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Based in Rolling Meadows, IL, OFS Capital (NASDAQ:OFS) scheduled a $101 million IPO with a market capitalization of $143 million for Thursday, November 8, 2012.

Five IPOs are scheduled for this week. The full IPO calendar is available here.

N-2/A filed October 24, 2012

Manager, Joint Managers: Morgan Stanley; UBS;Barclays; RBC.

Co Managers: Oppenheimer; Janney Montgomery Scott; Ladenburg Thalmann; Wunderlich Securities; Houlihan Lokey.

SUMMARY

OFS is a Business Development Corporation that will file, for tax purposes, to be a Regulated Investment Company. OFS has a book of loans with a remaining life of 3.5 years.

OFS intends to pay for the December quarter at a rate of $.34 per quarter, which is a 9% annualized rate, which probably will be difficult to achieve on a continuing basis unless there are realized capital gains.

CONCLUSION

IPOdesktop expects OFS to trade similarly to Monroe Capital (NASDAQ:MRCC), which IPO'd October 25 at $15 and then traded around the IPO price.

IPO COSTS BORNE BY OFS - PRE-IPO

Which is different than the recent comparable Monroe Capital IPO

Proforma net asset value pre-IPO: $19.46*

*OFS expects to absorb the following so that IPO buyers don't have to

. Sales load (as a percentage of offering price): 7.00%

. Offering expenses (as a percentage of offering price): 5.77%

Proforma net asset value post-IPO: $15

But OFS's operating expenses as a percentage of assets are expected to be 8.4%, compared to Monroe Capital's 7.3%.

OBSERVATIONS

Web site "currently under construction"

The "parent" company is pretty invisible

BUSINESS

Historically, substantially all of OFS's investment portfolio consisted of senior secured loans to middle-market companies in the United States.

As of June 30, 2012, the investment portfolio, including investments held by oOFS's wholly-owned subsidiary, OFS Capital WM, LLC, and Tamarix Capital Partners, L.P., in which OFS owns a majority of the limited partnership interests, consisted of outstanding loans of approximately $210.6 million in aggregate principal amount and OFS had debt of $155.0 million aggregate principal amount outstanding.

As of June 30, 2012, OFS's investment portfolio consisted primarily of senior secured loans to middle-market companies and, to a lesser extent, junior capital, including mezzanine debt and preferred and common equity.

As of June 30, 2012, OFS's portfolio loan investments, including those held by OFS Capital WM and Tamarix LP, had a contractual 3.5-year weighted average life to maturity.

In addition, as of June 30, 2012, OFS had commitments of $212.1 million and outstanding loans of $210.6 million in aggregate principal amount. The difference between the amount of commitments and the outstanding loans is attributable to the unfunded portion of revolving loans in OFS's portfolio at that time.

DISTRIBUTIONS

OFS intends to pay a distribution of $0.34 per share for the quarter ending December 31, 2012. The amount the distribution will be proportionately reduced to reflect the number of days remaining in the quarter after the completion of OFS's IPO.

The $.34 distribution per share is an annualized rate of 9%, which is a potential misrepresentation because of the "hurdle rate" clause (unless capital gains are realized).

Public fund owners are set up to get the first 2% (8% annualized) of "pre-incentive fee net investment income" quarterly income, but the next .5% of "pre-incentive fee net investment income" quarterly income (2% annualized) goes to OFS as the first part of the "incentive fee."

The second part of the incentive fee targets capital gains: OFS gets 20% of realized capital gains, which is a separate calculation.

INVESTMENT ADVISORY FEES

Under the Investment Advisory Agreement, from the completion of this offering through October 31, 2013, the base management fee paid to OFS Advisor will be calculated at an annual rate of 0.875% of OFS's total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity).

Doubles next year

After October 31, 2013, the base management fee will be calculated at an annual rate of 1.75% of total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity).

EMPLOYEES

As of October 9, 2012, OFS had 24 full-time employees and five part-time employees. OFS is headquartered in Rolling Meadows, Illinois, a suburb of Chicago, with additional offices in New York, New York and Los Angeles, California.

USE OF PROCEEDS

OFS expects to net $87 million from its IPO. OFS expects to use the IPO proceeds and cash on hand to pay $99 million in debt.

OFS Capital OFS, C+, 6

Post IPO shares: 9.5mm

Closed end fund specializing in small to mid-sized company debt

IPO Mkt

Rolling Meadows, IL

Cap (MM)

$143

@$15

Valuation Ratios

IPO Mrkt

Price /

Price /

% offered

Cap

Initial qtrly

BookValue

TangibleBV

in IPO

OFS Capital

$143

distribution

1.0

1.0

70%

Hurdle rate distribution

8.0%

$0.34

Incentive rate: next % to OFS

2.0%

Total annual expenses after reduction in first year base management fee

8.4%

Base management fee on total assets*

1.75%

*first year is pro-rated to 50%
Compare to Monroe Capital
MRCC IPO'd October 25 at $15 and as traded between $14.58 and $15.25
Same hurdle rate

8.0%

$0.34

Same incentive rate

2.0%

Total annual expenses after reduction in first year base management fee

7.3%

Same

1.75%

Hurdle rate = first amount to investors
Note: for both MRCC & OFS the annualized distribution of $.34 is 9%, which is misleading (unless there are capital gains)
considering the incentive rate hurdle of 8%.

Glossary of IPO Analysis terms

Source: IPO Preview: OFS Capital