OFS Capital Corp

Previous wording

•the belief that the carrying amounts of our financial instruments, such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk;

Current wording

•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;

Previous wording

•our plans to focus on providing first lien senior secured loans to larger borrowers and the impact of these plans on our risk profile, including our belief that the seniority of such loans in a borrower’s capital structure may provide greater downside protection against adverse economic changes, including those caused by the impacts of elevated interest and inflation rates, the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility on our business, our portfolio companies, our industry and the global economy;

Current wording

•the belief that the seniority of our debt investments in a borrower’s capital structure may provide greater downside protection against adverse economic changes, including those caused by the impacts of interest rate and inflation rate changes, the ongoing war between Russia and Ukraine, instability in the U.S. and international banking systems, the agenda of the new U.S. presidential administration, including the potential impact of tariff enactment and tax reductions, the risk of recession or a shutdown of U.S. government services, and related market volatility on our business, our portfolio companies, our industry and the global economy;

Previous wording

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

Current wording

•the impact of alternative reference rates on our business, including potential additional interest rate reductions approved by the U.S. Federal Reserve, which may impact our investment income, cost of funding and the valuation of our investments;

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report on Form 10-K should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include, among others, those described or identified in “Item 1A. Risk Factors” in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

Current wording

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report on Form 10-K should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include, among others, those described or identified in “Part 1, Item 1A. Risk Factors” in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

Previous wording

Our NAV per common share decreased to $12.09 at December 31, 2023, from $13.47 at December 31, 2022, primarily due to net losses on our investment portfolio of $20.4 million, or $1.52 per common share. For the year ended December 31, 2023, net investment income of $1.50 per common share exceeded our aggregate distributions of $1.34 per common share during such period.

Current wording

Our NAV per common share increased from $12.09 at December 31, 2023 to $12.85 at December 31, 2024, primarily due to net gains on our investment portfolio of $11.7 million, or $0.87 per common share. For the year ended December 31, 2024, our aggregate distributions of $1.36 per common share exceeded our net investment income of $1.25 per common share.

Previous wording

During the year ended December 31, 2023, net investment income increased $1.8 million compared to the prior year. The increase in net investment income was primarily due to an increase in total investment income of $8.2 million, partially offset by increases in interest expense and incentive fees (including the Income Incentive Fee and the Capital Gains Fee) of $2.5 million and $4.7 million, respectively. See“—Results of Operations” for additional details.

Current wording

During the year ended December 31, 2024, net investment income decreased $3.4 million compared to the prior year. The decrease in net investment income was primarily due to a decrease in total investment income of $9.0 million, partially offset by a decrease in total expenses of $5.5 million. See“—Results of Operations” for additional details.

Previous wording

During the year ended December 31, 2023, our portfolio experienced net losses of $20.4 million, comprised of net realized losses of $11.4 million and net unrealized depreciation of $9.0 million. During the year ended December 31, 2023, our net loss of $20.4 million was primarily related to net unrealized depreciation of $14.5 million on our common equity of Pfanstiehl Holdings, Inc, and net unrealized depreciation of $4.3 million on our non-accrual loans. As of December 31, 2023, our portfolio had non-accrual loans with an aggregate fair value of $12.1 million, or 4.8% of our total loan portfolio at fair value, compared to non-accrual loans with an aggregate fair value of $11.2 million, or 3.6% of our total loan portfolio at fair value, at December 31, 2022.

Current wording

During the year ended December 31, 2024, our portfolio experienced net gains of $11.7 million, comprised of net unrealized appreciation of $28.9 million, partially offset by net realized losses of $17.1 million. During the year ended December 31, 2024, our net gain of $11.7 million was primarily driven by net unrealized appreciation of $18.4 million in our common equity investment in Pfanstiehl Holdings, Inc., partially offset by net unrealized depreciation of $6.6 million on our current non-accrual loans. As of December 31, 2024, our portfolio had non-accrual loans with an aggregate fair value of $20.8 million, or 9.3% of our total loan portfolio at fair value, compared to non-accrual loans with an aggregate fair value of $12.1 million, or 4.8% of our total loan portfolio at fair value, at December 31, 2023.

Previous wording

As of December 31, 2023, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 16.9% of our portfolio at fair value and 43.8% of our consolidated net assets, respectively. Primarily due to a decline in financial operating performance during the year ended December 31, 2023, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc. decreased by $14.5 million to $70.9 million, or $1.08 per share. The value of this investment is substantially comprised of unrealized appreciation of $70.7 million. A deterioration or improvement in the operating performance of the company or other factors underlying the valuation of this investment could have a material impact on our NAV.

Current wording

As of December 31, 2024, our common equity investment in Pfanstiehl Holdings, Inc., a global manufacturer of high-purity pharmaceutical ingredients, accounted for 21.8% of our portfolio at fair value and 51.8% of our total net assets, respectively. Primarily due to an improvement in financial operating performance during the year ended December 31, 2024, the fair value of our investment in the common equity of Pfanstiehl Holdings, Inc. increased by $18.4 million, or $1.37 per common share, to $89.3 million. The value of this investment is substantially comprised of unrealized appreciation of $89.1 million. The valuation of this investment is based on significant unobservable inputs. A deterioration or improvement in the operating performance of the company or other factors underlying the valuation of this investment could have a material impact on our NAV.

Previous wording

At December 31, 2023, our asset coverage ratio of 160% exceeded the minimum asset coverage requirement of 150% under the 1940 Act, and we remained in compliance with all applicable covenants under our outstanding debt facilities. As of December 31, 2023, we had unused commitments of $25.0 million under our Banc of California Credit Facility and $59.5 million under our BNP Facility, respectively, each of which are subject to a borrowing base and other covenants. As of December 31, 2023, we had unfunded commitments of $13.8 million to 10 portfolio companies.

Current wording

At December 31, 2024, our asset coverage ratio of 169% exceeded the minimum asset coverage requirement of 150% under the 1940 Act, and we remained in compliance with all applicable covenants under our outstanding debt facilities. As of December 31, 2024, we had unused commitments of $24.0 million under our Banc of California Credit Facility and $82.7 million under our BNP Facility, each of which are subject to a borrowing base and other covenants. As of December 31, 2024, we had unfunded investment commitments of $18.8 million to 10 issuers.

Previous wording

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

Current wording

CLO Subordinated Notes and Loan Accumulation Facilities: Interest income on our CLO subordinated note securities is recognized in accordance with ASC Subtopic 325-40, Beneficial Interests in Securitized Financial Assets(“ASC 325-40”), which contemplates estimating an effective yield to expected redemption utilizing estimated future cash flows from the investment. The expected cash flows of the underlying portfolio and to our security are developed utilizing a number of assumptions, including, among others, estimates of default rates, prepayment rates, redemption timing, reinvestment prices, and liquidation-redemption price. These assumptions, and correspondingly the estimated cash flows and accretable yields, are reviewed and updated at each payment date, generally quarterly. These assumed cash flows represent significant estimates and are subject to a reasonable possibility of near-term changes due to economic and credit market conditions, and the effect of these changes could be material. The Company ultimately may not realize income accreted on CLO subordinated note securities. The valuation of our Structured Finance Securities makes use of similar assumptions, plus a discount rate assumption, to develop estimated cash flows that are discounted to estimated net present value.

Previous wording

Interest income from our investments in Loan Accumulation Facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with our Loan Accumulation Facility investments generally pay returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. We periodically evaluate the realizability of such amounts and, if necessary, subsequently adjust the estimated yield.

Current wording

Interest income from our investments in Loan Accumulation Facilities is recognized on an accrual basis based on an estimated yield. Income notes associated with our Loan Accumulation Facility investments generally earn returns equal to the actual income earned on facility assets less costs of senior financing and manager costs. We periodically evaluate the realizability of such amounts and, if necessary, subsequently adjust the estimated yield.

Previous wording

Non-accrual Loans: We review, for placement on non-accrual status, all loans and CLO mezzanine debt investments that become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid cash interest is reversed. Interest income and Net Loan Fees are no longer recognized as of the date the loan is placed on non-accrual status. Interest payments subsequently received on non-accrual investments may be recognized as income or applied to amortized cost depending upon management’s judgment. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments and, in management’s judgment, it is probable that we will collect all principal and interest from the investment.

Current wording

Non-accrual Loans: We review, for placement on non-accrual status, all loans and CLO mezzanine debt investments when they become past due on principal and interest, and/or when there is reasonable doubt that principal or interest will be collected. When a loan is placed on non-accrual status, accrued and unpaid cash interest is reversed. Interest income and Net Loan Fees are no longer recognized as of the date the loan is placed on non-accrual status. Depending upon management’s judgment, interest payments subsequently received on non-accrual investments may be recognized as interest income or applied as a reduction to amortized cost. Interest accruals and Net Loan Fee amortization are resumed on non-accrual investments only when they are brought current with respect to principal and interest payments and, in management’s judgment, it is probable that we will collect all principal and interest from the investment.

Previous wording

Fair value estimates. As of December 31, 2023, total investments of $420.3 million, representing approximately 89% of our total assets, were carried on the consolidated statement of assets and liabilities at fair value. As discussed more fully in“Item 8. Financial Statements and Supplementary Data—Note 2”, GAAP requires us to categorize fair value measurements according to a three-level valuation hierarchy. The hierarchy gives the highest priority to quoted, active market prices for identical assets and liabilities (Level 1) and the lowest priority to valuation techniques that require significant management judgment because one or more of the significant inputs are unobservable in the market place (Level 3). All of our investments carried at fair value are classified as Level 2 and Level 3, with 96% of our investments classified as Level 3 as of December 31, 2023. In accordance with our investment strategy, we typically do not hold equity securities or other instruments that are actively traded on an exchange (Level 1).

Current wording

Fair value estimates. As of December 31, 2024, total investments of $409.7 million, representing approximately 96% of our total assets, were carried at fair value on the consolidated statement of assets and liabilities. As discussed more fully in“Item 8. Financial Statements and Supplementary Data—Note 2”, GAAP requires us to categorize fair value measurements according to a three-level valuation hierarchy. The hierarchy gives the highest priority to quoted, active market prices for identical assets and liabilities (Level 1) and the lowest priority to valuation techniques that require significant management judgment because one or more of the significant inputs are unobservable in the market place (Level 3). All of our investments carried at fair value are classified as Level 2 and Level 3, with 95% of our investments classified as Level 3 as of December 31,

Previous wording

On September 7, 2022, pursuant to Rule 2a-5, our Board designated OFS Advisor as the valuation designee to perform fair value determinations relating to our investments for which market quotations are not readily available, and, as prescribed in Rule 2a-5, the Board maintains oversight of OFS Advisor in its capacity as valuation designee.

Current wording

On September 7, 2022, pursuant to Rule 2a-5, our Board designated OFS Advisor as the valuation designee to perform fair value determinations relating to our investments for which market quotations are not readily available, and, as prescribed in Rule 2a-5, the Board maintains oversight of OFS Advisor in its capacity as valuation designee. We have engaged third-party valuation firms to provide assistance to OFS Advisor in determining the fair value of the majority of our investments.

Previous wording

•The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment Advisory Agreement we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well as an incentive fee based on our investment performance. See“Item 1—Management and Other Agreements” and “Item 8—Financial Statements and Supplementary Data—Note 3.”

Current wording

•The Investment Advisory Agreement with OFS Advisor to manage our operating and investment activities. Under the Investment Advisory Agreement, we have agreed to pay OFS Advisor an annual base management fee based on the average value of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity) as well as an incentive fee based on our investment performance. See“Part 1, Item 1—Management and Other Agreements” and “Item 8—Financial Statements and Supplementary Data—Note 3.”

Previous wording

•The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative services necessary to conduct our operations. See“Item 1—Management and Other Agreements”and“Item 8–Financial Statements and Supplementary Data—Note 3.”

Current wording

•The Administration Agreement with OFS Services, an affiliate of OFS Advisor, to provide us with the office facilities and administrative services necessary to conduct our operations. See“Part 1, Item 1—Management and Other Agreements”and“Item 8–Financial Statements and Supplementary Data—Note 3.”

Previous wording

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On August 4, 2020, we received our existing 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.

Current wording

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so. On August 4, 2020, we received our existing 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;

Previous wording

In addition, we may file an application for an amendment to our existing Order to permit us to participate in follow-on investments in our existing portfolio companies with private funds that do not hold any investments in such existing portfolio companies. However, if filed, there is no guarantee that such application will be granted.

Current wording

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.

Previous wording

Portfolio Composition. As of December 31, 2023, the fair value of our debt investment portfolio totaled $251.3 million in 44 portfolio companies, of which 81% and 19% were first lien and second lien loans, respectively. We also held equity investments in 15 portfolio companies with a fair value of $89.9 million and 21 investments in Structured Finance Securities with a fair value of $79.0 million.

Current wording

Portfolio Composition. As of December 31, 2024, the fair value of our debt investment portfolio totaled $224.2 million in 36 portfolio companies, of which 85% and 15% were first lien and second lien loans, respectively. We also held equity investments in 15 portfolio companies with a fair value of $108.6 million and 18 investments in Structured Finance Securities with a fair value of $76.9 million.

Previous wording

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

Current wording

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

Previous wording

The weighted-average yield of our investments is not the same as a return on investment for our stockholders, but rather the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted-average yield will remain at its current level.

Current wording

The weighted-average yield of our investments is not the same as a return on investment for our stockholders, but rather the gross investment income from our investment portfolio before the payment of all of our fees and expenses. There can be no assurance that the weighted-average yield will remain at its current level. As of December 31, 2024, 91% of our total loan portfolio, at fair value, consisted of variable rate investments, generally indexed to SOFR. See additional information under “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

Previous wording

(1) Includes unitranche investments (which are loans that combine both senior and subordinated debt, in a first lien position), as of December 31, 2023, with an amortized cost and fair value of $141.3 million and $131.3 million, respectively. As of December 31, 2022, the amortized cost and fair value of unitranche investments was $156.4 million and $146.4 million, respectively.

Current wording

(1) Includes unitranche investments (which are loans that combine both senior and subordinated debt, in a first lien position), as of December 31, 2024, with an amortized cost and fair value of $128.1 million and $119.2 million, respectively. As of December 31, 2023, the amortized cost and fair value of unitranche investments was $141.3 million and $131.3 million, respectively.

Previous wording

As of December 31, 2023, approximately 100% of our loan portfolio and 60% of our total portfolio consisted of first lien and second lien loans, based on fair value. We believe the seniority of our debt investments in the borrowers’ capital structures may provide greater downside protection against adverse economic changes, including those caused by the impacts of the ongoing war between Russia and Ukraine, the escalated armed conflict in the Middle East, elevated interest and inflation rates, instability in the U.S. and international banking systems, the risk of recession or a shutdown of U.S. government services and related market volatility.

Current wording

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

Previous wording

As of December 31, 2023, the three largest industries of our debt and equity investments by fair value, were (1) Manufacturing (28.7%), (2) Health Care and Social Assistance (20.2%) and (3) Wholesale Trade (15.1%) totaling approximately 64.0% of the investment portfolio. For a full summary of our investment portfolio by industry, see“Note 4, Investments” to the consolidated financial statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this report.

Current wording

As of December 31, 2024, the three largest industries of our debt and equity investments by fair value, were (1) Manufacturing (36.7%), (2) Health Care and Social Assistance (20.1%) and (3) Administrative and Support and Waste Management and Remediation Services (6.5%) totaling approximately 63.3% of our debt and equity investment portfolio. For a full summary of our investment portfolio by industry, see“Note 4, Investments” to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this report.

Previous wording

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

Current wording

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

Previous wording

As of December 31, 2023, we had no non-performing Structured Finance Securities. Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%, as remaining residual distributions are anticipated to be recognized as a return of capital.

Current wording

Non-performing Structured Finance Securities are securities that have not been optionally redeemed and have an effective yield of 0.0%, as remaining residual distributions are anticipated to be recognized as a return of capital. As of December 31, 2024, the amortized cost and fair value of non-performing Structured Finance Securities were $9.4 million and $3.4 million, respectively.

Previous wording

We categorize debt investments into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see “Item 1. Business—Portfolio Review/Risk Monitoring.” The following table shows the classification of our debt investments portfolio by risk category as of December 31, 2023 and 2022 (dollar amounts in thousands):

Current wording

We categorize debt investments into seven risk categories based on relevant information about the ability of borrowers to service their debt. For additional information regarding our risk categories, see “Part 1, Item 1. Business—Portfolio Review/Risk Monitoring.” The following table shows the classification of our debt investments portfolio by risk category as of December 31, 2024 and 2023 (dollar amounts in thousands):

Previous wording

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

Current wording

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

Previous wording

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

Current wording

During the year ended December 31, 2024, dividend income increased $2.3 million compared to the prior year, primarily due to an increase of $2.4 million in cash dividends. The increase in cash dividends was primarily due to non-recurring dividends of $1.9 million from TRS Services, LLC million recognized upon the sale of our preferred equity investment as well as a $0.5 million increase in dividends from our common equity investment in Pfanstiehl Holdings, Inc.

Previous wording

Fee income is primarily comprised of unused loan commitment fees, prepayment fees and syndication fees generally result from periodic transactions rather than from holding portfolio investments and are considered non-recurring. During the years ended December 31, 2023, total fee income decreased $0.6 million compared to the prior year, primarily due to a decrease in syndication and prepayment fees. We may receive syndication fees on investments where OFS Advisor sources, structures and arranges the lending group, resulting in incremental economics relative to the other loan participants.

Current wording

Fee income is primarily comprised of unused loan commitment fees, prepayment fees and syndication fees that generally result from periodic transactions rather than from holding portfolio investments, and are considered non-recurring. We may receive syndication fees on investments where OFS Advisor sources, structures and arranges the lending group. During the year ended December 31, 2024, total fee income remained stable compared to the prior year.

Previous wording

During the years ended December 31, 2022, total fee income decreased $2.1 million compared to the prior year, primarily due to a decrease of $1.8 million in syndication fees.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

During the year ended December 31, 2022, we reversed the previously accrued Capital Gains Fees of $1.9 million due to a reduction in net unrealized appreciation on the investment portfolio. Although these non-GAAP financial measures are intended to enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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