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Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2019 Financial Results and Declares Distribution of $0.095 Per Share

LOS ANGELES, CA, May 08, 2019 (GLOBE NEWSWIRE) -- Oaktree Specialty Lending Corporation (NASDAQ: OCSL) (“Oaktree Specialty Lending” or the “Company”), a specialty finance company, today announced its unaudited financial results for the fiscal quarter ended March 31, 2019.

Financial Highlights for the Quarter Ended March 31, 2019

  • Total investment income of $38.2 million ($0.27 per share), relatively flat from $38.3 million ($0.27 per share) for the first fiscal quarter of 2019.
     
  • Net investment income of $17.7 million ($0.13 per share), up from $17.3 million ($0.12 per share) for the first fiscal quarter of 2019, primarily reflecting lower operating expenses.
     
  • Net asset value ("NAV") per share of $6.55, up from $6.19 for the first fiscal quarter of 2019, primarily driven by realized gains in two investments and unrealized appreciation in certain debt and equity investments.
     
  • Originated $100.0 million of new investment commitments and received $120.7 million of proceeds from prepayments, exits, other paydowns and sales.
     
  • A quarterly distribution was declared of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.

Edgar Lee, Chief Executive Officer and Chief Investment Officer, said, “OCSL delivered another quarter of strong earnings and portfolio performance, as shown by the fifth consecutive quarter of NAV appreciation. Our continued efforts to reduce the risk in the portfolio were successful, as we realized a par recovery from one of our largest non-core investments, and core investments now represent approximately 80 percent of the portfolio. While general credit market conditions have improved year to date, we remain committed to defensively positioning the portfolio by investing in a disciplined, risk-controlled manner, consistent with our view that it is late in the cycle.”

Distribution Declaration

The Board of Directors declared a quarterly distribution of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.

Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.

Results of Operations

    For the three months ended
($ in thousands, except per share data)   March 31, 2019   December 31,
2018
  March 31, 2018
Operating results:            
Interest income   $ 34,309     $ 35,789     $ 26,633  
PIK interest income   2,280     832     1,946  
Fee income   1,132     1,202     3,942  
Dividend and other income   523     453     2,258  
Total investment income   38,244     38,276     34,779  
Net expenses   20,535     20,959     19,516  
Net investment income   17,709     17,317     15,263  
Net realized and unrealized gains (losses), net of taxes   46,776     10,401     4,357  
Net increase (decrease) in net assets resulting from operations   $ 64,485     $ 27,718     $ 19,620  
Net investment income per common share   $ 0.13     $ 0.12     $ 0.11  
Net realized and unrealized gains (losses), net of taxes per common share   $ 0.33     $ 0.08     $ 0.03  
Earnings (loss) per common share — basic and diluted   $ 0.46     $ 0.20     $ 0.14  


    As of
($ in thousands, except per share data and ratios)   March 31, 2019   December 31,
2018
  September 30,
2018
Select balance sheet and other data:            
Investment portfolio at fair value   $ 1,504,888     $ 1,464,885     $ 1,491,201  
Total debt outstanding   592,178     607,141     637,213  
Net assets   923,456     872,362     858,035  
Net asset value per share   6.55     6.19     6.09  
Total leverage   0.64x     0.70x     0.75x  

Total investment income for the quarter ended March 31, 2019 was $38.2 million and included $34.3 million of cash interest income from portfolio investments, $2.3 million of payment-in-kind ("PIK") interest income, $1.1 million of fee income and $0.5 million of dividend income. Total investment income was relatively flat as compared to the quarter ended December 31, 2018, primarily due to lower original issue discount ("OID") accretion, offset by higher interest income due to the larger average size of the investment portfolio. PIK interest income represented 6.0% of total investment income for the quarter ended March 31, 2019.

Net expenses for the quarter totaled $20.5 million, down slightly from the quarter ended December 31, 2018. The decrease in net expenses was primarily driven by lower professional fees and administrator expense.

Net realized and unrealized gains, net of taxes, were $46.8 million, reflecting realized gains in two investments and unrealized appreciation in certain debt and equity investments.

Portfolio and Investment Activity

    As of
($ in thousands)   March 31, 2019   December 31, 2018   March 31, 2018
Investments at fair value   $ 1,504,888     $ 1,464,885     $ 1,400,684  
Number of portfolio companies   110     110     115  
Average portfolio company debt size   $ 15,000     $ 15,000     $ 14,600  
             
Asset class:            
Senior secured debt   78.9 %   80.0 %   76.6 %
Unsecured debt   8.0 %   7.8 %   6.6 %
Equity   4.2 %   3.3 %   5.5 %
SLF JV I   8.4 %   8.4 %   9.5 %
Limited partnership interests   0.5 %   0.5 %   1.8 %
             
Non-accrual debt investments:            
Non-accrual investments at fair value   $ 85,854     $ 132,355     $ 30,886  
Non-accrual investments as a percentage of debt investments   6.1 %   9.6 %   2.4 %
Number of investments on non-accrual   6     7     8  
             
Interest rate type:            
Percentage floating-rate   86.3 %   86.6 %   84.6 %
Percentage fixed-rate   13.7 %   13.4 %   15.4 %
             
Yields:            
Weighted average yield on debt investments (1)   9.0 %   8.7 %   9.3 %
Cash component of weighted average yield on debt investments   8.3 %   8.0 %   8.7 %
Weighted average yield on total portfolio investments (2)   8.3 %   8.1 %   8.6 %
             
Investment activity:            
New investment commitments   $ 100,000     $ 231,100     $ 223,200  
New funded investment activity (3)   $ 111,100     $ 162,400     $ 227,800  
Proceeds from prepayments, exits, other paydowns and sales   $ 120,700     $ 208,300     $ 151,800  
Net new investments (4)   $ (9,600 )   $ (45,900 )   $ 76,000  
Number of new investment commitments in new portfolio companies   5     14     9  
Number of new investment commitments in existing portfolio companies   1     3     1  
Number of portfolio company exits   4     14     5  

 __________

(1 Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including the Company's share of the return on debt investments in the SLF JV I.
(2 ) Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including the Company's share of the return on debt investments in the SLF JV I.
(3 ) New funded investment activity is reflected net of drawdowns on existing revolver commitments.
(4 ) Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.

As of March 31, 2019, the fair value of the investment portfolio was $1.5 billion and was comprised of investments in 110 companies. These included debt investments in 87 companies, the investment in Senior Loan Fund JV I, LLC (“SLF JV I”) and equity investments in 35 companies, including in SLF JV I and two private equity funds. Thirteen of these equity investments were in companies in which Oaktree Specialty Lending also had a debt investment.

At fair value, 93.3% of the Company's portfolio as of March 31, 2019 consisted of debt investments, including 51.8% of first liens, 27.1% of second liens and 14.4% of unsecured debt investments, including the debt investments in SLF JV I.

As of March 31, 2019, there were six investments on which the Company had stopped accruing cash and/or PIK interest or OID income that, in the aggregate, represented 11.5% of the Company's debt portfolio at cost and 6.1% at fair value. During the three months ended March 31, 2019, the Company exited one investment which was on non-accrual status.

As of March 31, 2019, SLF JV I had $346.6 million in assets, including senior secured loans to 49 portfolio companies.  The joint venture generated income of $2.3 million for Oaktree Specialty Lending during the quarter ended March 31, 2019.

The Company intends to rotate out of approximately $296 million, at fair value, of investments it has identified as non-core investments. It will also seek to redeploy non-income generating investments comprised of equity investments, limited partnership interests and loans currently on non-accrual status into proprietary investments with higher yields. Certain additional information on such categorization and the portfolio composition is included in investor presentations that the Company files with the Securities and Exchange Commission ("SEC").

Liquidity and Capital Resources

As of March 31, 2019, the Company had $13.2 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $597.6 million and $255.2 million of undrawn capacity on its credit facility, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 5.1% as of March 31, 2019.

As of March 31, 2019, the Company’s total leverage ratio was 0.64x debt-to-equity.

During the quarter, the Company amended and restated its senior secured credit facility to increase the size of the facility from $600 million to $680 million (with an “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion), extend the period during which the Company may make drawings from expiring on November 30, 2020 to expiring on February 25, 2023, extend the final maturity date from November 30, 2021 to February 25, 2024, and lower the interest rate margins (a) for LIBOR loans (which may be 1-, 2-, 3- or 6-month, at the Company’s option), from 2.75% to 2.25% or from 2.25% to 2.00% and (b) for alternate base rate loans, from 1.75% to 1.25% or from 1.25% to 1.00%, each depending on the Company’s senior debt coverage ratio. In addition, the Company's 4.875% unsecured notes due 2019 matured on March 1, 2019 and were fully repaid during the quarter.

Recent Developments

On April 1, 2019, the Company increased the size of the ING Facility from $680 million to $700 million under the “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion.

Conference Call Information

Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2019 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 8, 2019. The conference call may be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412) 317-5238 (non-U.S. callers), participant password “Oaktree Specialty Lending.” During the earnings conference call, Oaktree Specialty Lending intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Specialty Lending website, www.oaktreespecialtylending.com. Alternatively, a live webcast of the conference call can be accessed on Oaktree Specialty Lending’s website.

For those individuals unable to listen to the live broadcast of the conference call, a replay will be available on Oaktree Specialty Lending’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10130349, beginning approximately one hour after the broadcast.

About Oaktree Specialty Lending Corporation

Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is a specialty finance company dedicated to providing customized one-stop credit solutions to companies with limited access to public or syndicated capital markets. The firm seeks to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions including first and second lien loans, unsecured and mezzanine loans, and preferred equity. The Company is regulated as a business development company under the Investment Company Act of 1940, as amended. Oaktree Specialty Lending is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Specialty Lending's website at www.oaktreespecialtylending.com.

Forward-Looking Statements

Some of the statements in this press release constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements may include statements as to: our future operating results and distribution projections; our business prospects and the prospects of our portfolio companies; and the impact of the investments that we expect to make. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this press release involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K and our quarterly reports on Form 10-Q. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although 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 reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Contacts

Investor Relations:
Oaktree Specialty Lending Corporation
Michael Mosticchio
(212) 284-1900
ocsl-ir@oaktreecapital.com

Media Relations:
Financial Profiles, Inc.
Moira Conlon
(310) 478-2700
mediainquiries@oaktreecapital.com


Oaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)

  March 31, 2019
(unaudited)
  December 31, 2018
(unaudited)
  September 30,
2018
  ASSETS          
Investments at fair value:          
Control investments (cost March 31, 2019: $211,964; cost December 31, 2018: $212,583; cost
September 30, 2018: $213,470)
$ 193,416     $ 190,167     $ 196,874  
Affiliate investments (cost March 31, 2019: $3,678; cost December 31, 2018: $2,659; cost
September 30, 2018: $1,080)
4,578     3,740     2,161  
Non-control/Non-affiliate investments (cost March 31, 2019: $1,390,882; cost December 31,
2018: $1,372,068; cost September 30, 2018: $1,392,383)
1,306,894     1,270,978     1,292,166  
Total investments at fair value (cost March 31, 2019: $1,606,524; cost December 31, 2018:
$1,587,310; cost September 30, 2018: $1,606,933)
1,504,888     1,464,885     1,491,201  
Cash and cash equivalents 12,815     56,186     13,380  
Restricted cash 337     470     109  
Interest, dividends and fees receivable 9,822     9,981     10,272  
Due from portfolio companies 1,407     2,122     1,357  
Receivables from unsettled transactions 1,818         26,760  
Deferred financing costs 6,848     4,798     5,209  
Derivative assets at fair value 563         162  
Other assets 2,819     3,082     3,008  
Total assets $ 1,541,317     $ 1,541,524     $ 1,551,458  
           
  LIABILITIES AND NET ASSETS          
Liabilities:          
Accounts payable, accrued expenses and other liabilities $ 1,505     $ 2,362     $ 3,581  
Base management fee and incentive fee payable 8,922     8,370     8,223  
Due to affiliate 1,940     3,553     3,274  
Interest payable 2,117     6,233     3,365  
Payable to syndication partners 586     379     109  
Director fees payable     68      
Payables from unsettled transactions 9,900     40,309     37,236  
Derivative liability at fair value     190      
Deferred tax liability 713     557     422  
Credit facility payable 424,825     211,000     241,000  
Unsecured notes payable (net of $2,908, $3,196 and $3,483 of unamortized financing costs as
of March 31, 2019, December 31, 2018 and September 30, 2018, respectively)
158,342     386,839     386,485  
Secured borrowings at fair value (proceeds March 31, 2019: $11,502; proceeds December 31,
2018: $11,869; proceeds September 30, 2018: $12,314)
9,011     9,302     9,728  
Total liabilities 617,861     669,162     693,423  
Commitments and contingencies          
Net assets:          
Common stock, $0.01 par value per share, 250,000 shares authorized; 140,961 shares issued
and outstanding as of March 31, 2019, December 31, 2018 and September 30, 2018
1,409     1,409     1,409  
Additional paid-in-capital 1,492,739     1,492,739     1,492,739  
Accumulated overdistributed earnings (570,692 )   (621,786 )   (636,113 )
Total net assets (equivalent to $6.55, $6.19 and $6.09 per common share as of March 31,
2019, December 31, 2018 and September 30, 2018, respectively)
923,456     872,362     858,035  
Total liabilities and net assets $ 1,541,317     $ 1,541,524     $ 1,551,458  


Oaktree Specialty Lending Corporation

Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

  Three months ended
March 31, 2019
  Three months ended
December 31, 2018
  Three months ended
March 31, 2018
  Six months ended
March 31, 2019
  Six months ended
March 31, 2018
Interest income:                  
Control investments $ 2,852     $ 3,339     $ 3,071     $ 6,191     $ 6,274  
Affiliate investments 22     13     917     35     1,866  
Non-control/Non-affiliate investments 31,231     32,167     22,533     63,398     48,098  
Interest on cash and cash equivalents 204     270     112     474     333  
Total interest income 34,309     35,789     26,633     70,098     56,571  
PIK interest income:                  
Control investments     67     1,210     67     2,401  
Affiliate investments         188         364  
Non-control/Non-affiliate investments 2,280     765     548     3,045     1,048  
Total PIK interest income 2,280     832     1,946     3,112     3,813  
Fee income:                  
Control investments 7     6     128     13     248  
Affiliate investments 5     4     44     9     48  
Non-control/Non-affiliate investments 1,120     1,192     3,770     2,312     4,677  
Total fee income 1,132     1,202     3,942     2,334     4,973  
Dividend and other income:                  
Control investments 523     453     2,258     976     3,298  
Total dividend and other income 523     453     2,258     976     3,298  
Total investment income 38,244     38,276     34,779     76,520     68,655  
Expenses:                  
Base management fee 5,731     5,568     5,386     11,299     10,976  
Part I incentive fee 3,813     3,728     3,247     7,541     4,077  
Part II incentive fee 8,170     1,820         9,990      
Professional fees 499     966     1,015     1,465     3,913  
Directors fees 142     143     177     285     353  
Interest expense 8,970     8,904     8,530     17,874     18,114  
Administrator expense 406     763     391     1,169     885  
General and administrative expenses 705     631     722     1,336     1,838  
Total expenses 28,436     22,523     19,468     50,959     40,156  
Fees waived (7,901 )   (1,564 )   48     (9,465 )   (86 )
Net expenses 20,535     20,959     19,516     41,494     40,070  
Net investment income 17,709     17,317     15,263     35,026     28,585  
Unrealized appreciation (depreciation):                  
Control investments 3,868     (5,820 )   (5,849 )   (1,952 )   (7,175 )
Affiliate investments (181 )       (2,063 )   (181 )   (2,231 )
Non-control/Non-affiliate investments 17,108     (784 )   7,127     16,324     (36,506 )
Secured borrowings (76 )   (19 )   408     (95 )   2,063  
Foreign currency forward contracts 753     (352 )       401      
Net unrealized appreciation (depreciation) 21,472     (6,975 )   (377 )   14,497     (43,849 )
Realized gains (losses):                  
Affiliate investments         2,048         2,048  
Non-control/Non-affiliate investments 25,899     16,761     2,806     42,660     2,515  
Foreign currency forward contracts (686 )   1,201         515      
Net realized gains (losses) 25,213     17,962     4,854     43,175     4,563  
Redemption premium on unsecured notes payable         (120 )       (120 )
Provision for income tax (expense) benefit 91     (586 )       (495 )    
Net realized and unrealized gains (losses), net of taxes 46,776     10,401     4,357     57,177     (39,406 )
Net increase (decrease) in net assets resulting from operations $ 64,485     $ 27,718     $ 19,620     $ 92,203     $ (10,821 )
Net investment income per common share — basic and diluted $ 0.13     $ 0.12     $ 0.11     $ 0.25     $ 0.20  
Earnings (loss) per common share — basic and diluted $ 0.46     $ 0.20     $ 0.14     $ 0.65     $ (0.08 )
Weighted average common shares outstanding — basic and diluted 140,961     140,961     140,961     140,961     140,961  


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Oaktree Specialty Lending Corporation