Good morning, and welcome to the OFS Capital Corporation Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steve Altebrando, Vice President, Equity Capital Markets. Please go ahead.

Good morning, everyone, and thank you for joining us. With me today is Bilal Rashid, Chairman and Chief Executive Officer of OFS Capital; and Jeff Cerny, the Company's Chief Financial Officer and Treasurer. Please note that we issued a press release this morning announcing our third 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 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 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. With that, I'll turn the call over to Chairman and Chief Executive Officer, Bilal Rashid.

Thank you, Steve. Good morning and welcome. 2018 has been very productive for us both from the standpoint of deploying capital and raising long-term fixed-rate debt. By doing so we believe that we have set the stage for strong future results. We also believe that we are well-positioned to benefit from rising interest rates given that 79% of our loan portfolio based on fair value is floating rate at quarter end, while a 100% of our outstanding long-term debt today is fixed rate, with 92% of our maturities in 2024 and beyond. We have maintained our strict underwriting discipline with 82% of our loan portfolio comprised of senior secured loans based on fair value. We have the equity capital to further lever our business, which we believe will help us grow our earnings. This is an exciting time for the Company, with a portfolio that we believe is stable and a balance sheet that is positioned for a rising interest rate environment. The third quarter was another strong period for us. We generated net investment income per share of $0.35 exceeding our quarterly distribution. We believe that we have additional room to grow our net investment income. Since our IPO in 2012, we have declared 24 straight quarterly distributions of $0.34 per share. We believe that maintaining our distribution over this period of time puts us in select company within the BDC sector. The increase in net investment income in the third quarter is the result of our efforts to prudently redeploy capital after we experienced elevated repayments last year. Our net asset value this quarter increased $0.05 to $0.1375 per share. As we have redeploy capital, we believe this increase shows our continued focus on the overall quality of the portfolio. In terms of originations, we deployed $47.4 million…

Thanks and good morning, everyone. As Bilal mentioned, our third quarter was highlighted by our net investment income exceeding our distribution, an increase in our net asset value per share, and capital deployment of $47.4 million. Starting with the income statement, for the third quarter we derived approximately $11 million in total investment income, a $700,000 increase over the second quarter. Net investment income increased to $0.35 per share compared to $0.34 in the prior quarter. The increase was primarily driven by an increase in investment assets including, a full quarter of earnings from the strong deployment in the second quarter and continued deployment in the third quarter. Total expenses of $6.3 million increased compared to $5.7 million in the prior quarter. This increase was most notably driven by higher interest expense due to a full quarter of interest on the bonds we issued in the April 2018 offering along with a higher outstanding line of credit balance used to fund additional originations. Turning to the balance sheet. Our net asset value at the end of the quarter was up $0.05 to $13.75 per share. At the end of the quarter, we had approximately $6 million of cash of which $5 million was in our SBIC, plus $33 million in availability on our line of credit. As Bilal mentioned, we closed a bond offering in October, totaling approximately $46 million, which included a partial exercise of the underwriters' overallotment option. An addition of $2.5 million was issued this week and OFS may issue up to another $1.5 million pursuant to the underwriters' overallotment option on or before November 10. We used $31 million of the bond proceeds to repay our line of credit, leaving us with the full $50 million of availability on this line. In May, our Board authorized…

Thank you, Jeff. We are pleased with the increase in earnings this quarter and the overall quality of our portfolio as highlighted by the increase in NAV per share. Since our IPO, we believe that we have outperformed the industry average based on ROE, and we have consistently maintained our distribution. We attribute the ROE to the strength of our origination platform, as well as our underwriting and portfolio management process. Looking ahead, we remain confident in our earnings power. We have a senior secured floating rate focus portfolio and have locked in fixed rate long-term financing. As you know, the advisor manages over $2.2 billion of AUM, and has broad capabilities within the corporate credit sector. We expect to benefit from our long standing investment platform that has been in existence since 1994, and has gone through multiple credit cycles. We believe that this experience will help us navigate changing market conditions. This experience also benefits us as we continue to focus on capital preservation as highlighted by our low loss experience. In addition, we believe that our performance is further aided by the advisor having considerable skin in the game, since it is the largest shareholder in the BDC. With that, operator, please open the call for questions.

[Operator Instructions] The first question will be from Mickey Schleien with Ladenburg. Please go ahead.

I wanted to ask about the potential impact of the tariff war on operational performance of the portfolio. The markets have certainly sold off with that concern but it seems that the middle market is actually doing quite well. I'm just curious whether there's been an impact in your portfolio and in what areas are you seeing it prevalent?

I would say our portfolio continues to be in good shape. We are watching it closely. Some of the smaller businesses do not have a lot of overseas exposure either from sourcing or sales side. There are certainly a few companies that we're watching closely. We speak to our borrowers regularly, companies are in good shape I would say. Quarter-over-quarter we've seen revenues generally up, EBITDA pretty stable as you know on our lower middle market portfolio, our medium leverage is around 3.6x and that's through the subordinated debt. So we think there's room to withstand pressure. We are watching a handful of companies that may have some exposure. We're talking to Management teams about it, but at this point we don't expect any material impact.

And in terms of pressure - it's been a long time since we've seen the Fed go through a tightening cycle. I'm curious in your underwriting, do you just use the forward LIBOR curve which historically has not been that accurate at least not the last few years or do you make your own judgments about where interest rates are going and how much of an increase in short-term rates do you think your borrowers can withstand before you start to get uneasy about metrics such as interest coverage?

I don't know if I want to really specify how much of a rate change they can withstand but I will tell you that we do stress test these companies on the front and we usually bake in a near term recession for these businesses. So whether it's interest rate increases or performance declines, I think they both accomplish the same thing in a stress test case, and we do a little bit of both. And we're modeling well in excess of 2x interest coverage, so I mean I'll also say that with respect to floating rates our loans are typically LIBOR plus 8%, LIBOR plus 9%, LIBOR plus 10%, and so the LIBOR component of the overall rate structure is less than you might see in the broadly syndicated senior secured market.

And my last question, Jeff, I don't think you disclose it down to a decimal point but can you give us a sense of the breakdown of the senior secured portfolio between first and second lease - second lien, at least broadly speaking?

Yes, I will say within the senior secured portfolio the vast majority of the loans are first-lien.

Ladies and gentlemen, this concludes our question-and-answer session. 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. Thanks.