investment periods. However, application of one or more of the factors listed above, or other factors determined to be relevant or appropriate, may result in the allocation of an investment opportunity to a fund no longer in its ramp-up period over a fund that is still within its ramp-up period.
In situations where co-investment with Affiliated Accounts (as defined below) is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer, OFS Advisor will need to decide which account will proceed with the investment. The decision by OFS Advisor to allocate an opportunity to another entity could cause us to forego an investment opportunity that we otherwise would have made. These restrictions, and similar restrictions that limit our ability to transact business with our officers or directors or their affiliates, may limit the scope of investment opportunities that would otherwise be available to us.
Co-Investment With Affiliates. In certain instances, we may co-invest on a concurrent basis with other accounts managed by the Advisor or certain of its affiliates, subject to compliance with applicable regulations and regulatory guidance and our written allocation procedures. On August 4, 2020, we received our current Order, which superseded a previous order that we received on October 12, 2016, and provides us with greater flexibility to enter into co-investment transactions with 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. 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, we may file an application for an amendment to our existing Order to permit us to co-invest in our existing portfolio companies with certain affiliates that are private funds even if such other funds had not previously invested in such existing portfolio companies, subject to certain conditions. However, if filed, there is no guarantee that such application will be granted.
The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the adviser negotiates no term other than price and certain other conditions are met. As a result, unless under the Order, we only expect to co-invest on a concurrent basis with certain funds advised by OFS Advisor when each of us will own the same securities of the issuer and when no term is negotiated other than price, subject to compliance with existing regulatory guidance, applicable regulations and OFS Advisor's allocation policy. If opportunities arise that would otherwise be appropriate for us and for another fund advised by OFS Advisor to invest in different securities of the same issuer, OFS Advisor will need
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to decide which fund will proceed with the investment. The decision by OFS Advisor to allocate an opportunity to another entity could cause us to forego an investment opportunity that we otherwise would have made. Moreover, except in certain circumstances, we will be unable to invest in any issuer in which another fund advised by OFS Advisor has previously invested.
Conflicts Related to Purchases and Sales. Conflicts may arise when we make an investment in conjunction with an investment being made by another account managed by OFS Advisor or an affiliate of OFS Advisor (each, an "Affiliated Account"), or in a transaction where an Affiliated Account has already made an investment. Investment opportunities are, from time to time, appropriate for more than one account in the same, different or overlapping securities of a portfolio company's capital structure. Conflicts arise in determining the terms of investments, particularly where these accounts may invest in different types of securities in a single portfolio company. Questions arise as to whether payment obligations and covenants should be enforced, modified or waived, or whether debt should be restructured, modified or refinanced.
We may invest in debt and other securities of companies in which Affiliated Accounts hold those same securities or different securities, including equity securities. In the event that such investments are made by us, our interests will at times conflict with the interests of such Affiliated Accounts, particularly in circumstances where the underlying company is facing financial distress. Decisions about what action should be taken, particularly in troubled situations, raise conflicts of interest, including, among other things, whether or not to enforce claims, whether or not to advocate or initiate a restructuring or liquidation inside or outside of bankruptcy, and the terms of any work-out or restructuring. The involvement of Affiliated Accounts at both the equity and debt levels could inhibit strategic information exchanges among fellow creditors, including among us or Affiliated Accounts. In certain circumstances, we or an Affiliated Account may be prohibited from exercising voting or other rights and may be subject to claims by other creditors with respect to the subordination of their interest.
In the event that we or an Affiliated Account has a controlling or significantly influential position in a portfolio company, that account may have the ability to elect some or all of the board of directors of such a portfolio company, thereby controlling the policies and operations of such portfolio company, including the appointment of management, future issuances of securities, payment of dividends, incurrence of debt and entering into extraordinary transactions. In addition, a controlling account is likely to have the ability to determine, or influence, the outcome of operational matters and to cause, or prevent, a change in control of such a company. Such management and operational decisions may, at times, be in direct conflict with other accounts that have invested in the same portfolio company that do not have the same level of control or influence over the portfolio company.
If additional capital is necessary as a result of financial or other difficulties, or to finance growth or other opportunities, the accounts may or may not provide such additional capital and, if provided, each account will supply such additional capital in such amounts, if any, as determined by OFS Advisor. In addition, a conflict arises in allocating an investment opportunity if the potential investment target could be acquired by us, an Affiliated Account, or a portfolio company of an Affiliated Account. Investments by more than one account of OFS Advisor or its affiliates in a portfolio company also raise the risk of using assets of an account of OFS Advisor or its affiliates to support positions taken by other accounts of OFS Advisor or its affiliates, or that an account may remain passive in a situation in which it is entitled to vote. In addition, there may be differences in timing of entry into, or exit from, a portfolio company for reasons such as differences in strategy, existing portfolio or liquidity needs, different account mandates or fund differences, or different securities being held. These variations in timing may be detrimental to us.
The application of our or an Affiliated Account's governing documents and the policies and procedures of OFS Advisor are expected to vary based on the particular facts and circumstances surrounding each investment by two or more accounts, in particular when those accounts are in different classes of an issuer's capital structure (as well as across multiple issuers or borrowers within the same overall capital structure) and, as such, there may be a degree of variation and potential inconsistencies, in the manner in which potential or actual conflicts are addressed.
Portfolio Information
The Company prepares Form N-PORT filings, which contains a complete schedule of the Company's portfolio holdings, on a monthly basis, and makes its Form N-PORT filings with the SEC on a quarterly basis within 60 days after the end of each quarter. The Company's Form N-PORT filings for the third month of each quarter are available on the SEC's website at http://www.sec.gov. This information is also available free of charge by contacting the Company by mail at 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606, by telephone at (847) 734-2085 or on its website at http://www.ofscreditcompany.com.
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Proxy Voting Policies and Records
Information regarding the policies and procedures that OFS Advisor uses to determine how to vote proxies relating to the Company's portfolio securities is available: (1) without charge, upon request, by calling collect (847) 734-2085; and (2) on the SEC's website at http://www.sec.gov. Information about how OFS Advisor voted proxies with respect to the Company's portfolio securities during the 12-month period ended June 30, 2024 can be obtained by making a written request for proxy voting information to: OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606 and on the SEC's website at http://www.sec.gov.
Submission of Matters to a Vote of Stockholders
On August 15, 2024, the Company held its 2024 Annual Meeting of Stockholders (the "Annual Meeting"). There were present at the Annual Meeting, in person or by proxy, stockholders holding an aggregate of: (i) 11,899,118 shares of the Company's common stock, par value $0.001 per share ("Common Stock"), and preferred stock, par value $0.001 per share ("Preferred Stock"), out of a total number of 18,614,054 shares of the Company's issued and outstanding Common Stock and Preferred Stock entitled to vote at the Annual Meeting; and (ii) 1,983,393 shares of the Company's Preferred Stock, out of a total number of 2,440,000 shares of the Company's issued and outstanding Preferred Stock entitled to vote at the Annual Meeting. The following matters were submitted at the Annual Meeting to the Company's stockholders for consideration:
1.The election of two members of our Board to serve as Class III directors for a term of three years, or until their respective successors are duly elected and qualified (as outlined below); one director, Jeffrey A. Cerny, to be elected by the holders of the Company's outstanding Common Stock and outstanding Preferred Stock, voting together as a single class; and one director, Kathleen M. Griggs, to be elected by the holders of the Company's outstanding Preferred Stock, voting as a single class; and
2.The ratification of the selection of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending October 31, 2024.
Jeffrey A. Cerny and Kathleen M. Griggs were elected to serve as Class III directors until the 2027 annual meeting of stockholders, or until their respective successors are duly elected and qualified, and the appointment of KPMG LLP as the independent registered public accounting firm for the Company for the fiscal year ending October 31, 2024 was ratified.
The detailed final voting results of the shares voted with regard to each of these matters are as follows:
1.Election of the Class III directors:
For Withheld
Jeffrey A. Cerny (Common and Preferred Stock)
9,945,482 1,953,636
Kathleen M. Griggs (Preferred Stock) 1,609,227 374,166
Continuing directors whose terms did not expire at the Annual Meeting were as follows: Bilal Rashid is currently serving as a Class I director, whose term expires in 2025, and Kate M. Fitta and Romita Shetty are currently serving as Class II directors, whose terms expire in 2026.
2.Ratification of the selection by the Audit Committee of the Board of KPMG LLP to serve as the Company's independent registered public accounting firm for the fiscal year ending October 31, 2024:
For Against Abstain
10,793,676 639,806 465,636
Changes in and Disagreements with Accountants and On Accounting and Financial Disclosure
There have been no changes in and disagreements with accountants on accounting and financial disclosure during the Company's two most recent fiscal years ending October 31, 2024.
Unresolved SEC Staff Comments
As of October 31, 2024, the Company had no unresolved comments from the staff of the SEC.
Privacy Principles
Your privacy is very important to us. This Privacy Notice sets forth the Company's policies with respect to non-public personal information provided to us. These policies apply to stockholders of the Company and may be changed at any time, provided a notice of such change is given to you. This notice replaces all previous statements of our privacy policy. Please read this
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Privacy Notice as it provides important information regarding our privacy practices and an explanation of your rights. If you do not agree with this Privacy Notice, please do not provide us with personal information.
1.What Personal Information We Collect
You may provide us with non-public personal information, such as your name, address, e-mail address, social security and/or tax identification number, date of birth, assets and/or income information: (i) in a trading confirmation or other related account or transaction documentation; (ii) in correspondence and conversations with us and our representatives; and (iii) through transactions with the Company.
Whether you choose to provide any particular information requested by the Company is completely your own choice, but if you choose not to provide the information we request, you may be unable to receive or access certain services, offers and information.
2.Where Do We Obtain Your Personal Data?
We may collect, and may have collected, information about you from a number of sources, including from you directly or from external sources.
Sources from which we may collect your information directly include:
•documentation that you completed when you subscribed for an investment;
•correspondence and conversations with us;
•transactions you have made or will make with us; and
•your purchase of securities from us, including information regarding where to send money.
External sources from which we may collect your information include:
•publicly available and accessible directories and sources;
•tax authorities, including those that are based outside the jurisdiction where you are located if you are subject to tax in another jurisdiction;
•governmental and competent regulatory authorities to whom we have regulatory obligations;
•credit agencies; and
•fraud prevention and detection agencies and organizations.
3.Why Do We Collect Your Personal Data?
We may collect your personal information for the following purposes:
•to administer, manage and set up your investment, and any related accounts on an ongoing basis;
•to facilitate the transfer of funds and administer any other transaction with you;
•to open, maintain or close accounts in connection with your subscription or redemption;
•to send updates, information and notices or otherwise correspond with you in connection with your investment;
•to verify the identity and addresses of our investors (and, if applicable, their beneficial owners);
•to comply with requests from regulatory, governmental, tax and law enforcement authorities;
•to comply with applicable regulatory, accounting, tax and audit requirements;
•to conduct surveillance and investigation;
•to maintain statutory registers;
•to comply with the U.S Office of Foreign Assets Control list and other governmental sanctions lists;
•to address or investigate any complaints, claims, proceedings or disputes;
•to provide you with, and inform you about, our investment products and services;
•to send direct marketing communications to you;
•to assist with internal compliance with our policies and process;
•to protect our business against fraud, breach of confidence, theft of proprietary materials and other financial or business crimes (to the extent that this is not required of us by law);
•to monitor and improve our relationships with investors;
•to ensure appropriate group management and governance;
•to keep our internal records;
•to prepare reports on incidents / accidents;
•to analyze and manage commercial risks and operations;
•to seek professional advice, including legal advice;
•to enable any actual or proposed assignee or transferee, participant or sub-participant of our rights or obligations to evaluate proposed transactions;
•to facilitate business asset transactions involving the Company or related investment vehicles;
•to monitor communications to/from us using our systems; and
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•to protect the security and integrity of our IT systems.
We only rely on these interests where we have considered that, on balance, our legitimate interests are not overridden by your interests, fundamental rights or freedoms.
4.How We Share Information We Collect
We may share any of the non-public personal information collected from our stockholders, or prospective or former stockholders with our affiliates, such as our investment adviser, and to certain service providers such as our accountants, attorneys, auditors, transfer agents and brokers, in each case for our everyday business purposes, such as to facilitate the acceptance and management of your investment or account or as otherwise permitted by applicable law. We may also disclose the information we collect:
1.As Authorized - if you request or authorize disclosure of the information, in each case in accordance with the agreements governing your investment.
2.As required by law - for example, to cooperate with any government regulators, self-regulatory organizations or law enforcement authorities.
3.As otherwise permitted by law - for example, (i) to service providers who maintain, process or service the Company; (ii) in connection with the making, management or disposition of any fund investment; (iii) as otherwise necessary to effect, administer or enforce investment or fund transactions; or (iv) in connection with a sale or other transfer of the Company. We may also share information with attorneys, accountants, other service providers and with persons otherwise acting in a representative or fiduciary capacity on behalf of investors or the fund.
4.To service providers - we may share information with service providers that perform marketing services on our behalf.
We do not, and will not, sell personal data to third parties.
5.Retention
We keep your personal information for as long as it is required by us for our legitimate business purposes, to perform our contractual obligations, to comply with regulatory requirements, in connection with any investment you are involved in, and in accordance with our data retention schedule. We may retain your personal information for a longer period if doing so is necessary to comply with our legal or reporting obligations, or as otherwise permitted or required by law. We may also retain your personal information in a deidentified or aggregated form so that it can no longer be associated with you. To determine the appropriate retention period for your personal information, we consider various factors, such as the amount, nature, and sensitivity of your information; the potential risk of unauthorized access, use or disclosure; the purposes for which we collect or process your personal information; and applicable legal requirements.
6.Personal Data from Minors
We do not offer financial services and products to minors and do not knowingly collect or sell the personal information of minors. We follow all local legal requirements with respect to the collection and processing of a minor's personal information.
7.Consent and Our Right To Withdraw It
We do not generally rely on obtaining your consent to process your personal data. If we do, you have the right to withdraw this consent at any time. Please contact us at 1-833-687-3622 or send us an e-mail at [email protected]at any time for further information.
8.Feedback, Concerns or Queries
We take your feedback and concerns very seriously. We encourage you to bring to our attention any feedback or concerns you may have about our processing your personal data.
This Privacy Notice was drafted with simplicity and clarity in mind. We are, of course, happy to provide any further information or explanation needed. Please contact us at 1-833-687-3622 or send us an e-mail at [email protected]at any time for further information.
9.Protecting Your Personal Information
Except as permitted by law, we require all non-affiliated third-party service providers to whom we disclose non-public personal information about our customers to enter into confidentiality agreements with us.
We implement and maintain reasonable security appropriate to the nature of the personal information that we collect, use, retain, transfer or otherwise process, and will take reasonable steps to protect your personal data against loss or theft, as well as from unauthorized access, disclosure, copying, use or modification, regardless of the format in which it is held. While we are committed to developing, implementing, maintaining, monitoring and updating a reasonable information security program,
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unfortunately, no data transmission over the Internet or any wireless network can be guaranteed to be 100% secure. Data security incidents and breaches can occur due to vulnerabilities, criminal exploits or other factors that cannot reasonably be prevented. Accordingly, while our reasonable security program is designed to manage data security risks and thus help prevent data security incidents and breaches, it cannot be assumed that the occurrence of any given incident or breach results from our failure to implement and maintain reasonable security. As a result, while we strive to protect your personal information, you acknowledge that: (i) there are security and privacy limitations of the Internet which are beyond our control; (ii) the security, integrity, and privacy of any and all information and data exchanged between you and us through the website cannot be guaranteed; and (iii) any such information and data may be viewed or tampered with in transit by a third party.
If you have any questions regarding this Privacy Notice or the treatment of your non-public personal information, please feel free to e-mail us at [email protected] or contact us at 1-833-687-3622.
10.European Privacy Rights and Disclosures
This European Privacy Rights and Disclosure section addresses legal obligations and rights specified in the General Data Protection Regulation ("GDPR"). These obligations and rights apply to individuals who are located in the European Economic Area. This section describes the policies and procedures followed by the Company regarding the collection, use and disclosure of your personal data when you visit the website, or otherwise interact with the Company. For the purposes of this section (European Privacy Rights and Disclosures), "personal data" means any information relating to an identified or identifiable natural person, either directly or indirectly.
According to the GDPR, the Company is the controller of your personal data.
a.Collection of Your Personal Data
When you visit the website, receive services from us or otherwise interact with us, we may collect the following personal data about you: your name, postal address, e-mail address, phone number, account name, date of birth, social security number, driver's license number, photograph, passport number, employer, job title, bank account information, financial information such as your income and net worth, risk tolerance and transaction history, details about your investment activity or retirement portfolios and information about your transactions with us such as the investment amount and any contributions and/or distributions, as well as any other information you choose to provide to us.
Where the Company carries out background checks on certain individuals for a business purpose, this may involve the processing of data relating to criminal convictions and offences. This data will only be processed where such processing is specifically required or authorized by law.
b.Use of Your Personal Data
We may use the personal data you give us to carry out the following purposes:
•To contact you and to respond to your requests and enquiries when you contact us or subscribe to receive e-mail alerts:We have a legitimate interest to respond to your requests and enquiries for ongoing business administration.
•To deliver services to you:To manage and perform our contract with you.
•For business administration, including statistical analysis:We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•To personalize your visit to the website and to assist you while you use the websites:We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•To improve the website by helping us understand who uses the websites:We have a legitimate interest to properly manage and administer our relationship with you and to ensure that we are effective and efficient.
•For fraud prevention and detection and to comply with applicable laws, regulations or codes of practice:To comply with our legal obligations.
c.Sharing Your Personal Data
We may share your personal information with others, but only in certain limited situations, including: (i) within our corporate group or among our affiliated entities, all of which follow this Privacy Notice or equivalent privacy policies; (ii) with our service providers or other parties who agree to keep your personal information confidential and use it only on behalf of the Company; (iii) if your investment is transferred from your current custodian to another custodian, we provide your contact details, tax identification number and other personal information contained within transfer documents to the new custodian on your behalf; and (iv) as otherwise agreed by you. Third parties with whom we
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share your personal information are bound to comply with similar and equally stringent undertakings of privacy and confidentiality.
In some cases, we may be required to disclose certain personal information to comply with legal or regulatory obligations; to comply with the charter of the applicable entity into which you invest; to detect and protect against fraud, or any technical or security vulnerabilities; for an investigation or a legal process, such as a court order or subpoena; to respond to an emergency; or otherwise to protect the rights, property, safety, or security of third parties, visitors to the website, our businesses, or the public. In addition, the Company may disclose certain personal information to any third party that acquires, or is interested in acquiring, all or part of the Company's assets or shares, or that succeeds the Company in carrying on all or a part of its business, whether by merger, acquisition, reorganization or otherwise.
d.International Transfers
When you are based in the European Union (the "EU"), personal data collected from you, including via the websites may be transferred to certain recipients located outside the EU, which do not provide a similar or adequate level of protection to that provided by countries in the EU. You hereby consent to the transfer of your personal data to recipients as described in this Privacy Notice which are located outside of the EU.You may withdraw your consent at any time. The withdrawal of consent shall not affect the lawfulness of processing based on consent before its withdrawal.
e.Rights of Individuals
You may have certain data privacy rights which may be subject to limitations and/or restrictions. These rights include the right to: (i) request access to and rectification and erasure of your personal data; (ii) obtain restriction of processing or to object to processing of your personal data; and (iii) ask for a copy of your personal data to be provided to you, or a third party, in a digital format. You also have the right to lodge a complaint about the processing of your personal data with your local data protection authority. If you would like to exercise any of these rights, please feel free to e-mail us at [email protected]or contact us at 1-833-687-3622.
11.California Privacy Rights and Disclosures
This California Privacy Rights and Disclosure section addresses legal obligations and rights specified in the California Consumer Privacy Act, as amended (the "CCPA" or "Act"). For the purposes of this section (California Privacy Rights and Disclosures), "personal information" means information that identifies, relates to, describes, is reasonably capable of being associated with, or could be reasonably linked, directly or indirectly, with a particular consumer or household. If you need access to this Privacy Notice in a different format for accessibility reasons, please e-mail us at [email protected]or contact us at 1-833-687-3622.
These obligations and rights apply to businesses doing business in California and to California residents and information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with California consumers or households. It does not include deidentified or aggregate information, publicly available information, or lawfully obtained, truthful information that is a matter of public concern.
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The following chart describes the categories of personal information we may collect or have collected about you in the past 12 months and, for each category, where and why we collect it, and the categories of entities to whom we disclose the personal information, if any:
Category of Personal Information ("PI") Sources from which PI
is/was collected 		Purpose of collection Categories of entities with whom PI is/was disclosed
Address and other identifiers - such as name, postal address, e-mail address, phone number, account name, date of birth, social security number, driver's license number, photograph, passport number, or other similar identifiers
NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: social security number, driver's license number, state identification card number, and/or passport number.
•Directly from you;
•Automatically when you use our website or services;
•From third parties; including business partners, your employer, tax authorities and background/credit check providers; and
•Publicly available sources
•To provide you services;
•To contact you to discuss the services or products you receive from us;
•To respond to any questions or concerns you have raised;
•To deal with administrative matters such as capital calls or redemptions;
•To perform services on our behalf, such as customer service, processing or fulfilling orders;
•To otherwise carry out our obligations arising under our contract with you and to enforce the same;
•To carry out anti-money laundering and other compliance checks and controls;
•To verify your identity or for other fraud and/or crime prevention;
•To debug errors in our systems;
•For marketing and advertising purposes; and
•For internal research, analytics and development
•Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services;
•Service providers, including to provide and support our data management, analytics, security, background and credit checks, and storage systems;
•Group companies, for business, marketing and operational purposes;
•Transaction (merger and acquisition) partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and
•Government authorities or other entities with legal authority to request the information
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Category of Personal Information ("PI") Sources from which PI
is/was collected 		Purpose of collection Categories of entities with whom PI is/was disclosed
Protected status - such as citizenship, ethnic background, gender or other similar identifiers
NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: racial, ethnic, or national origin.
•Directly from you;
•From third parties; including business partners, your employer and background/credit check providers; and
•Publicly available sources
•To provide you services;
•To contact you to discuss the services or products you receive from us;
•To respond to any questions or concerns you have raised;
•To deal with administrative matters;
•To perform services on our behalf;
•To otherwise carry out our obligations arising under our contract with you and to enforce the same;
•To carry out anti-money laundering and other compliance checks and controls; and
•To verify your identity or for other fraud and/or crime prevention
•Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services;
•Service providers, including to provide and support our data management, analytics, security, background and credit checks, and storage systems;
•Group companies, for business, marketing and operational purposes;
•Transaction (merger and acquisition) partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and
•Government authorities or other entities with legal authority to request the information
Electronic Communication such as e-mail communications and text messages
NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: the contents of mail, e-mail, or text messages, to which the business was not the intended recipient.
•Automatically when you use our website or services
•To debug errors in our systems;
•For marketing and advertising purposes; and
•For internal research, analytics and development
•Group companies, for business, marketing and operational purposes
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Category of Personal Information ("PI") Sources from which PI
is/was collected 		Purpose of collection Categories of entities with whom PI is/was disclosed
Financial information such as bank account details, credit history, income details, assets and investment experience, risk tolerance or other similar identifiers
NOTE: The information in this category may include the following elements as defined as Sensitive Personal Information in the Act: log-in, financial account, debit card, or credit card number, in combination with any required security or access code, password, or credential allowing access to an account.
•Directly from you;
•From your employer;
•Automatically when you use our website or services;
•From third parties acting on your behalf; including business partners, accountancy and law firms; and
•Background/credit check providers
•To provide you services;
•To deal with administrative matters such as invoicing, renewal or to audit customer transactions;
•To perform services on our behalf, such as processing capital calls or redemptions;
•To otherwise carry out our obligations arising under our contract with you and to enforce the same;
•To carry out anti-money laundering and other compliance checks and controls; and
•To verify your identity or for other fraud and/or crime prevention
•Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services;
•Service providers, including to provide and support our data management, analytics, security, and storage systems;
•Group companies, for business, marketing and operational purposes;
•Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and
•Government authorities or other entities with legal authority to request the information
Commercial information - such as records of personal property, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies or other similar identifiers
•Directly from you;
•Automatically when you use our website or services;
•From third parties acting on your behalf; including business partners and law firms; and
•Through publicly available sources
•To provide you services; and
•To otherwise carry out our obligations arising under our contract with you and to enforce the same
•Professional advisers, including depositories, administrators, custodians, investment advisers, accountancy and legal firms, in order to provide us with advice and services;
•Group companies, for business, marketing and operational purposes;
•Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by us, our parent company, or affiliated operating companies; and
•Government authorities or other entities with legal authority to request the information
Education or other professional information, including veteran status or other similar identifiers
NOTE: The information in this category may include the following elements as defined in the Act as Sensitive Personal Information: union membership.
•Directly from you;
•From your employer; and
•Through publicly available sources
•To provide you services; and
•To otherwise carry out our obligations arising under our contract with you and to enforce the same
•Group companies, for business, marketing and operational purposes;
•Transaction partners, including to facilitate the diligence, negotiation, and completion phases of transactions contemplated by you, us, our parent company, or affiliated operating companies; and
•Government authorities or other entities with legal authority to request the information
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Category of Personal Information ("PI") Sources from which PI
is/was collected 		Purpose of collection Categories of entities with whom PI is/was disclosed
Inferences drawn from CCPA PI - such as individual profiles, preferences, characteristics, behaviors or other similar identifiers
•Directly from you;
•Automatically when you use our website or services; and
•From third parties; including business partners or firms acting on your behalf
•To provide you services;
•To contact you to discuss the services or products you receive from us;
•To respond to any questions or concerns you have raised;
•To deal with administrative matters;
•To perform services on your behalf, such as booking travel arrangements;
•To otherwise carry out our obligations arising under our contract with you and to enforce the same;
•For marketing and advertising purposes; and
•For internal research, analytics and development
•Group companies, for business, marketing and operational purposes
a.Your Right to Request Disclosure of Information We Collect and Disclose about You
If you are a California resident, the CCPA grants you the right to request certain information about our practices with respect to personal information. In particular, you can request the following:
1.The categories of your personal information that we've collected.
2.The specific pieces of your personal information that we've collected.
3.The categories of sources from which we collected your personal information.
4.The categories of your personal information that we've sold or disclosed for a business purpose.
5.The business or commercial purposes for which we collected, sold or shared your personal information.
6.The categories of third parties to whom we've disclosed your personal information.
To exercise your CCPA right to request this information, either e-mail us at [email protected] or contact us at 1-833-687-3622. These requests for disclosure are generally free.
b.Your Right to Request the Deletion of Personal Information
Upon your request, and subject to certain exceptions, we will delete, and direct applicable service providers to delete, the personal information we have collected about you.
To exercise your right to request the deletion of your personal information, either e-mail us at [email protected] or contact us at 1-833-687-3622. These requests for deletion are generally free.
c.Your Right to Ask Us Not to Sell or Share Your Personal Information
We do not, and will not, sell or share your personal information.
d.Your Right to Request the Correction of Your Personal Information
Upon your request, and subject to certain limitations, we will correct any inaccurate personal information we maintain about you.
To exercise your right to request the correction of your personal information, either e-mail us at [email protected]or contact us at 1-833-687-3622. These requests for correction are generally free.
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e.Our Use or Disclosure of Sensitive Personal Information
Weonly use and disclose Sensitive Personal Information for the purposes set forth in Section 7027(m) of the CCPA regulations.
f.Our Support for the Exercise of Your Data Rights
We are committed to providing you control over your personal information. If you exercise any of these rights explained in this section of the Privacy Notice, we will not disadvantage you. You will not be denied or charged different prices or rates for goods or services or provided a different level or quality of goods or services.
g.How We Will Handle a Request to Exercise Your Rights
For requests for access or deletion, we will first acknowledge receipt of your request. We will provide a substantive response to your request as soon as we can, generally within 45 days from when we receive your request, although we may be allowed to take longer to process your request under certain circumstances. If we expect your request is going to take us longer than normal to fulfil, we'll let you know.
When you make a request to access, correct, or delete your personal information, we will take steps to verify your identity. These steps may include asking you for personal information, such as your name, address, or other information we maintain about you. If we are unable to verify your identity with the degree of certainty required, we will not be able to respond to the request. We will notify you to explain the basis of the denial.
You may also designate an authorized agent to submit requests on your behalf. If you do so, you will be required to verify your identity by providing us with certain personal information as described above. Additionally, we will also require that you provide the agent with written permission to act on your behalf, and we will deny the request if the agent is unable to submit proof to us that you have authorized them to act on your behalf.
[End of Annual Report]
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Item 2. Code of Ethics.
OFS Credit Company, Inc. (the "Company") has adopted a code of ethics, as amended ("Code of Ethics"), that applies to its supervised persons, including its principal executive officer, principal financial officer, and principal accounting officer, and is filed herewith. The Company's Code of Ethics was amended on October 1, 2024 and approved by the Company's Board of Directors (the "Board") on December 10, 2024 to include the following changes: (i) commencing October 1, 2024, required personnel are required to pre-clear and obtain the compliance department's approval to trade in publicly traded reportable securities, including automatic investment plans. As such, the requirement of required personnel to review OFS Advisor's restricted list prior to making a trade in a publicly traded reportable security was removed; (ii) required personnel are prohibited from trading in a security in close proximity to an actual, planned or pending trade of such security on behalf of an OFS Advisor client to avoid the appearance or practice of front running; (iii) prohibited shadow trading as a form of insider trading, which is the practice of using material non-public information ("MNPI") regarding a company to trade in the securities of another company that is "economically linked" to the company for which required personnel has MNPI; (iv) supervised personnel must obtain prior approval to engage in personal publications regarding credit investments and personal use of social media for actual or intended monetary benefit, which are deemed as outside business activities; and (v) employees are encouraged to report any environmental, social or governance concerns or violations, or any other inappropriate conduct to their supervisor, the compliance department, legal department or through the Company's whistleblower hotline. The Company did not grant any waivers, including implicit waivers, from any provisions of the Code of Ethics during the year covered by this report. The Company's Code of Ethics can also be accessed via the Company's website at www.ofscreditcompany.com. The Code of Ethics can also be obtained, without charge, by making a written request to: OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
Item 3. Audit Committee Financial Expert.
The Company's Board has determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The Board has determined that Kathleen M. Griggs satisfies the requirements of an audit committee financial expert. Ms. Griggs is "independent" within the meaning of that term used in Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees.The aggregate fees billed for professional services rendered by KPMG LLP ("KPMG"), the Registrant's independent registered public accounting firm, for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended October 31, 2024 and October 31, 2023 were $565,828 and $340,776, respectively. The audit fees for fiscal year end 2024 and 2023 include fees in connection with securities offerings of $173,603 and $0, respectively.
(b) Audit-Related Fees. The aggregate fees billed for assurance and related services by KPMG that are reasonably related to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item 4 for the fiscal years ended October 31, 2024 and October 31, 2023 were $0 and $0, respectively.
(c) Tax Fees.The aggregate fees billed for professional services by KPMG for tax compliance, tax advice and tax planning in the fiscal years ended October 31, 2024 and October 31, 2023 were $53,000 and $45,000, respectively. These fees were incurred in connection with the preparation of the Registrant's RIC tax compliance and related tax advice.
(d) All Other Fees.There were no additional fees billed for assurance and related services by KPMG in the fiscal years ended October 31, 2024 and October 31, 2023.
(e)(1) The Company's audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by the Company's independent registered public accounting firm. This policy generally provides that the Company will not engage the independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.
Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the Audit Committee for specific pre-approval, irrespective of the amount, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee. However, in urgent cases, the Audit Committee chair may pre-approve audit and non-audit services (other than prohibited non-audit services), provided that the Audit Committee chair reports any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent registered accounting firm to management.
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(e)(2) None of the KPMG expenses described in Item 4(b)-(d) were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X as all such expenses were pre-approved by the Audit Committee. No pre-approvals were waived by the Audit Committee during the fiscal year ended October 31, 2024.
(f) Not applicable.
(g) The aggregate fees billed for non-audit services rendered to the Company were $53,000 and $45,000 for the fiscal years ended October 31, 2024 and October 31, 2023, respectively, consisting of tax compliance, advice and planning. The aggregate fees billed for audit and non-audit services rendered to OFS Advisor were $248,000and $171,000 for the fiscal years ended October 31, 2024 and October 31, 2023, respectively.
(h) The Company's Audit Committee has considered whether the provision of non-audit services that were rendered to OFS Advisor and/or to any entity controlling, controlled by or under common control with OFS Advisor that provides ongoing services to the registrant and that were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining KPMG's independence.
(i) Not applicable.
(j) Not applicable.
Item 5. Audit Committee of Listed Registrant.
The Company has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the committee are Kathleen M. Griggs, Catherine M. Fitta and Romita Shetty. Ms. Griggs serves as the Chair of the Audit Committee.
Item 6. Investments.
A schedule of investments is included in the Registrant's Report to Stockholders under Item 1 herein.
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment Companies.
Not applicable.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies.
Not applicable.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
Not applicable.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies.
Not applicable.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.
A statement regarding basis for approval of the Investment Advisory Agreement is included in the Registrant's Report to Stockholders under Item 1 herein.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Company has delegated its proxy voting responsibility to OFS Advisor. The Proxy Voting Policies and Procedures of OFS Advisor are set forth below. The guidelines will be reviewed periodically by OFS Advisor and our Independent Directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, "we," "our" and "us" refers to OFS Advisor.
Introduction
An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
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Proxy Policies
Based on the nature of the Company's investment strategy, we do not expect to receive proxy proposals but may from time to time receive amendments, consents or resolutions applicable to investments held by the Company. It is our general policy to exercise our voting or consult authority in a manner that serves the interests of the Company's stockholders. We may occasionally be subject to material conflicts of interest in voting proxies due to business or personal relationships we maintain with persons having an interest in the outcome of certain votes. If at any time we become aware of a material conflict of interest relating to a particular proxy proposal, our CCO will review the proposal and determine how to vote the proxy in a manner consistent with interests of the Company's stockholders.
Proxy Voting Records
Information regarding how we voted proxies relating to the Company's portfolio securities is available: (1) without charge, upon request, by calling collect (847) 734-2085; and (2) on the SEC's website at http://www.sec.gov. You may also obtain information about how we voted proxies by making a written request for proxy voting information to: OFS Capital Management, LLC, 10 S. Wacker Drive, Suite 2500, Chicago, IL 60606.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
The management of the Company's investment portfolio is the responsibility of OFS Advisor and its investment committees (the "Advisor Investment Committees"). The Advisor Investment Committees, including the Structured Credit Investment Committee of OFS Advisor (the "Structured Credit Investment Committee"), are responsible for the overall asset allocation decisions and the evaluation and approval of investments by the Company.
The purpose of the Structured Credit Investment Committee is to evaluate and approve our prospective investments, subject at all times to the oversight of our Board. The Structured Credit Investment Committee, which is comprised of Richard Ressler (Chairman), Jeffrey Cerny, Bilal Rashid, Glen Ostrander and Kenneth A. Brown, is responsible for the evaluation and approval of all the investments we make. The members of the senior investment team of OFS Advisor (the "Senior Investment Team") are our portfolio managers and are primarily responsible for the day-to-day management of the portfolio. The Senior Investment Team is supported by a team of analysts and investment professionals.
The process employed by the Advisor Investment Committees, including the Structured Credit Investment Committee, is intended to bring the diverse experience and perspectives of the committees' members to the investment process. The Structured Credit Investment Committee serves to provide investment consistency and adherence to our core investment philosophy and policies. The Structured Credit Investment Committee also determines appropriate investment sizing and implements ongoing monitoring requirements of our investments.
In addition to reviewing investments, the meetings of the Structured Credit Investment Committee serve as a forum to discuss credit views and outlooks. Potential transactions and deal flow are reviewed on a regular basis. Members of OFS Advisor's investment team are encouraged to share information and views on credits with members of the Structured Credit Investment Committee early in their analysis. We believe this process improves the quality of the analysis and assists the investment professionals in working efficiently.
None of the members of the Senior Investment Team or the Structured Credit Investment Committee are employed by us or receive any direct compensation from us although some allocated compensation could be borne under the Administration Agreement by certain of those individuals in their capacity under such Administration Agreement. Certain Senior Investment Team members have ownership and financial interests in, and may receive compensation and/or profit distributions from, Orchard First Source Asset Management Holdings, LLC ("OFSAM Holdings"), an affiliate of OFS Advisor, and/or its subsidiaries. These individuals receive compensation from OFS Advisor that includes an annual base salary, an annual discretionary bonus and a portion of the distributions made by OFS Advisor, a portion of which may relate to the incentive fee earned by OFS Advisor in connection with its services to us.
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Information regarding the Structured Credit Investment Committee as of December 11, 2024 is as follows:
Name (1)
Age Position Length of Service
Richard Ressler 66 Chairman of Structured Credit Investment Committee 21
Bilal Rashid(2)
53 President and Senior Managing Director of OFS Advisor 15
Jeffrey A. Cerny(2)
61 Senior Managing Director and Chief Financial Officer of OFS Advisor 25
Glen Ostrander(2)
50 Managing Director of OFS Advisor 15
Kenneth A. Brown(2)
51 Managing Director of OFS Advisor 17
(1) The address for each member of the Senior Investment Team is c/o OFS Capital Management, LLC, 10 S. Wacker Drive,
Suite 2500, Chicago, IL 60606.
(2) Member of the Senior Investment Team
Members of the Structured Credit Investment Committee Who Are Not Our Directors or Officers
Richard S. Ressleris a Co-Founder and Principal of CIM Group, L.P. (together with its controlled affiliates "CIM", a community-focused real estate and infrastructure owner, operator, lender and developer. Mr. Ressler serves as the chairman of CIM's Real Assets Management Committee and Investment Committee, together with its sub-committees. He also serves on CIM's Investment Allocation Committee.
Through his affiliation with CIM, Mr. Ressler currently serves as Chairman of the board of directors of Creative Media & Community Trust Corporation, a publicly traded REIT sponsored by CIM that seeks to own, operate and develop premier multifamily and creative office assets in vibrant and emerging communities throughout the United States. Also, through his affiliation with CIM, Mr. Ressler serves as Chief Executive Officer, President and chairman of the board of directors for CIM Real Estate Finance Trust, Inc., a non-listed REIT that invests in a diversified portfolio of senior secured mortgage loans, creditworthy long-term net-leased property investments and other senior loan and liquid credit investments. In addition, Mr. Ressler currently serves as a director of several portfolio companies owned by CIM's infrastructure funds. Also through his affiliation with CIM, Mr. Ressler served as Chief Executive Officer and as a board member for Cole Office & Industrial REIT (CCIT II), Inc from 2019-2021, for Cole Office & Industrial REIT (CCIT III), Inc from 2018-2020, and CIM Income NAV, Inc (INAV), Inc. from 2018-2021; non-listed REITs that invested primarily in commercial real estate leased to creditworthy tenants under long-term net leases and situated in strategic locations.
Mr. Ressler is also the founder and President of Orchard Capital Corporation ("Orchard"), a firm that provides consulting and advisory services to companies (including CIM) in which Orchard or its affiliates invest. Mr. Ressler serves as chairman of the executive committees of Orchard First Source Asset Management, LLC, a full-service provider of capital and leverage finance solutions to U.S. companies and of OFSAM Holdings. OFSAM Holdings is a holding company of Orchard First Source Capital, Inc. ("OFSC"), which in turn provides personnel staffing to OFS Advisor, a registered investment adviser focusing primarily on investments in middle market and broadly syndicated US loans, debt and equity positions in collateralized loan obligations and other structured credit investments, as well as OFS CLO Management, LLC, OFS CLO Management II, LLC, and, indirectly, OFS CLO Management III, LLC, registered investment advisers focusing primarily on investments in broadly syndicated US loans. Mr. Ressler is also the co-founder and Chairman of the Executive Committee of OCV Management, LLC, an investment adviser focusing on investments in the technology and life science sectors. Mr. Ressler also serves as a member of the board of directors of Presbia USA, Inc., a medical device company focusing on the development of presbyopia-correcting lenses, and previously served as a director of Presbia PLC (NASDAQ: "LENS") until May 13, 2019. Mr. Ressler also served as chairman of the board directors for of Ziff Davis (NASDAQ: "ZD"; formerly known as j2 Global, Inc.) from 1997 to 2022 and as CEO of j2 Global, Inc. from 1997 to 2000.
Prior to founding Orchard, from 1988 until 1994, Mr. Ressler served as Vice Chairman of Brooke Group Limited, the predecessor of Vector Group, Ltd. (NYSE: "VGR") and served in various executive capacities at such entity and its subsidiaries. Prior to Vector Group, Ltd., Mr. Ressler was with Drexel Burnham Lambert, Inc., where he focused on merger and acquisition transactions and the financing needs of middle-market companies. Mr. Ressler began his career in 1983 with Cravath, Swaine and Moore LLP, working on public offerings, private placements, and merger and acquisition transactions. Mr. Ressler holds a B.A. from Brown University and J.D. and M.B.A. degrees from Columbia University.
Glen Ostranderis a Managing Director of OFS Advisor and focuses on structured products investment activities of the firm, capital markets related activities, fundraising, and strategic initiatives. Mr. Ostrander has more than 25 years of experience in investing, banking and debt capital markets relating to securitization, corporate credit, and structured credit. Mr. Ostrander has been involved in the CLO market since the late 1990s, with experience in the creation and full life cycle of various types of CLOs through multiple credit cycles. Prior to joining OFSC in 2009, Mr. Ostrander worked within the Global Markets &
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Investment Banking division at Merrill Lynch. Prior to joining Merrill Lynch, he was a Vice President at Wachovia Capital Markets from 1998 to 2006, and worked at International Business Machines and Koch Industries. Throughout his experience at Wachovia Capital Markets, Merrill Lynch, and OFS Advisor, Mr. Ostrander has been in involved in the structuring of CLO transactions, investing throughout the CLO capital structure, and the creation and vetting of CLO managers. Mr. Ostrander holds a Bachelor of Science in Accounting from Belmont Abbey College.
Kenneth A. Brownis a Managing Director of OFS Advisor and is responsible for leading the underwriting, credit monitoring and trading functions for the Broadly Syndicated Loan Group at OFS, as well as managing relationships with agent/investment banks. Mr. Brown's experience spans more than 25 years working in leveraged finance and public accounting. Mr. Brown has been involved in the leveraged finance/CLO market since the late 1990s, with experience underwriting, managing, and sourcing leveraged loans as well as managing CLOs through multiple cycles. Prior to joining OFSC in 2007, Mr. Brown was a Vice President at GE Antares Capital, wherein Mr. Brown focused on direct underwriting/portfolio management activities, including workout situations, focused on private equity-backed transactions. Prior to GE Antares Capital, Mr. Brown was at First Source Financial, focused on underwriting direct and participation interests, as well as managing portfolios of leveraged loans. Mr. Brown started his career with Arthur Andersen LLP, a national public accounting firm, as an auditor. Mr. Brown holds a Bachelor of Science in Accountancy from the University of Illinois at Urbana-Champaign and a Master of Business Administration from the University of Chicago's Booth School of Business, with concentrations in Finance and Strategic Management. Mr. Brown has also earned his CPA certification.
The table below shows the dollar range of shares of our common stock beneficially owned by the members of the Senior Investment Team.
Name of Senior Investment Team Member
Dollar Range of Equity Securities Beneficially Owned as of October 31, 2024(1)(2)
Bilal Rashid
Over $1,000,000(3)
Jeffrey A. Cerny
Over $1,000,000(3)
Glen Ostrander $100,001 - $500,000
Kenneth A. Brown $50,001 - $100,000
(1) Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act of 1934.
(2) Dollar ranges are as follows: None, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000, $100,001 - $500,000, $500,001 - $1,000,000 and over $1,000,000.
(3) Mr. Rashid and Mr. Cerny beneficially own securities of the Company directly, and through their indirect ownership of an affiliate of OFS Advisor, and through their indirect ownership of OFSAM.
Messrs. Rashid, Cerny, Ostrander and Brown also perform a similar role for other pooled investment vehicles managed by OFS Advisor and its affiliates, with a total amount of approximately $3.9 billion of committed assets under management as of September 30, 2024 from which OFS Advisor and OFSAM may receive incentive fees. As a result, Messrs. Rashid, Cerny, Ostrander and Brown may be subject to certain conflicts of interests with respect to their management of our portfolio on the one hand, and their respective obligations to manage other pooled investment vehicles managed by OFS Advisor and its affiliates on the other hand. See "Item 1. Report to Stockholders-Conflicts of Interest"for more information.
The following table sets forth other accounts within each category listed for which members of the Senior Investment Team are jointly and primarily responsible for day-to-day portfolio management as of September 30, 2024. Each of the accounts may be subject to a performance fee.
Registered
Investment Companies(1)
Other Pooled
Investment Vehicle
Portfolio Manager Number of
Accounts 		Total Assets
(in millions) 		Number of
Accounts 		Total Assets
(in millions)
Bilal Rashid 3 $ 681.4 14 $ 3,228.0
Jeffrey A. Cerny 3 681.4 14 3,228.0
Glen Ostrander 3 681.4 14 3,228.0
Kenneth A. Brown 3 681.4 14 3,228.0
(1) Includes, for purposes of this table, closed-end funds that have elected to be regulated as business development companies.
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Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
There have been no purchases by or on behalf of the Company or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares or other units of any class of the Company's equity securities that are registered pursuant to Section 12 of the Exchange Act during the period covered by this report.
Item 15. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which stockholders may recommend nominees to the Company's Board.
Item 16. Controls and Procedures.
(a) Based on an evaluation of the Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the 1940 Act, the "Disclosure Controls") as of a date within 90 days prior to the filing date (the "Filing Date") of this Form N-CSR (the "Report"), the Chief Executive Officer and Chief Financial Officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Company in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Company's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
The Company did not engage in securities lending activity during the year ended October 31, 2024.
Item 18. Recovery of Erroneously Awarded Compensation.
Not applicable.
Item 19. Exhibits.
(a)(1)
Joint Code of Ethics of the Registrant and OFS Capital Management, LLC filed herewith.
(a)(3)
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
(b)
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith.
(c)
Consent of Independent Registered Public Accounting Firm with respect to the Company
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OFS CREDIT COMPANY, INC.
By: /s/ Bilal Rashid
Bilal Rashid
Chief Executive Officer
Date: December 11, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Bilal Rashid
Bilal Rashid
Chief Executive Officer
Date: December 11, 2024
By: /s/ Jeffrey A. Cerny
Jeffrey A. Cerny
Chief Financial Officer
Date: December 11, 2024
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