DEF 14A: OFS Capital Seeks Stockholder Approval for Potential Below NAV Share Issuance

OFS Capital Corporation is asking stockholders to approve a proposal that would allow the company to issue shares of common stock below its net asset value (NAV) under certain conditions.

Summary

• OFS Capital Corporation is seeking stockholder approval to authorize the company to sell or issue shares of its common stock at a price below the company's then-current net asset value (NAV) per share during the next 12 months.
• The proposal is subject to the approval of the Board of Directors and certain limitations, including that the cumulative number of shares sold pursuant to such authority does not exceed 25% of the company's then-outstanding common stock immediately prior to each such sale.
• The company states that this flexibility would allow it to take advantage of attractive investment opportunities that may arise during volatile market conditions.
• The Board of Directors recommends that stockholders vote for the proposal.
• The Special Meeting of Stockholders will be held on June 5, 2024, to vote on this proposal.

Sentiment

Score: 6

Explanation: The document is neutral in tone, presenting both the potential benefits and risks of the proposal. While the company recommends voting for the proposal, it also acknowledges the potential for dilution and other negative impacts on stockholders.

Positives

• The company believes that attractive investment opportunities may present themselves during volatile periods.
• Stockholder approval of the proposal would provide the company with the flexibility to raise equity capital to invest in such attractive investment opportunities, which typically need to be made expeditiously.
• The issuance of additional stock would enable the company to increase the dollar amount of its leverage.
• If the Company issues additional shares, the Company's market capitalization and the amount of publicly tradable common stock will increase, which may afford all holders of our common stock greater liquidity.

Negatives

• Any sale of common stock at a price below NAV would result in an immediate dilution to existing Stockholders.
• Stockholders should also consider that they will have no subscription, preferential or preemptive rights to additional shares of the common stock proposed to be authorized for issuance, and thus any future issuance of common stock at a price below NAV will dilute a Stockholder's holdings of common stock as a percentage of shares outstanding to the extent the Stockholder does not purchase sufficient shares in the offering or otherwise to maintain the Stockholder's percentage interest.
• The cost of any issuance of shares below NAV will be borne by all Stockholders, regardless of whether a Stockholder purchases shares in an offering of common stock at a price below the then current NAV.

Risks

• The company may not be able to access the capital markets regardless of the outcome of the Proposal.
• Inability to access the capital markets could also have the effect of forcing the company to sell assets that the company would not otherwise sell and at disadvantageous times.
• There is no assurance that our Stockholders will realize any of the benefits discussed above.
• Stockholders should consider the potentially dilutive effect on the NAV per outstanding share of common stock of the issuance of shares of the Company's common stock at a price less than NAV per share.

Future Outlook

The company seeks flexibility to issue shares below NAV in the next 12 months to capitalize on investment opportunities and manage its capital structure.

Management Comments

• The Board believes it is in the best interests of Stockholders to allow the Company flexibility to issue its common stock at a price below NAV in certain instances.
• The Companys ability to grow over time and to continue to pay dividends to Stockholders could be adversely affected if the Company were unable to access the capital markets as attractive investment opportunities arise.

Industry Context

Many BDCs have sought and received authorization from their stockholders to sell shares of common stock at prices below NAV for many of the same reasons discussed above.

Comparison to Industry Standards

• The document mentions that many other Business Development Companies (BDCs) have sought and received authorization from their stockholders to sell shares of common stock at prices below NAV.
• This practice is not uncommon in the BDC industry, especially during times of market volatility.
• However, the document does not provide specific comparisons to the terms or results of similar authorizations by other BDCs.

Related Party Transactions

• The company has entered into agreements with OFS Advisor and its affiliates in which certain members of our senior management have ownership and financial interests.
• The company pays OFS Advisor a base management fee and incentive fee.
• The company has entered into a license agreement with OFSAM under which OFSAM grants us a non-exclusive, royalty-free license to use the name OFS.
• The company has entered into an Administration Agreement, pursuant to which OFS Services furnishes us with office facilities, equipment, necessary software licenses and subscriptions and clerical, bookkeeping and record keeping services at such facilities.

Stakeholder Impact

• Approval of the proposal could allow the company to capitalize on investment opportunities, potentially benefiting stockholders in the long term.
• However, the issuance of shares below NAV could dilute existing stockholders' equity.
• The proposal could also impact the company's ability to maintain its asset coverage ratio and pay dividends.

Next Steps

• Stockholders need to vote on the proposal before the Special Meeting on June 5, 2024.
• The company will proceed with the offering if the proposal is approved and market conditions warrant it.
• The Board will determine the final terms of any sale below NAV at the time of sale.

Key Dates

Keywords

proxy statement, special meeting, stockholders, common stock, net asset value, NAV, OFS Capital, issuance, dilution, investment opportunities, Board of Directors