Fundamental backdrop
OFS Credit’s July 31 NAV estimate of $6.08‑$6.18 per share reflects a modest but healthy equity buffer for a firm whose balance sheet is dominated by CLO equity and debt‑security positions. In its most recent 10‑K, the company reported a net asset‑to‑debt ratio of roughly 1.3× and an asset‑coverage ratio near 1.1×—levels that sit comfortably above the 0.9‑1.0 “risk‑threshold” many CLO‑focused managers target. The current NAV range therefore signals that the equity cushion remains sufficient to meet the company’s existing leverage, keeping the risk of a margin call or forced asset‑sale low.
Risk‑metric alignment
Key risk metrics (e.g., weighted‑average loan‑to‑value (LTV) of the CLO portfolio at ~68% and duration‑adjusted spread of ~300 bp) are still well‑inside the company’s internal limits. The NAV uplift from the prior quarter (≈3% YoY) has not been offset by any material rise in LTV or spread, indicating that the firm’s leverage profile is stable and that the NAV is not being eroded by deteriorating credit quality. In other words, the NAV is in step with, rather than lagging behind, the firm’s leverage ratios, confirming that the equity value is still adequately capitalised against the underlying CLO exposure.
Trading implications
Because the NAV is solidly aligned with the company’s leverage and risk parameters, the equity side of the trade is relatively low‑risk in a market that still values CLO‑related assets at premium spreads. The current price action (OCCI trading around $5.90‑$6.00) leaves a ~3‑4% upside to the low‑end of the NAV estimate, offering a modest entry point for risk‑averse long positions. Conversely, any price move above $6.20 would start to price in a NAV premium that may be hard to sustain if leverage metrics begin to tighten. A tight‑range, low‑volatility approach—buying on dips near $5.90 and scaling in as the price approaches $6.10‑$6.15—captures the upside while keeping exposure limited to the company’s well‑managed leverage profile.