Participants

Stephen 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, Director; OFS Capital Corp

Presentation

Operator

Good day, and welcome to the OFS Capital Corporation Q4 2024 earnings conference call. (Operator Instructions) Please note today's event is being recorded.
I'd now like to turn the conference over to Steve Altebrando. Please ago ahead.

Stephen 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. We announced our fourth quarter earnings earlier this morning. For the quarter, our net investment income increased by approximately 13% to $0.30 per share. Our net asset value per share increased by 14% to $12.85 per share. The improvement in net investment income was primarily driven by an increase in dividend income attributed to a nonrecurring distribution on one of our equity positions and other nonrecurring fee income.
We remain focused on rotating certain noninterest-earning equity positions into interest-earning assets to improve net investment income in the long term. As we have discussed on previous calls, we continue to explore potential ways to monetize our minority equity investment in Pfanstiehl Holdings. Our largest equity position, whose fair value continued to increase in the quarter due to improved fundamental performance appreciating by $15.6 million to $89.3 million at quarter end.
As we have noted before, this is a position we invested in more than 11 years ago at a cost of only $200,000. To date, we have received approximately $3.9 million in distributions or approximately 18 times our cost. As I just mentioned, we had a significant increase in net asset value per share, primarily related to an increase in the value of our equity positions as well as some of our structured finance positions.
We had no new nonaccruals this quarter. We believe our portfolio continues to be well positioned for the current macro-economic environment. As part of our long-standing 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 health care. 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. We believe the Fed rate cuts during the second half of 2024 have had a positive impact on our portfolio companies by reducing interest costs despite putting pressure on our loan yields.
In our view, our financing continues to provide us operational flexibility. 72% of our outstanding debt is unsecured at the end of the quarter. Our nonrecourse $150 million floating rate facility with BNP Paribas matures in June 2027. Our $25 million Banc of California floating rate corporate line of credit provides us additional liquidity and flexibility. M&A activity continues to remain muted. However, we continue to find investment opportunities from our existing borrowers.
As we navigate this uncertain market environment, we have confidence in the experience of our adviser, which manages approximately $3.9 billion across the known 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.

Jeffrey Cerny

Thanks, Bilal. Good morning, everyone. As Bilal mentioned, we posted net investment income of $4.1 million or $0.30 per share for the fourth quarter, which was up 13% from the third quarter or $0.03 per share. This was primarily due to an increase in nonrecurring dividend and fee income, offset modestly by a decline in interest income attributed to the impact of interest rate cuts on reference rates.
We also announced that our quarterly distribution will remain at $0.34 per share for the first quarter of 2025. At quarter end, our quarterly distribution rate represented a 16.9% annualized yield based on the market price of our common stock. We remain focused on improving net investment income so that it exceeds our distribution rate.
As Bilal mentioned, we continue to actively explore alternatives to monetize certain equity investments to increase our net investment income, primarily our minority equity stake in Pfanstiehl. Our net asset value per share increased by almost 14% or $1.56 this quarter, primarily attributed to net unrealized appreciation on our investment portfolio.
The appreciation was across all asset classes but was most pronounced in our equity holdings with the value of our Pfanstiehl equity significantly increasing by $15.6 million during the fourth quarter as a result of its continued strong performance. We had no new loans placed on nonaccrual during the quarter.
We exited one loan on nonaccrual status, which had been written down in prior quarters. At fair value, our nonaccruals as a percentage of our total portfolio were stable compared to the prior quarter. Our regulatory asset coverage ratio increased by 8 percentage-points and now stands at 169% at quarter end. We have begun proactively exploring refinancing and extension options on some of our debt facilities. It is also worth noting that at quarter end, approximately 72% of our outstanding debt was unsecured.
Turning to the income statement. Total investment income was up almost 7% to $11.6 million this quarter. This was primarily driven by the dividend income and fee income discussed earlier, offset modestly by lower interest income due to a smaller loan portfolio as well as interest rate cuts impacting SOFR. Total expenses were up modestly by 3.5% during the period to $7.6 million, primarily due to an increase in management and incentive fees.
As I mentioned at the top of my remarks, net investment income was up approximately 13% or $0.03 per share to $0.30 for the fourth quarter. Turning to our investments. We believe the vast majority of our loan portfolio remains healthy. Although there were a few additional borrowers that performed below our expectations during the quarter, we believe these borrowers remain positioned to make full interest and principal payments. We are committed to being senior in the capital structure and selective in our underwriting.
As M&A activity has remained subdued, we continue to work with our portfolio companies as they identify add-on opportunities for growth. As of December 31, we had $18.8 million in unfunded commitments to our portfolio companies. The majority of our investments are loans and 100% of our loan portfolio is senior secured at year-end.
Based on amortized cost as of quarter end, our investment portfolio was comprised of approximately 69% senior secured loans, 25% structured finance securities and 6% equity securities. At the end of the quarter, we had investments in 64 unique issuers totaling $409.7 million at fair value.
On the interest-bearing portion of the portfolio, the weighted average performing investment income yield improved slightly to 13.8%, which is up about 0.2% quarter-over-quarter. This includes all interest prepayment fees and amortization of deferred loan fees. The increase was primarily due to our proactive rotation of our structured finance securities.
With that, I'll turn the call over to Bilal.

Bilal Rashid

Thank you, Jeff. In closing, we remain focused on increasing our net investment income over the long term, specifically by exploring the sale of certain noninterest-earning equity positions and redeploying the proceeds into interest-earning assets. We continue to focus on capital preservation, which is especially critical during these uncertain economic times. We believe our long-standing experience and investment discipline have served us well over the past 13 years.
Since the beginning of 2011, the BDC has invested more than $2 billion with a cumulative net realized loss of just 3.2% while generating attractive risk-adjusted returns on our portfolio. We believe our business is especially equipped to navigate this market successfully due to the size, experience and reputation of our adviser. With $3.9 billion corporate credit platform affiliated with a $30 billion asset management group, our adviser has broad expertise including long-standing banking and capital markets relationships.
Our corporate credit platform has gone through multiple credit cycles over the last 25-plus years. Our adviser and affiliates are also strongly aligned with shareholders as they maintain an approximately 23% ownership in the company.
With that, operator, please open the call for questions.

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions).
And this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.