Steve Altebrando; IR Contact Officer; OFS Capital Corp
Bilal Rashid; Chairman of the Board, Chief Executive Officer; OFS Capital Corp
Jeffrey Cerny; Chief Financial Officer, Treasurer; OFS Capital Corp
Operator
Good day, and welcome to the OFS Capital third quarter of 2024 earnings conference call. (Operator Instructions) Also, please be aware that today’s call is being recorded.
I would now like to turn the call over to Steve Altebrando. Please go ahead, sir.
Steve Altebrando
Good morning, everyone and thank you for joining us. Also on the call today are Bilal Rashid, our Chairman and Chief Executive Officer; and Jeff Cerny, the company’s Chief Financial Officer and Treasurer.
Before we begin, please note that the 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 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 these forward-looking statements. OFS Capital undertakes no duty to update any forward-looking statements made herein and all forward-looking statements speak only as of the date of this call.
With that, I’ll turn the call over to Chairman and Chief Executive Officer, Bilal Rashid.
Bilal Rashid
Thank you, Steve. Earlier this morning we announced our third quarter earnings. Our net investment income increased by approximately 4.8% to $0.27 per share. Our net asset value per share decreased modestly by 1.9% to $11.29 per share.
With respect to net investment income, while we had an improvement this quarter, we remain focused on increasing this metric longer term primarily by rotating certain non-interest earning equity positions into interest earning assets.
As we discussed on our last call, we continue to explore potential alternatives for our minority equity investment in Pfanstiehl, our largest equity position. In the meantime, the fair value of the position continued to improve this quarter, appreciating by $2.8 million to $73.7 million at quarter end.
The increase in value is primarily attributed to improved fundamental performance of the company. As a reminder, this is a position we invested in more than 10 years ago at a cost of only $200,000. To date, we have received $3.4 million in distributions for approximately 16 times our cost.
Our net asset value per share decreased by 1.9% as a result of certain markdowns during the quarter in our loan and structured finance positions, which were offset by an increase in the value of our equity positions, notably, Pfanstiehl.
Our non-accrual metrics as a percentage of our total portfolio at fair value were relatively stable compared to the prior quarter. We removed one loan, which had previously been on non-accrual status during the quarter, and we placed one loan on non-accrual this quarter representing only 0.6% of the total portfolio at fair value.
Overall, we believe the portfolio continues to be well positioned for the current macroeconomic environment. As part of our longstanding investment discipline, we remain committed to avoiding highly cyclical industries. We believe that our loan portfolio remains well diversified and defensively positioned.
At quarter end, our largest sector exposures at fair value are in manufacturing and healthcare. Another key part of our investment discipline is investing higher in the capital structure with 100% of our loan portfolio at fair value in first-lien and second-lien senior secured loans.
In our view, our financing continues to benefit our company. At the end of the third quarter, 100% of our outstanding debt matures in 2026 or later and 72% of our outstanding debt is unsecured. Our non-recourse $150 million floating rate facility with BNP Paribas matures in June 2027. Our Bank of California floating rate corporate line of credit provides us additional liquidity and flexibility.
As we have discussed before, in 2021, we locked in $180 million of fixed rate, unsecured debt bearing a weighted average coupon of 4.8%, which remains notably lower than current market pricing.
Looking ahead, we believe the recent interest rate cut by the Federal Reserve and potential additional interest rate reductions in the near-to-medium term will put some pressure on our net interest margin. However, we also believe that lower interest rates should have a positive impact on the health of the loan portfolio as it decreases the debt service burden on our borrowers.
Additionally, we believe that lower rates reduce the risk of a recession which would bode well for our portfolio. We expect M&A activity to pick-up in the coming quarters, which could lead to higher originations and fee income and a potential positive impact on net investment income.
As we navigate this market environment, we have confidence in the experience of our advisor, which manages approximately $3.9 billion across the loan and structured credit markets, has expertise in multiple asset classes and industries, and has a more than 25-year track record through multiple credit cycles.
At this point, I’ll turn the call over to Jeff Cerny, our Chief Financial Officer, to give you more details and color for the quarter.
