OFS Credit : Semi-Annual Report 2024

OFS Credit Company, Inc.

First Half 2024

Stockholder Letter and Semi-Annual Report

NASDAQ Symbols: OCCI | OCCIO | OCCIN

OFS CREDIT COMPANY, INC.

TABLE OF CONTENTS - SEMI-ANNUAL REPORT

Letter to Stockholders Important Information Performance Data (Unaudited)

Summary of Certain Portfolio Characteristics (Unaudited) Statement of Assets and Liabilities as of April 30, 2024 (unaudited) Statement of Operations for the Six Months Ended April 30, 2024 (unaudited)

Statements of Changes in Net Assets for the Six Months Ended April 30, 2024 (unaudited) and Year Ended October 31, 2023

Statement of Cash Flows for the Six Months Ended April 30, 2024 (unaudited) Schedule of Investments as of April 30, 2024 (unaudited)

Notes to Financial Statements (unaudited) Summary Risk Factors

Dividend Reinvestment Plan

Board Approval of the Investment Advisory Agreement Additional Information

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OFS CREDIT

June 11, 2024

To Our Stockholders:

Company Overview

OFS Credit Company, Inc. ("OFS Credit", the "Company", "we" or "our") is a non-diversified, externally managed closed-end management investment company. Our primary investment objective is to generate current income, with a secondary objective to generate capital appreciation, which we seek to achieve primarily through investment in collateralized loan obligation ("CLO") equity and debt securities.

We are pleased to announce our results for the first half of fiscal year 2024. As of April 30, 2024, our net asset value ("NAV") per common share was $7.34, compared to $7.55 as of October 31, 2023. For the six months ended April 30, 2024, we paid total cash distributions of $0.60 per common share, resulting in an annualized total return of 13.1% based on NAV1. On May 2, 2024, we announced a 5% increase in our monthly cash distribution amount to $0.105 per common share, which implied an annualized cash distribution rate of 17.9% based on the closing market price of $7.02 per common share on April 30, 2024.

During the six months ended April 30, 2024, we deployed capital primarily into CLO equity and loan accumulation facility investments, while rotating out of certain CLO equity investments that were past their reinvestment period. During the six months ended April 30, 2024, we continued to receive cash flows from our CLO equity investments in excess of our total operating expenses and common stock distributions. See "Portfolio Overview" below for additional details on our investment portfolio. As of April 30, 2024, we had $15.3 million of cash to deploy into additional investment opportunities.

As of April 30, 2024, we had $61.0 million of outstanding term preferred stock with a weighted-average effective interest rate of 6.3%, which we believe is favorable compared to current market rates. On November 19, 2023, we redeemed all of our issued and outstanding Series B Term Preferred Stock for approximately $3.0 million, and, as of June 11, 2024, our outstanding Series C, Series D and Series E Term Preferred Stock matures in 2026. We believe our fixed-rate financing, at below market rates, affords us operational flexibility to create stockholder value in this elevated interest rate environment.

For the six months ended April 30, 2024, our portfolio produced a net interest spread2 of 8.7%. We believe our balance sheet is well positioned with a debt-to-equity ratio3 of 0.52x at April 30, 2024, which is comfortably below regulatory limitations.

Common Stock Distributions and Dividend Reinvestment Plan ("DRIP")

Third Quarter 2024 Common Stock Distributions

The following schedule applies to the distributions for common stockholders of record on the close of business of each specific record date:

Month		Record Date		Payment Date
May 2024		May 21, 2024		May 31, 2024
June 2024		June 18, 2024		June 28, 2024
July 2024		July 19, 2024		July 31, 2024

Cash Distribution

Per Share

$0.105 $0.105 $0.105

Dividend Reinvestment Plan - Shares Issued at 95% of Market Price

On June 1, 2023, our board of directors (the "Board") adopted a change to our DRIP so that common stockholders may receive their distribution in shares based on 95% of the market price per share of common stock at the close of regular trading on The Nasdaq Capital Market on the valuation date fixed by the Board for such distribution (i.e., the payment date), providing a 5% discount to the market price.

Portfolio Overview

As of April 30, 2024, our investment portfolio consisted of 63 CLO equity issuers and 15 CLO debt issuers. During the six months ended April 30, 2024, we deployed capital of $31.0 million into new investments, primarily consisting of $18.7 million of CLO equity investments and $10.0 million of loan accumulation facility investments. As of April 30, 2024, our $18.7 million of new CLO equity investments had a weighted-average effective yield of 16.3%. We believe the capital that we deployed during the period will generate strong recurring cash flows, particularly during the weighted-average remaining reinvestment period of 4.7 years. As of April 30, 2024, our portfolio's weighted-average remaining reinvestment period4 was 2.3 years.

During the six months ended April 30, 2024, our CLO equity investments generated recurring cash flows of $18.6 million, and our CLO equity cash flow yield5, based on amortized cost, was 21.2%.

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Loan and CLO Market Overview

Loan Market

During the first half of our fiscal year, even amongst concern around inflation, high interest rates and geopolitical risk, the broadly syndicated loan ("BSL") market saw a heightened technical fervor. On October 31, 2023, the Morningstar LSTA US Leveraged Loan Index average bid price was $94.76 and continued to increase to $96.64 as of April 30, 2024. The increase in loan price levels was primarily due to: (i) increased new CLO creation relative to the second half of 2023 due to repayments on senior tranches of CLO's that were out of their reinvestment period in addition to new investors entering the asset class; (ii) a limited supply of loans in the market due to a lack of merger and acquisition activity, which fostered bid activity, as well as refinancings of shorter-dated maturities in the market; and (iii) retail/ETF inflows.

As issuers continued to wrap up year-end 2023 and first quarter 2024 earnings, underlying corporate borrowers continued to report acceptable earnings profiles; however, we noticed a number of liability management exercises performed on stressed/ distressed deals during this period.

We also evaluated inflows/outflows from the two largest segments of the BSL market: CLOs and fund flows. For the six months ended April 30, 2024, CLO inflows totaled $86.1 billion, while fund inflows were a modest $5.4 billion, resulting in net inflows of $91.5 billion.

Defaults as reported by Morningstar LSTA Leveraged Loan Index were generally range bound for the six-month period, starting at 1.43% on October 31, 2023, and ending at 1.31% on April 30, 2024, with a high-tick of 1.53% (December 2023) and low-tick of 1.14% (March 2024).

CLO Market

The CLO market began 2024 sprinting out the gates, as managers issued approximately $43.0 billion in BSL and middle market CLOs in the first calendar quarter of the year. This was the highest first quarter volume level seen since the years following the global financial crisis period of 2007 to 2009. The strong CLO issuance in the first quarter prompted three bank research firms (Barclays, BofA Securities, and JPMorgan) to raise their pre-year forecasts from $100-120 billion to $130-145 billion.

CLO AAA debt spread levels ended 2023 in the range of 160-to-170 basis points over SOFR, representing a meaningful compression from the levels seen in 2023. During the first calendar quarter of 2024, AAA spread levels compressed further to approximately 150 basis points over SOFR, while BB spread levels compressed by 100 basis points to an average level of approximately 670 basis points over SOFR.

This compression prompted increased new primary issuance, and refinancing and reset transactions on deals that closed at wider levels in late 2022 and early 2023. The flurry of new issuance and refinancing and reset activity created additional demand for loan collateral and, as a result, we continue to see significant repricing impacting CLO deals.

We expect to see continued CLO issuance for the remainder of 2024 but at a slower pace given the large volume already printed to date. The spread tightening across the CLO market has created some opportunities to sell CLO debt at a premium and redeploy capital into new issue and secondary CLO equity; however, the arbitrage on CLO equity has compressed in 2024 with limited new loan issuance and the repricing in the loan market. We expect to continue investing in CLO equity and, to a lesser extent, CLO debt at attractive risk-adjusted levels relative to historical averages.

About Our Adviser

OFS Capital Management, LLC is our investment adviser and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended6, and, as of March 31, 2024, had approximately $4.0 billion of committed assets under management. We believe our adviser is uniquely positioned to manage the Company given its expertise in both investing in structured credit (CLO equity and debt tranches) and managing CLOs, which entails underwriting corporate loans in the broadly syndicated loan market. We believe that our commitment to the strong, long-term performance of OFS Credit is aligned with the interests of our investment adviser who, together with other insiders, owns approximately 5.3% of the Company's common stock.

We look forward to continuing this dialogue with you over the coming weeks and months and appreciate your continued support.

Chairman and Chief Executive Officer

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This letter is intended to assist stockholders in understanding our performance during the six months ended April 30, 2024. The views and opinions in this letter were current as of April 30, 2024. Statements other than those of historical facts included herein may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties, including management's belief: that the weighted-average effective interest rate of Company's preferred stock is favorable compared to current market rates; that the Company's fixed-rate financing affords the Company operational flexibility to create stockholder value in this elevated interest rate environment; that the Company's balance sheet is well positioned measured by its debt-to-equity ratio or any other metrics, which may not be indicative of its strength; the capital the Company has deployed will generate strong recurring cash flows, when there can be no assurance that will be the case; that the Company will be able to invest at attractive risk-adjusted levels relative to historical averages; regarding the expertise of the Company's adviser; and that the Company's commitment to strong, long-term performance is aligned with the Company's adviser who, together with affiliated parties, own over 5% of the Company's common stock. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. We undertake no duty to update any forward-looking statement made herein.

• Total return based on NAV is calculated assuming shares of common stock were purchased at the NAV at the beginning of the period, distributions were reinvested at a price obtained in the Company's DRIP, and shares were sold at the ending NAV on the last day of the period. The total return based on NAV is annualized.

• Net interest spread is calculated as the interest income yield (total interest income divided by the average investment portfolio at cost) less the weighted-average effective interest rate on preferred stock. Net interest spread is annualized.

• Debt-to-equityratio is calculated as the total principal of outstanding preferred stock divided by total net assets.
  4 Weighted based on fair value as of April 30, 2024. Includes all portfolio investments.

• CLO equity cash flow yield is calculated as recurring CLO equity cash distributions received during the period, excluding return of capital distributions received on CLO equity investments which have been optionally redeemed, divided by average CLO equity investments at cost. CLO equity cash flow yield is annualized.

• Registration does not imply a certain level of skill or training.

[Not Part of the Semi-Annual Report]

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Important Information

This report is transmitted to the stockholders of OFS Credit Company, Inc. ("we," "us," "our," or the "Company") and is furnished pursuant to certain regulatory requirements. This report and the information and views herein do not constitute investment advice, or a recommendation or an offer to enter into any transaction with the Company or any of its affiliates. This report is provided for informational purposes only, does not constitute an offer to sell securities of the Company and is not a prospectus. From time to time, the Company may have a registration statement relating to one or more of its securities on file with the U.S. Securities and Exchange Commission ("SEC").

An investment in the Company is not appropriate for all investors. The investment program of the Company is speculative, entails substantial risk and includes investment techniques not employed by traditional mutual funds. An investment in the Company is not intended to be a complete investment program. Shares of closed-end investment companies, such as the Company, frequently trade at a discount from their net asset value ("NAV"), which may increase investors' risk of loss. Past performance is not indicative of, or a guarantee of, future performance. The performance and certain other portfolio information quoted herein represents information as of April 30, 2024. Nothing herein should be relied upon as a representation as to the future performance or portfolio holdings of the Company. Investment return and principal value of an investment will fluctuate, and shares, when sold, may be worth more or less than their original cost. The Company's performance is subject to change since the end of the period noted in this report and may be lower or higher than the performance data shown herein.

About OFS Credit Company, Inc.

Investment Objectives and Strategies

We are a non-diversified, externally managed closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). Our primary investment objective is to generate current income, with a secondary objective to generate capital appreciation. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended.

Under normal market conditions, we will invest at least 80% of our assets, or net assets plus borrowings, in floating rate credit- based instruments and other structured credit investments, including: (i) CLO debt and subordinated (i.e., residual or equity) securities; (ii) traditional corporate credit investments, including leveraged loans and high yield bonds; (iii) opportunistic credit investments, including stressed and distressed credit situations and long/short credit investments; and (iv) other credit-related instruments, which include securities issued by other securitization vehicles, such as credit-linked notes and collateralized bond obligations, or "CBOs", and synthetic investments, such as significant risk transfer securities and credit risk transfer securities issued by banks or other financial institutions ("80% Policy"). The 80% Policy is not a fundamental policy of the Company and may be changed by our Board on 60 days' notice to our stockholders. We define "credit" to consist primarily of the debt investments and instruments described in our 80% Policy.

The CLOs in which we invest or intend to invest are collateralized by portfolios consisting primarily of below investment grade U.S. senior secured loans with a large number of distinct underlying borrowers across various industry sectors. As part of the 80% Policy, we may also invest in other securities and instruments that are related to these investments or that OFS Capital Management, LLC ("OFS Advisor") believes are consistent with our investment objectives, including senior debt tranches of CLOs and loan accumulation facilities. Loan accumulation facilities are short-to-medium-term facilities often provided by the bank that will serve as the placement agent or arranger on a CLO transaction. Investments in loan accumulation facilities have risks similar to those applicable to investments in CLOs. Loan accumulation facilities typically incur leverage between three and six times equity prior to a CLO's pricing. The amount that we invest in these other securities and instruments may vary from time to time and, as such, may constitute a material part of our portfolio on any given date, all as based on OFS Advisor's assessment of prevailing market conditions. The CLO securities in which we will primarily seek to invest are unrated or rated below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal. Unrated and below investment grade securities are also sometimes referred to as "junk" securities. In addition, the CLO equity and subordinated debt securities in which we will, or intend to, invest are highly leveraged (with CLO equity securities typically being leveraged 9 to 13 times), which magnifies our risk of loss on such investments.

These investment objectives are not fundamental policies of ours and may be changed by our Board on 60 days' notice to our stockholders.

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Investment Restrictions

Our investment objectives and our investment policies and strategies, except for the seven investment restrictions designated as fundamental policies under this caption, are not fundamental and may be changed by the Board without stockholder approval.

The following seven investment restrictions are designated as fundamental policies and as such cannot be changed without the approval of the holders of a majority of our outstanding voting securities:

1. We may not borrow money, except as permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
2. We may not engage in the business of underwriting securities issued by others, except to the extent that we may be deemed to be an underwriter in connection with the disposition of portfolio securities;
3. We may not purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include futures contracts with respect to securities, securities indices, currency or other financial instruments;
4. We may not purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that we reserve freedom of action to hold and to sell real estate acquired as a result of our ownership of securities;
5. We may not make loans, except to the extent permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction;
6. We may not issue senior securities, except to the extent permitted by: (i) the 1940 Act, or interpretations or modifications by the SEC, the SEC staff or other authority with appropriate jurisdiction; or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction; and
7. We may not invest in any security if, as a result of such investment, 25% or more of the value of our total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular industry except: (a) securities issued or guaranteed by the U.S. government and its agencies and instrumentalities or tax-exempt securities of state and municipal governments or their political subdivisions (however, not including private purpose industrial development bonds issued on behalf of non-government issuers); or (b) as otherwise provided by the 1940 Act, as amended from time to time, and as modified or supplemented from time to time by: (i) the rules and regulations promulgated by the SEC under the 1940 Act, as amended from time to time; and (ii) any exemption or other relief applicable to us from the provisions of the 1940 Act, as amended from time to time. For purposes of this restriction, in the case of investments in loan participations between us and a bank or other lending institution participating out the loan, we will treat both the lending bank or other lending institution and the borrower as "issuers." For purposes of this restriction, an investment in a CLO, collateralized bond obligation, collateralized debt obligation or a swap or other derivative, will be considered to be an investment in the industry (if any) of the underlying or reference security, instrument or asset.

Principal Risks

For a description of the principal risks associated with an investment in us, please refer to Note 10 to the Financial Statements, "Principal Risks".

Forward-Looking Statements

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

• our future operating results;
• the impact of interest and inflation rates on our business prospects and the prospects of a CLO vehicle's portfolio companies;
• our operating policy, investment strategy and their impact on the CLO vehicles in which we invest;

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• the dependence of our future success on financial institutions and the general economy and their impact on the industries in which we invest;
• the expertise of OFS Advisor;
• the ability of a CLO vehicle's portfolio companies to achieve their objectives;
• our expected financings and investments;
• the impact of current political, economic and industry conditions, including 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 or a shutdown of U.S. government services and other conditions affecting the financial and capital markets on our business, financial condition, results of operations and the fair value of our portfolio investments;
• general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union and China;
• the belief that the Company's cash and cash equivalent balances are not exposed to any significant credit risk because the Company makes cash and cash equivalent deposits only with high credit quality institutions;
• the ultimate realization of estimated effective yield and investment cost;
• the redemption of the outstanding shares of 6.125% Series C Term Preferred Stock, 6.00% Series D Term Preferred Stock or 5.25% Series E Term Preferred Stock or the repurchase by the Company of any shares of its Series C Term Preferred Stock or Series E Preferred Stock under its repurchase program;
• the potential significant difference in fair value of the investments from the values that would have been used had a ready market or observable inputs existed for such investments, or from the values that may ultimately be received or settled;
• the expectation that interest income on investments in CLO debt and Loan Accumulation Facilities will be collected in cash;
• the realization of significantly less than the value at which a portfolio investment had previously been recorded if the Company were required to liquidate such investment in a forced or liquidation sale;
• the belief that the carrying amounts of our financial instruments, such as cash, cash equivalents, receivables and payables approximate the fair value of such items due to the short maturity of such instruments and that such financial instruments are held with high credit quality institutions to mitigate the risk of loss due to credit risk;
• the belief that certain rating agencies provide broader rating coverage across underlying loan portfolios;
• the success of our current or future borrowings, or equity offerings to fund the growth of our investment portfolio;
• the holding period of our investments;
• the impact of alternative reference rates on our business, including a reduction in the value of certain of our investments;
• the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, cybersecurity attacks and the increasing use of artificial intelligence and machine learning technology;
• the effect of new or modified laws or regulations governing our operations; and
• the timing of cash flows, if any, from our investments.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to make new investments, certain margins and levels of profitability and the availability of additional capital on favorable terms. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Summary Risk Factors" in this report. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including Annual and Semi-Annual Reports on Form N-CSR and monthly portfolio investments reports filed on Form N-PORT for the third month of each of our fiscal quarters.

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