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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Transfers between levels, change in investments measured at fair value using Level 3 inputs, and unrealized appreciation (depreciation) for assets still held

The following table presents the Company’s transfers of Level 2 and Level 3 debt investments for the three and nine months ended September 30, 2023 and 2022:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Transfers from Level 2 to Level 3			$	—					$	—					$	—					$	3,252
Transfers from Level 3 to Level 2			5,957						6,403						7,491						6,403

The following tables present changes in investments measured at fair value using Level 3 inputs for the nine months ended September 30, 2023 and September 30, 2022:

			Nine Months Ended September 30, 2023
			Senior Secured Debt Investments						Subordinated Debt Investments						Preferred Equity						Common Equity, Warrants and Other						Structured Finance Securities						Total
Level 3 assets, December 31, 2022			$	280,813					$	1,226					$	8,196					$	91,000					$	88,518					$	469,753
Net realized loss on investments			(140)						(9,210)						—						(6,642)						—						(15,992)
Net unrealized appreciation (depreciation) on investments			(3,110)						8,084						2,461						(844)						(3,416)						3,175
Amortization of Net Loan Fees			994						—						—						—						170						1,164
Accretion of interest income on Structured Finance Securities			—						—						—						—						8,534						8,534
Capitalized PIK interest and dividends			687						—						804						—						—						1,491
Amendment fees received			(166)						—						—						—						—						(166)
Purchase and origination of portfolio investments			26,378						—						345						356						7,642						34,721
Proceeds from principal payments on portfolio investments			(37,777)						—						—						—						(8,511)						(46,288)
Sale and redemption of portfolio investments			(2,710)						—						—						—						—						(2,710)
Proceeds from distributions received from portfolio investments			—						—						—						(962)						(9,648)						(10,610)
Transfers out of Level 3			(7,491)						—						—						—						—						(7,491)
Level 3 assets, September 30, 2023			$	257,478					$	100					$	11,806					$	82,908					$	83,289					$	435,581

			Nine Months Ended September 30, 2022
			Senior Secured Debt Investments						Subordinated Debt Investments						Preferred Equity						Common Equity, Warrants and Other						Structured Finance Securities						Total
Level 3 assets, December 31, 2021			$	261,113					$	17,943					$	3,765					$	83,486					$	75,201					$	441,508
Net realized loss on investments			(122)						—						(51)						(6)						—						(179)
Net unrealized appreciation (depreciation) on investments			(9,416)						(5,488)						3,558						6,050						(12,600)						(17,896)
Amortization of Net Loan Fees			1,058						6						—						—						186						1,250
Accretion of interest income on Structured Finance Securities			—						—						—						—						7,647						7,647
Capitalized PIK interest and dividends			362						58						230						—						—						650
Amendment fees			(206)						—						—						—						—						(206)
Purchase and origination of portfolio investments			85,066						—						—						1,290						43,198						129,554
Proceeds from principal payments on portfolio investments			(51,060)						(8,245)						—						—						(9,500)						(68,805)
Sale and redemption of portfolio investments			(2,845)						—						—						(3,141)						—						(5,986)
Proceeds from distributions received from portfolio investments			—						—						—						—						(14,261)						(14,261)
Transfers out of Level 3			(6,403)						—						—						—						—						(6,403)
Transfers into Level 3			3,252						—						—						—						—						3,252
Level 3 assets, September 30, 2022			$	280,799					$	4,274					$	7,502					$	87,679					$	89,871					$	470,125

The net unrealized depreciation reported in the Company’s consolidated statements of operations for the nine months ended September 30, 2023 and 2022, attributable to the Company’s Level 3 assets still held at those respective period ends, was as follows:

			Nine Months Ended September 30,
			2023						2022
Senior secured debt investments			$	(4,125)					$	(8,941)
Subordinated debt investments			(22)						(5,487)
Preferred equity			2,474						3,507
Common equity, warrants and other			(7,590)						7,657
Structured Finance Securities			(3,622)						(12,553)
Net unrealized depreciation on investments held			$	(12,885)					$	(15,817)

Investment portfolio measured at fair value on a recurring basis

The following tables present the Company’s investment portfolio measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022:

Security						Level 1						Level 2						Level 3						Fair Value as of September 30, 2023
Debt investments						$	—					$	21,666					$	257,578					$	279,244
Equity investments						—						—						94,714						94,714
Structured Finance Securities						—						—						83,289						83,289
						$	—					$	21,666					$	435,581					$	457,247

Security						Level 1						Level 2						Level 3						Fair Value as of December 31, 2022
Debt investments						$	—					$	30,823					$	282,039					$	312,862
Equity investments						—						—						99,196						99,196
Structured Finance Securities						—						—						88,518						88,518
						$	—					$	30,823					$	469,753					$	500,576

Significant Level 3 inputs

The following tables provides the primary quantitative information about valuation techniques and the Company’s unobservable inputs to its Level 3 fair value measurements as of September 30, 2023 and December 31, 2022. The Company may make changes to the valuation techniques, among techniques otherwise commonly used in accordance with its valuation policies, and/or the weighting of techniques used for particular investments based on changes in facts-and-circumstances and depending on the availability of, or changes in, information in order to produce the best estimate of fair value as of the measurement date. In addition to the techniques and unobservable inputs noted in the tables below and in accordance with OFS Advisor’s valuation policy, OFS Advisor, as valuation designee, may also use other valuation techniques and methodologies when determining the fair value measurements of the Company’s investment assets.

Fair Value as of September 30, 2023

Valuation technique

Unobservable inputs

Range (Weighted average)

Debt investments:

Senior secured

$

234,746

Discounted cash flow

Discount rates

10.32% - 21.66% (13.18%)

Senior secured

2,477

Market approach

EBITDA multiples

7.00x - 7.00x (7.00x)

Senior secured

20,255

Market approach

Revenue multiples

0.40x - 1.40x (0.59x)

Subordinated

100

Market approach

Revenue multiples

0.23x - 0.23x (0.23x)

Structured Finance Securities:

Subordinated notes(1)

48,043

Discounted cash flow

Discount rates

16.00% - 58.00% (32.24%)

Constant default rate

2.00% - 2.00% (2.00%)

Recovery rate

65.00% - 65.00% (65.00%)

Subordinated notes

97

Market approach

Net asset value liquidation(2)

Subordinated notes

4,840

Market approach

Transaction Price

Mezzanine debt

27,502

Discounted cash flow

Discount margin

6.85% - 10.25% (8.04%)

Constant default rate

2.00% - 3.00% (2.03%)

Recovery rate

65.00% - 65.00% (65.00%)

Mezzanine debt

2,807

Market approach

Transaction Price

Equity investments:

Preferred equity

11,462

Market approach

EBITDA multiples

4.58x - 7.50x (6.84x)

Preferred equity

344

Discounted cash flow

Discount rates

13.26% - 13.26% (13.26%)

Common equity, warrants and other

5,445

Market approach

EBITDA multiples

4.58x - 16.50x (9.55x)

Common equity, warrants and other

77,105

Discounted cash flow

Discount rates

10.75% - 10.75% (10.75%)

Market approach

EBITDA multiples

12.50x - 12.50x (12.50x)

Common equity, warrants and other

358

Market approach

Revenue multiples

0.40x - 0.70x (0.70x)

$

435,581

(1) The cash flows utilized in the discounted cash flow calculations assume: (i) liquidation of (a) certain distressed investments and (b) all investments currently in default held by the issuing CLO at their current market prices; and (ii) redeployment of proceeds at the issuing CLO’s assumed reinvestment rate.

(2) Net asset value liquidation represents the fair value, or estimated expected residual value, of the Structured Finance Security that has been optionally redeemed.

Fair Value at December 31, 2022

Valuation technique

Unobservable inputs

Range (Weighted average)

Debt investments:

Senior secured

$

264,702

Discounted cash flow

Discount rates

10.21% - 20.71% (12.94%)

Senior secured

16,110

Market approach

Revenue multiples

0.46x - 0.70x (0.56x)

Subordinated

1,226

Market approach

EBITDA multiples

10.50x - 10.50x (10.50x)

Structured Finance Securities:

Subordinated notes(1)

53,688

Discounted cash flow

Discount rates

12.50% - 34.00% (22.14%)

Constant default rate

2.00% - 2.00% (2.00%)

Recovery rate

65.00% - 65.00% (65.00%)

Mezzanine debt

26,413

Discounted cash flow

Discount margin

7.25% - 11.60% (8.58%)

Constant default rate

2.00% - 3.00% (2.03%)

Recovery rate

65.00% - 65.00% (65.00%)

Subordinated notes

118

Market approach

Net asset value liquidation(2)

Loan accumulation facility

8,299

Market approach

Probability weighted NAV analysis

Equity investments:

Preferred equity

6,202

Market approach

EBITDA multiples

7.25x - 7.25x (7.25x)

Preferred equity

1,901

Market approach

Revenue multiples

0.15x - 0.87x (0.87x)

Common equity, warrants and other

91,070

Market approach

EBITDA multiples

3.72x - 11.75x (9.63x)

Common equity, warrants and other

24

Market approach

Revenue multiples

0.15x - 0.87x (0.15x)

$

469,753

(1) The cash flows utilized in the discounted cash flow calculations assume: (i) liquidation of (a) certain distressed investments and (b) all investments currently in default held by the issuing CLO at their current market prices; and (ii) redeployment of proceeds at the issuing CLO’s assumed reinvestment rate.

(2)    NAV liquidation represents the fair value, or estimated expected residual value, of the investment.

Carrying values and fair values of debt

The following table sets forth carrying values and fair values of the Company’s debt as of September 30, 2023 and December 31, 2022:

			As of September 30, 2023												As of December 31, 2022
Description			Carrying Value(1)						Fair Value						Carrying Value(1)						Fair Value
PWB Credit Facility			$	—					$	—					$	—					$	—
BNP Facility			91,100						91,100						104,700						104,700
Unsecured Notes Due February 2026			123,129						113,799						122,547						109,037
Unsecured Notes Due October 2028			53,959						47,850						53,806						47,058
SBA-guaranteed debentures			31,870						30,692						50,697						49,470
Total debt			$	300,058					$	283,441					$	331,750					$	310,265

(1) Carrying value is calculated as the outstanding principal amount less unamortized deferred debt issuance costs.

The following tables present the fair value measurements of the Company's debt and indicate the fair value hierarchy of the significant unobservable inputs utilized by the Company to determine such fair values as of September 30, 2023 and December 31, 2022:

			September 30, 2023
Description			Level 1(1)						Level 2						Level 3(2)						Total
PWB Credit Facility			$	—					$	—					$	—					$	—
BNP Facility			—						—						91,100						91,100
Unsecured Notes Due February 2026			—						—						113,799						113,799
Unsecured Notes Due October 2028			47,850						—						—						47,850
SBA-guaranteed debentures			—						—						30,692						30,692
Total debt, at fair value			$	47,850					$	—					$	235,591					$	283,441

			December 31, 2022
Description			Level 1(1)						Level 2						Level 3(2)						Total
PWB Credit Facility			$	—					$	—					$	—					$	—
BNP Facility			—						—						104,700						104,700
Unsecured Notes Due February 2026			—						—						109,037						109,037
Unsecured Notes Due October 2028			47,058						—						—						47,058
SBA-guaranteed debentures			—						—						49,470						49,470
Total debt, at fair value			$	47,058					$	—					$	263,207					$	310,265

(1) For Level 1 measurements, fair value is estimated by using the closing price of the security on the Nasdaq Global Select Market.

(2) For Level 3 measurements, fair value is estimated by discounting remaining payments at current market rates for similar instruments at the measurement date and considering such factors as the legal maturity date.

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Tabular disclosure of input and valuation technique used to measure fair value and change in valuation approach and technique for each separate class of asset and liability measured on recurring and nonrecurring basis.

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