DEFA14A: OFS Capital Seeks Stockholder Approval for Potential Below NAV Share Issuance Amid Market Volatility

OFS Capital Corporation is seeking stockholder approval to allow the company to issue shares of common stock below its net asset value (NAV) per share, providing flexibility to raise capital during periods of market disruption.

Summary

• OFS Capital Corporation is holding a Special Meeting of Stockholders on June 5, 2024, to vote on a proposal authorizing the company to issue shares of common stock below its then-current NAV per share, subject to certain conditions.
• The company believes that attractive investment opportunities may arise during volatile periods, including acquisitions of other companies or investment portfolios at compelling values.
• Stockholder approval of the proposal would provide the company with the flexibility to raise equity capital to invest in such opportunities, which typically need to be made expeditiously.
• The same proposal was approved by a majority of the stockholders in each of the last four years, but OFS did not sell any shares below NAV pursuant to the proposal approved by the majority of stockholders at the Company's 2023, 2022, 2021 and 2020 Special Meetings of Stockholders.
• Since its initial public offering in November 2012, OFS has had one follow-on equity offering and seven debt offerings.

Sentiment

Score: 6

Explanation: The document conveys a neutral to slightly positive sentiment. While acknowledging market risks, it emphasizes the potential benefits of the proposed flexibility in capital raising.

Positives

• The proposal aims to provide OFS Capital with the flexibility to act quickly on attractive investment opportunities during market downturns.
• OFS Capital has a track record of carefully considering capital markets activities, as demonstrated by its limited equity offerings since its IPO.
• The company states it will continue to take its duties and responsibilities to its stockholders regarding capital markets activities with the utmost seriousness.

Negatives

• The proposal allows for the potential dilution of existing shareholders' equity if shares are issued below NAV.
• Market volatility and economic uncertainty could negatively impact OFS Capital's access to debt and equity capital.

Risks

• Global capital markets may experience periods of disruption and instability.
• Economic effects 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 and a shutdown of U.S. government services have had, and may continue to have, a material adverse impact on the global economy.
• Periods of market disruption and instability may adversely affect the Company's access to sufficient debt and equity capital.
• The debt capital that will be available, if any, may be at a higher cost and on less favorable terms and conditions in the future.

Future Outlook

OFS Capital seeks flexibility to raise equity capital during volatile periods to invest in attractive investment opportunities and drive stockholder value.

Management Comments

• We are seeking the flexibility to sell common stock at a price below NAV because we believe there could be moments in time when doing so would be in the best interest of our stockholders.
• We believe that having the flexibility to access the capital markets in these types of environments is an important tool that can help us drive stockholder value during periods of market distress, and we are committed to doing so should we be given the opportunity.

Industry Context

In the current economic climate, many companies are seeking ways to maintain financial flexibility and access capital, and OFS Capital's proposal aligns with this trend.

Comparison to Industry Standards

• Other Business Development Companies (BDCs) like Ares Capital Corporation (ARCC) and Main Street Capital Corporation (MAIN) also periodically seek similar authorizations to issue shares below NAV to manage their capital structure and pursue investment opportunities.
• However, the frequency and extent to which these companies utilize such authorizations can vary based on their specific investment strategies and market conditions.
• OFS Capital's statement that it has only had one follow-on equity offering since its IPO suggests a more conservative approach compared to some of its peers.

Stakeholder Impact

• Shareholders may experience dilution if shares are issued below NAV.
• Employees may benefit from the company's ability to pursue growth opportunities.
• The company's financial stability could be enhanced by the flexibility to raise capital during market downturns.

Next Steps

• Stockholders will vote on the proposal at the Special Meeting on June 5, 2024.
• OFS Capital will assess market conditions and potential investment opportunities to determine if issuing shares below NAV is in the best interest of stockholders.

Key Dates

Keywords

OFS Capital, stockholder approval, below NAV, share issuance, market volatility, equity capital, investment opportunities