Good morning and welcome to the OFS Capital Q2 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I'd now like to turn the conference over to Steve Altebrando. Please go ahead, sir.

Thank you. Good morning, everyone and thank you for joining us. With me today is Bilal Rashid, our Chairman and Chief Executive Officer; and Jeff Cerny, our Chief Financial Officer and Treasurer. Please note that we issued a press release this morning announcing our second quarter results. The press release was subsequently filed on Form 8-K with the SEC. Both documents can be obtained as in under the Investor Relations section of our website at ofscapital.com as well as our more used at investor presentation. We plan on filing our 10-Q this afternoon. Before we begin please note that the statements made on this call and webcast may constitute forward-looking statements within the meaning of the Securities Act of 1933 as amended. Such statements reflect various assumptions by OFS Capital concerning anticipated results are not guarantees of future performance, and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are in some ways beyond management’s control including the risk factors described from time-to-time in our filings with the SEC. Although we believe these assumptions 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 incorrect. You should not place undue reliance on those forward-looking statements. OFS Capital undertakes no duty to update any forward-looking statements made herein. All forward-looking statements speak only as of the date of this call. With that, I'll turn the call over to our Chairman and Chief Executive Officer, Bilal Rashid.

Thank you, Steve. Good morning and welcome. We are extremely pleased with our performance in the second quarter and we have been very encouraged by the momentum in the earnings of our business. We posted several key, positive performance metrics last quarter. Our net investment income per share increased 31% over the same period in 2014 to $0.28 per share. Our adjusted net investment income per share, a non-GAAP measure increased 60% over the same period in 2014 to $0.35 per share. This exceeds our quarterly distribution of $0.34 per share and we have additional dry powder to increase our earnings further Our earnings per share was $0.77, which includes realized gains of $0.44 per share. This was largely a result of an exit of an equity position in our portfolio and a sale of certain lower yielding assets during the quarter. As a result of such realized gains, our net asset value increased from $14.24 per share at March 31st to $14.66 per share at June 30th, a 3% increase from the first quarter of this year. Our recent performance is a result of our focus on originating quality loans to lower middle market borrowers and optimizing our balance sheet to maximize returns for our shareholders. We are pleased that we covered our dividend this quarter on an adjusted net investment income basis. More importantly, we believe that we have a path to consistently deliver this dividend and increase our net investment income. As you know since our IPO in 2012 we have consistently paid a $0.34 per share quarterly distribution as we have ramped up our earnings. We are pleased with the quality of our portfolio. We believe that it is a result of our long-standing underwriting process that we have only one loan on nonaccrual, representing less…

Thanks, Bilal. Before I get into the financial results, I would like to note that we will begin reporting on the BDC as a whole and deemphasizing certain distinctions between our senior loan fund and our SBIC portfolio in our financial commentary. As Bilal previously mentioned, we sold the vast majority of the assets in the senior loan fund and fully repaid all associated leverage to Wells Fargo. With the proceeds and with other available capital, we are focusing on higher yielding, lower middle market loans as we continue to believe the relative value opportunity is strongest in this market. Turning to our results, we are excited about how our progress over the past year has helped our performance in the second quarter. Our investment portfolio was comprised of 39 companies and totaled $256 million on a fair value basis as of June 30, equating to 100.9% of cost. As a percentage of fair value, our investments were comprised of approximately 66% in senior secured loans, 25% in subordinated debt and 9% in equity. Our average investment in each portfolio company was $6.6 million at fair value or 2.6% of the portfolios total fair value. The overall weighted average yields of fair value on our debt investments continues to move in a positive direction. It increased 126 basis points since last quarter to 11.5%. This significant increase reflects the sale of the senior loan fund assets and redeployment of capital into higher yielding loans. On a fair value basis, the debt investments in the senior loan fund have declined from 36% of the overall debt portfolio last question to 12% this quarter. As Bilal mentioned, our intention is to continue to optimize our entire portfolio and grow our net investment income with our available capital base. This reduction in the…

Thank you, Jeff. We believe that loan bank lenders such as OFS will continue to grow in importance as lenders to the middle market due to increased regulations on banks. This is particularly true among non-sponsored lower middle market companies. Within the BDC peer group, OFS is uniquely positioned to serve the lower middle market. We have a seasoned team of professionals, strong sourcing relationships and a clear track record and reputation as a flexible lender. Our credit intensive culture, thorough due diligence process and expertise in structuring transactions in the lower middle market, give us an advantage in this important and underserved market segment. Going forward, we will continue to focus on growing the earnings of the company while being a responsible steward of shareholder capital. As the largest shareholder of the company, the external managers interests are highly aligned with those of our shareholders. We covered our dividend in the quarter and are well positioned to further grow our earnings and increase the coverage of our dividend. We have significant capital on hand as well as, access to additional capital. Rest assured we will only raise capital if it is accretive to our shareholders. We will continue to focus on maintaining our underwriting standards, putting an emphasis on companies with strong management teams, high barriers to entry and strong free cash flow characteristics. We will continue to be cautious of highly cyclical industries such as oil and gas and other commodity based sectors. We have attractive long-term fixed rate financing through the SBIC program and 59% of our loan assets are floating rate, which positions us well for a rising interest rate environment. We will continue to be responsive to the needs of our borrowers and further solidify our reputation as the provider of flexible capital to the lower middle market. We think that this will further create value for our shareholders. With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from Terry Ma of Barclays. Please go ahead.

Hey guys. Just wanted to get a sense of pricing and the type of yields you've been seeing quarter-to-date on your SBI type loans and maybe your outlook for the rest of the year?

Yeah, certainly, so I think if you look at the average yield on the directly originated loans, it's about 12%, so and we continue to see yields in that range. So I think if you look at our pipeline right now, it's pretty good. I think year started off a little bit slow. I think that was the case for pretty everyone. But the pipeline is pretty good right now and we are seeing quite few attractive opportunities at the yields that we have been seeing so far this year. So we feel pretty good about the competitive landscape and the lower middle market especially in the non-sponsored space. And as you know we have a competitive advantage in that market given our long-standing sourcing relationships and our expertise to underwrite those types of transactions. So I think we feel good about maintaining the yields and also the quality of the portfolio, and also the number of transactions that we are seeing.

Okay. And just wanted to get a sense of your originations post Q2, what that look like? Whether or not the $20 million of the $30 million run rate of quarter is still appropriate?

Yes, I think, with respect to the run rate, I think we've said in the past, that $120 million a year and we feel good about that. So I think - I would say that to your question here.

Okay. Got it. I think in your prepared remarks, you mentioned the portfolio was about 66% senior secured about 25% sub debt. Just want to get a sense of what that was last quarter? Whether or not you have some kind of steady rate or steady state mix in mind?

Yeah, I guess, this is Jeff. What I will mention there, with the sale of the other William assets, the senior secured portion has definitely come down. We still, I would say are focused on senior secured and obtaining positions as high in the capital structure as we can. But we're looking at all parts of the capital structure as a lender to the lower middle market. And so that has come, but a lot of it was driven by the sale, the senior loan fund assets.

Yeah, I think it was, I believe, closer to about 70% range, so it has come down a little bit, but not that much.

Okay, great. Just an update on that second license, are you just waiting approval, is it any day now? Do you have a sense of what's holding it up maybe?

Yeah, I mean, we're as it relates to the timing of getting the second license wherein regular dialog with the SBA and at this point, we don't have any guidance on that. But I would say that we have regular dialog with the SBA and we continue to update them on our progress and on that front, that I would say that certainly as it relates to the second SBIC license we're working on that. We hope to receive that. I would say that we obviously have other options, financing options as well. Such as bank loan market and bond markets and, so certainly something that is on our radar screen, as it relates to the second SBIC license and we are working on that and are in regular dialog with the SBI.

All right, great. Thank you. That's it from me.

[Operator Instructions] Our next question comes from Eric Andersen of Western Standard. Please go ahead.

Hey, good morning guys. Nice results, the House Representatives have the Bill to increase the amount of debentures available under the SBIC program. Being there, just a couple of weeks ago to $225 million to $350 million, a fact that we got 2 to 1 to 3 to 1 leverage? Maybe if you could just update where the Bill is with the Senate, I think maybe they could call it in a month or two for a vote and just generally. How do you think about this opportunity going forward?

Yeah, so I think you're right, Eric, I mean, the House unanimously approved that Bill and so that's a good sign, because it was bipartisan. It is in the Senate right now and it hasn't been tabled there yet. But as we talk to individuals who are involved in that process, they do feel good about its passage in the Senate. Certainly if the Senate approves it, it's expected that the President will sign it. And the other good thing I would mention on that front would be that, this Congress has another sort of 16 or so months left, so there is some time for this to be approved. As it relates to the amount, I think you mentioned $225 million to $350 million, that's $225 million to $350 million per manager. I don't believe that necessarily means there will 2 to 1 leverage versus 3 to 1 leverage, but it does allow you as a manager to have $350 million as opposed to $225 million of SBA debenture financing there. So I think it's in the works, based on our conversations, there is a pretty good chance of its passage in the Senate, but again there is obviously no guarantee with any of the legislative processes.

This concludes our question-and-answer session. I would like to turn the conference back over to Bilal Rashid for any closing remarks.

Thank you all for joining our call today and for your questions. We look forward to speaking with everyone again on our next call. Operator, you may now end the call.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.