Good day and welcome to the OFS Capital Corporation Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that 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.

Thank you. Good morning, everyone and thank you for joining us. With me today is Bilal Rashid, our Chairman and Chief Executive Officer; and Jeff Cerny, our 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 the 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 within the meaning of the Securities Act of 1933 as amended. Such statements reflect various assumptions by OFS Capital 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 ways 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. Also during this call, the management will refer to a non-GAAP financial measure, adjusted net investment income. This measure is not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of this non-GAAP financial measures in most directly comparable GAAP measures and other related information in OFS Capital’s fourth quarter and full year 2016 earnings release and in the Investor Relations section of our website at ofscapital.com under the heading Tax and Non-GAAP Information. With that, I’ll turn the call over to our Chairman and Chief Executive Officer, Bilal Rashid.

Thank you, Steve. Good morning and welcome. 2016 was a successful year for us and we had another particularly strong fourth quarter with net investment income of $0.39 per share, which is significantly more than our $0.34 distribution and our net investment income in the third quarter. This $0.05 per share increased in net investment income from the third quarter was largely due to higher interest income and represents our seventh straight quarter of exceeding our distribution on an non-GAAP basis. Overall, for 2016, our adjusted net investment income was $1.45 per share compared to our $1.36 per share distribution, representing a healthy distribution coverage of approximately 107%. Over the last two years, our adjusted net investment income, a non-GAAP measure was 107% of our distribution. Our net asset value increased slightly from $14.67 per share for the third quarter of 2016 to $14.82 per share. This continued stability is a result of our core underwriting standards, which have resulted in a strong overall credit quality of our portfolio. During the quarter we restored our only loan on non-accrual to cash accrual. Jeff will have more on this later in the call. We had no new non-accruals in the quarter. Last year’s performance continues our history of generating consistent results in both good and challenging markets. Over the last five years, we have invested $486 million and had a cumulative net realized loss of just $800,000, which is less than two tenths of 1%. Since our initial public offering we have delivered a consistent net asset value and a compelling yield for our investors during a low interest rate environment. We believe that that strength of our platform is the key to this performance, which relies on our time-tested underwriting standards and our hands on portfolio management approach. This has…

Thank you. We’re pleased with our fourth quarter results. As Bilal just mentioned, we continued to focus on the credit quality and stability of our portfolio, which has resulted in a stable net asset value over time. We have 12% of our net asset value in cash and the potential to borrow additional capital. As you also just heard, the vast majority of our debt at quarter-end is long term fixed-rate SBA debentures with a weighted average coupon of 3.18%. These debentures do not count towards our asset coverage ratio and coupled with our cash position, gives us room to grow our net investment income. Our minimal regulatory leverage puts us at a competitive advantage relative to many of our peers. Turning to our portfolio. At the end of the quarter, we had investments in 41 companies totaling $281.6 million on a fair value basis, which is above our costs. At December 31, 2016, the debt portfolio is at 98.2% and the equity portfolio is at 122.6% of cost. As a percentage of fair value, our investments were approximately 64% senior secured loans, 23% subordinated debt, and 13% equity. As a percentage of cost, our equity investments were approximately 11%. It is important to note that approximately 60% of the equity investments produce investment income due to their contractual coupons. Our portfolio remains well-diversified with an average investment in each portfolio company of $6.9 million or 2.4% of the total portfolio. The overall weighted average yield to cost on our debt investments remained strong and increased approximately 31 basis points from a 11.77% last quarter to 12.08% this quarter. At the end of the quarter, two-thirds of our loan portfolio had floating rate coupons which are just beginning to benefit from rising rates. About 41% of floating rate portfolio is…

Thank you, Jeff. 2016 was another year when we demonstrated consistent performance both in terms of our net asset value and our earnings. This was a result of our consistent approach to underwriting and portfolio management. As we move into 2017, we expect to apply the same approach that has served us well over the last several years. Our investment platform has a long history and it has weathered multiple credit cycles and changes in economic environment since its inception in 1994. Our hands-on approach to portfolio management positions us well for changes in the economic environment. Our underwriting capabilities and the long-term alignment of interest between our shareholders and our external manager which owns more than 30% of our company have also contributed to our strong results. We will continue to focus on delivering capital to the lower middle markets especially to the non-sponsored community, which is where we continue to find attractive risk-adjusted returns as evidenced by their attractive yield on our loan portfolio of more than 12%. We have significant capital resources available to continue originations and grow our earnings. As I mentioned before, we believe that we are well-positioned for a rising interest rate environment, given our attractive, long-term fixed rate financing through the SBIC program with a weighted average coupon of 3.18%. Additionally, about two thirds of our loan portfolio is floating rate. Our focus is to provide long-term value to all of our stakeholders including both shareholders and borrowers. As a lender, we will continue being responsive to the needs of our borrowers by providing them flexible capital solutions. With that, operator, please open up the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bryce Rowe of Baird. Please go ahead.

Bilal and Jeff, I was curious and appreciative of the information you gave on the floating rate nature of the investment portfolio and the ties to the certain rates, three months, one month and six months LIBOR. Just curious, maybe if you could help quantify what percentage of the portfolio is actually through those floors and then maybe what the average floor is based on those certain time periods?

Yes, absolutely. Bryce, this is Jeff. How are you?

Good.

Yes. So, we -- about 60% of the floating rate book is in one month LIBOR and that is just hovering under 1% right now. The average floor is right around 1%. So, at yearend, let’s say, maybe 5% of the book had cleared the floor; as we sit today, closer to 40% of the book has cleared the floor; and very soon, we could have 100% of the floating rate book that ends up clearing the floor and that’s about two thirds of our overall book.

Right, okay. And I would guess that the majority of the portfolio tied to three and six months is already cleared?

That is correct. Yes. Really all of it has cleared . And so that’s about 40%. And then the remaining 60% is in one month LIBOR. So, with each 50 basis-point increase over the floor, once we clear that floor, we are looking about $0.07 per share annually.

Okay. That’s really helpful. Maybe a couple more, just you talked about the new activity for the fourth quarter and the focus on non-sponsored in the lower middle market. We were wondering if those three new investments were non-sponsored investments.

Two of the three would be -- one of the three would be non-sponsored, and the coupons range from about 9.5% to 14%.

Okay. Then last question from me, now that we’re almost through the end of the first quarter of 2017, I’m just curious if you could update us on any kind of investment or repayment activity you’ve seen here in the first quarter of 2017? Thanks.

This is a Bilal. So, I would say that on the origination side, first quarter tends to be seasonally slow for us. And so, just like last year, this quarter has started up on a slow basis, the deal flow has really picked up I would say in the last couple of weeks. So, as you know, these deals take several weeks, sometimes couple of months to close. So, I would say without giving any specific numbers that the year started very little slow, but things are picking up, and we expect the pipeline to grow as we go through the year. With respect to prepayments, again, without talking about specific numbers, I would say that over the last few quarters, the prepayment activity has actually been historically low for us. We expect the prepayment activity to pick up here a little more and come back to the normal level. So, that’s what I would say on both prepayments and originations for this quarter.

That’s helpful. Thank you, Bilal.

[Operator Instructions] We have no further questions at this time. I would like to turn the conference back over to Bilal Rashid for any closing remarks.

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

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