8-K: OFS Capital Issues $69 Million in 7.50% Notes Due 2028 for Debt Refinancing

Sentiment:

Debt Offering 23 July 2025 10:54 AM

OFS Capital Corporation has issued $69 million in new 7.50% Notes due 2028, with net proceeds of approximately $67.32 million intended for the partial redemption of existing 4.75% unsecured notes due 2026.

Capital raiseThe Company issued $69,000,000 aggregate principal amount of 7.50% Notes due 2028.The net proceeds from the offering were approximately $67.32 million.The proceeds are intended to partially redeem the Company's outstanding 4.75% unsecured notes due 2026.

Summary

OFS Capital Corporation issued $69,000,000 aggregate principal amount of 7.50% Notes due 2028.
The notes include a $9,000,000 aggregate principal amount from the underwriters' overallotment option, which was exercised in full.
The notes mature on July 31, 2028, and bear interest at 7.50% per annum, payable quarterly on January 31, April 30, July 31, and October 31, commencing October 31, 2025.
Net proceeds from the sale were approximately $67.32 million, based on a public offering price of $25 per Note, after deducting underwriting discount, commissions, and estimated offering expenses.
The Company intends to use the net proceeds to partially redeem its outstanding 4.75% unsecured notes due 2026, of which $125.0 million was outstanding as of July 14, 2025.
The notes are direct unsecured obligations, ranking pari passu with future unsecured, unsubordinated indebtedness, but are effectively subordinated to secured debt and structurally subordinated to subsidiary obligations.

Sentiment

Score: 7

Explanation: The issuance of new notes and the full exercise of the overallotment option indicate successful capital raising and market confidence. The use of proceeds for refinancing existing debt is a positive financial management move, although the notes' unsecured and subordinated nature presents standard risks.

Positives

Successful issuance of $69 million in new notes, including the full exercise of the underwriters' overallotment option, indicating strong market demand.
The capital raise provides funds for debt refinancing, specifically targeting the partial redemption of existing 4.75% unsecured notes due 2026, which can optimize the Company's debt maturity profile.

Negatives

The new 7.50% Notes are unsecured obligations and are effectively subordinated to all existing and future secured indebtedness, including borrowings under the Company's senior secured revolving credit facility.
The notes are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company's subsidiaries.

Risks

The 7.50% Notes are unsecured obligations, meaning they are not backed by specific assets.
The Notes are effectively subordinated to all of the Company's existing and future secured indebtedness, including its senior secured revolving credit facility, to the extent of the value of the assets securing such indebtedness.
The Notes are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company's subsidiaries, meaning claims against subsidiaries' assets would be satisfied before noteholders.

Future Outlook

The Company intends to use the net proceeds from this offering to partially redeem its existing 4.75% unsecured notes due 2026, indicating a strategic move to manage its debt maturity profile and potentially optimize its cost of capital.

Industry Context

This debt issuance is a common financing activity for Business Development Companies (BDCs) like OFS Capital Corporation. BDCs frequently access capital markets to fund investments, manage liquidity, and refinance existing debt, aligning with typical industry practices for capital management and portfolio growth. The structure of the notes, including their unsecured and subordinated nature relative to secured debt, is also standard for BDC debt offerings.

Comparison to Industry Standards

The 7.50% interest rate on the new notes should be compared to recent debt issuances by other BDCs with similar credit profiles and maturity dates. For example, a comparison could be made to recent unsecured note offerings from BDCs like Ares Capital Corporation (ARCC), Main Street Capital Corporation (MAIN), or Prospect Capital Corporation (PSEC), considering their respective credit ratings and market conditions at the time of issuance.
The effective subordination to secured debt and structural subordination to subsidiary obligations are standard features for unsecured notes issued by BDCs, reflecting the typical capital structure where secured credit facilities take priority.
The use of proceeds for refinancing existing debt is a common and prudent financial management strategy within the BDC industry to manage interest rate risk and debt maturity schedules.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Covenant Amendment	The Base Indenture was amended to include new covenants for the benefit of the Holders of the Notes, specifically requiring compliance with Section 18(a)(1)(A) and 18(a)(1)(B) as modified by Section 61(a)(2) of the Investment Company Act of 1940, subject to SEC exemptive relief.	2025-07-23	Enhances protection for noteholders by aligning with specific provisions of the Investment Company Act, which are crucial for BDCs.
Reporting Requirement	If the Company is no longer subject to Exchange Act reporting requirements, it agrees to furnish audited annual consolidated financial statements within 90 days and unaudited interim consolidated financial statements within 45 days after fiscal quarter ends (excluding Q4) to noteholders and the Trustee.	2025-07-23	Ensures continued transparency and financial disclosure to noteholders even if standard SEC reporting obligations cease.

Stakeholder Impact

Shareholders: The debt issuance provides capital for refinancing, which can improve the company's financial stability and potentially reduce interest expenses over time, indirectly benefiting shareholders.
Noteholders (New 7.50% Notes): Receive a fixed income stream at 7.50% interest, but their claims are unsecured and effectively subordinated to secured debt and structurally subordinated to subsidiary debt.
Noteholders (4.75% Notes due 2026): Will experience partial redemption of their notes, potentially requiring them to reinvest at current market rates.
Creditors (Secured): Their position remains superior to the new unsecured noteholders.

Next Steps

Partial redemption of the 4.75% unsecured notes due 2026.
Quarterly interest payments on the 7.50% Notes due 2028, commencing October 31, 2025.
Potential redemption of the 7.50% Notes by the Company on or after July 31, 2026.
Maturity of the 7.50% Notes on July 31, 2028.

Key Dates

Date	Description
2012-11-07	Date of Investment Advisory and Management Agreement and Administration Agreement between the Company and the Adviser/Administrator.
2016-10-31	Date of Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank.
2016-11-04	Date Form 10-Q for the quarter ended September 30, 2016, was filed, referencing the Business Loan Agreement and Commercial Guaranty Agreement with Pacific Western Bank.
2018-03-07	Date of Business Loan Agreement and Commercial Guaranty Agreement between OFS Capital Corporation and Pacific Western Bank.
2018-04-16	Date of the Base Indenture between OFS Capital Corporation and U.S. Bank Trust Company, National Association.
2018-10-16	Date of the Second Supplemental Indenture.
2019-04-10	Date of Business Loan Agreement and Commercial Guaranty Agreement between OFS Capital Corporation and Banc of California.
2019-06-20	Date of Revolving Credit and Security Agreement by and among OFSCC-FS, LLC and other parties.
2019-10-15	Date of the Third Supplemental Indenture.
2020-09-18	Date of the Fourth Supplemental Indenture.
2021-02-10	Date of the Fifth Supplemental Indenture.
2021-02-17	Date of Amendment Four to the Business Loan Agreement between OFS Capital Corporation and Pacific Western Bank.
2021-10-28	Date of the Sixth Supplemental Indenture.
2023-02-02	Date of Second Amendment to the Revolving Credit and Security Agreement.
2023-12-15	Date of Amendment Seven to the Business Loan Agreement between OFS Capital Corporation and Banc of California.
2024-05-29	Date the Registration Statement on Form N-2 became effective by the SEC.
2025-07-14	Date as of which $125.0 million of 4.75% unsecured notes due 2026 were outstanding.
2025-07-16	Date of the Underwriting Agreement and preliminary prospectus supplement filing.
2025-07-17	Date of pricing term sheet and final prospectus supplement filing.
2025-07-23	Effective date of the Seventh Supplemental Indenture and closing date of the Notes offering; date from which interest accrues on the Notes.
2025-10-31	First interest payment date for the 7.50% Notes due 2028.
2026-07-31	Earliest date the Company may redeem the 7.50% Notes due 2028.
2028-07-31	Maturity date for the 7.50% Notes due 2028.

Recommendation

hold

The filing describes a routine debt issuance and refinancing, which is a standard capital management activity for a Business Development Company. While the successful offering and the use of proceeds to refinance existing debt are positive for financial stability, there are no new fundamental drivers or significant changes to the company's operational outlook presented that would warrant a 'buy' or 'sell' recommendation. The terms of the notes, including their subordination, are typical for this type of instrument. Therefore, a 'hold' recommendation is appropriate as this filing does not materially alter the investment thesis for OFS Capital Corporation.

Keywords

OFS Capital Corporation, Debt Offering, Notes, 7.50% Notes due 2028, Unsecured Notes, Debt Refinancing, SEC Filing, Corporate Finance, Investment Company Act, BDC, Business Development Company, Fixed Income, Corporate Bonds

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