Steve Altebrando - Vice President, Investor Relations Bilal Rashid - Chairman and Chief Executive Officer Jeff Cerny - Chief Financial Officer and Treasurer

Good morning and welcome to the OFS Capital Fourth Quarter and Year End 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Altebrando, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us. With me today is Bilal Rashid, Chairman and Chief Executive Officer of OFS Capital and Jeff Cerny, the company’s Chief Financial Officer and Treasurer. Please note that we issued a press release this morning announcing our fourth quarter results. This press release was subsequently filed on Form 8-K with the SEC. Both documents can be obtained under our Investor Relations section of our website at ofscapital.com. Before we begin, please note that statements made on this call and webcast may constitute forward-looking statements as defined under applicable securities laws. Such statements reflect various assumptions, expectations and opinions by OFS Capital management’s 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 way 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 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 will turn the call over to our Chairman and Chief Executive Officer, Bilal Rashid.

Thank you, Steve. Good morning and welcome. Reflecting on 2017 and looking ahead, we remain focused on maintaining a stable NAV per share and growing our net investment income in a thoughtful and sustainable manner. We intend to increase our net investment income by deploying cash on hand and raising additional debt capital. As you know, we have significant room to grow our regulatory leverage as our SBIC debt does not count towards the BDC asset coverage ratio. We have a strong pipeline to support our growth. And so far this quarter, we have already deployed $44.4 million. Given our capital resources, we believe that we are poised to grow our net investment income above our distributions in the near future. In the fourth quarter, we generated net investment income of $0.29 per share. As we had indicated on our call in November of last year, we expected the net investment income per share to be lower for this quarter due to unusually high prepayment activity. As you can see in our press release from this morning, we had $73 million in cash at the end of 2017. This prepayment activity in part reflects the quality of our portfolio companies as evidenced by the significant capital gains we realized in 2017. However, the prepayments also acted as a drag on our earnings in the fourth quarter. Even in the face of such prepayment activity, we have maintained the same discipline and a long-term approach to investing, which emphasizes capital preservation over near-term results. Fortunately, our pipeline is strong and our team is actively working to redeploy this capital in a prudent manner. This focus on capital preservation is further solidified by the fact that our external manager owns 22% of the common shares outstanding ensuring strong alignment of interest between…

Thank you. Good morning everyone. Our goal remains and has always been to maintain a stable net asset value and generate investment income above our distribution. While we had elevated repayment activity in 2017 as Bilal just discussed, our pipeline is strong. We believe we will achieve our goal by prudently deploying our capital and restoring leverage and earnings to prior levels. We deployed $28 million in the fourth quarter across nine investments, primarily senior secured loans. OFS Capital invested $143 million in 2017 compared to $69 million over the same period in 2016. We have closed additional transactions totaling $44.4 million so far in 2018 and our pipeline still remained strong. Our equity capital raise in early 2017 gave us comfort to speak for larger investments. More broadly, our deal pipeline has increased as a result, better positioning us with respect to existing and potential clients that seek larger and more flexible mandates, especially in a market where certainty of closing continues to be important. We had $141 million of prepayments and loan sales in 2017, which was approximately 4x higher than what we saw in 2016. This resulted in a higher than normal cash position during the third and fourth quarters, which led to earnings softness in the fourth quarter. We expect the softness to continue in the first quarter of 2018 as we deploy capital. However, given our pipeline and recent originations, we believe we will see a significant financial benefit from our investments starting in the second quarter. We are optimistic about 2018. The repayments create a challenge and a priority that we focus on everyday keeping capital deployed in good credits. While we deploy our idle cash and continue to make it a top priority, we need to remain disciplined and believe that the strong…

Thank you, Jeff. We remain focused on generating net investment income that will exceed our distribution, while maintaining the quality of our portfolio. We are confident about the earnings potential of our company given our strong pipeline. We believe that our thorough underwriting process has produced a low loss experience and will continue to guide us going forward. We are well positioned for rising interest rates given our attractive long-term fixed rate financing through the SBIC program with a weighted average coupon of 3.18%. Approximately 76% of our loan portfolio is floating rate. In addition, the manager is strongly aligned with our shareholders with 22% ownership of the BDC. Our investment platform has a long history and has weathered multiple credit cycles and changes in the economic environment since its inception in 1994. Our BDC benefits from the breadth and depth of our investment platform which has over $2 billion of assets under management. Our focus is to provide long-term value to all of our stakeholders including both shareholders and borrowers. As a lender we intend to continue to meet the growing and varying needs of our borrowers by providing them flexible capital solutions. With that operator, please open the call for questions.

Thanks you all for joining our call today. And we look forward to speaking with everyone again next quarter. Operator you may end the call. Thank you.

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