Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2020 Financial Results and Declares Distribution of $0.095 Per Share
Financial Highlights for the Quarter Ended
- Total investment income was
$34.2 million ($0.24 per share) for the second fiscal quarter of 2020, up from$31.0 million ($0.22 per share) for the first fiscal quarter of 2020, primarily as a result of higher original issue discount ("OID") acceleration and prepayment fees from exits of investments as well as higher structuring fees on new originations as compared to the prior quarter. - GAAP net investment income was
$22.8 million ($0.16 per share) for the second fiscal quarter of 2020, up from$7.8 million ($0.06 per share) for the first fiscal quarter of 2020, resulting from higher investment income and lower net expenses mainly due to a reversal of previously accrued Part II incentive fees in the quarter as a result of unrealized depreciation on investments. This was partially offset by higher interest expense resulting from higher average borrowings outstanding during the quarter. - Adjusted net investment income was
$16.2 million ($0.12 per share) for the second fiscal quarter of 2020, up from$14.1 million ($0.10 per share) for the first fiscal quarter of 2020, primarily as a result of higher investment income, partially offset by higher interest expense. - Net asset value ("NAV") per share was
$5.34 as ofMarch 31, 2020 , down 19% from$6.61 as ofDecember 31, 2019 . The decrease in NAV was primarily due to increased market volatility and wider credit spreads resulting from the COVID-19 pandemic. The decline in the fair value of the investment portfolio was primarily unrealized and concentrated in liquid senior secured loans, which experienced sharp price declines in March. - Originated
$272.9 million of new investment commitments and received$154.5 million of proceeds from prepayments, exits, other paydowns and sales during the quarter endedMarch 31, 2020 . Of these new investment commitments, 76.8% were first lien loans, 7.8% were second lien loans and 15.4% were subordinated debt investments. - Total debt outstanding was
$704.8 million as ofMarch 31, 2020 . The total debt to equity ratio was 0.94x, and the net debt to equity ratio was 0.82x, after adjusting for cash and cash equivalents. - The Company issued
$300 million of unsecured notes during the quarter endedMarch 31, 2020 that mature onFebruary 25, 2025 and bear interest at a rate of 3.500%. Proceeds from the sale of notes were used to redeem$161 million of unsecured notes previously outstanding and pay down borrowings on the Company's revolving credit facility. - Liquidity as of
March 31, 2020 was comprised of$89.5 million of unrestricted cash and cash equivalents and$295.2 million of undrawn capacity on its credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were$91.6 million , with approximately$61 million that can be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies. - A quarterly cash distribution was declared of
$0.095 per share, which is consistent with the Company's prior eight distributions. The distribution will be paid in cash and is payable onJune 30, 2020 to stockholders of record onJune 15, 2020 .
“We successfully priced a public offering of
Distribution Declaration
The Board of Directors declared a quarterly distribution of
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
Results of Operations
For the three months ended | ||||||||||||
($ in thousands, except per share data) | (unaudited) |
December 31, 2019 (unaudited) | (unaudited) |
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GAAP operating results: | ||||||||||||
Interest income | $ | 29,898 | $ | 28,405 | $ | 34,309 | ||||||
PIK interest income | 1,946 | 1,161 | 2,280 | |||||||||
Fee income | 2,050 | 1,071 | 1,132 | |||||||||
Dividend income | 277 | 323 | 523 | |||||||||
Total investment income | 34,171 | 30,960 | 38,244 | |||||||||
Net expenses | 11,330 | 23,124 | 20,535 | |||||||||
Net investment income | 22,841 | 7,836 | 17,709 | |||||||||
Net realized and unrealized gains (losses), net of taxes | (188,308 | ) | 6,007 | 46,776 | ||||||||
Net increase (decrease) in net assets resulting from operations | $ | (165,467 | ) | $ | 13,843 | $ | 64,485 | |||||
Net investment income per common share | $ | 0.16 | $ | 0.06 | $ | 0.13 | ||||||
Net realized and unrealized gains (losses), net of taxes per common share | $ | (1.33 | ) | $ | 0.04 | $ | 0.33 | |||||
Earnings (loss) per common share — basic and diluted | $ | (1.17 | ) | $ | 0.10 | $ | 0.46 | |||||
Non-GAAP Financial Measures1: | ||||||||||||
Adjusted net investment income | $ | 16,233 | $ | 14,087 | $ | 17,709 | ||||||
Adjusted net investment income per common share | $ | 0.12 | $ | 0.10 | $ | 0.13 |
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1 See Non-GAAP Financial Measures — Adjusted Net Investment Income below for a description of this non-GAAP measure and a reconciliation from net investment income to adjusted net investment income, including on a weighted-average per share basis. The Company's management uses this non-GAAP financial measure internally to analyze and evaluate financial results and performance and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to capital gains incentive fees. The presentation of adjusted net investment income is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.
As of | ||||||||||||
($ in thousands, except per share data and ratios) | (unaudited) |
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Select balance sheet and other data: | ||||||||||||
Cash and cash equivalents | $ | 89,509 | $ | 21,527 | $ | 15,406 | ||||||
Investment portfolio at fair value | 1,392,187 | 1,467,627 | 1,438,042 | |||||||||
Total debt outstanding (net of unamortized financing costs) | 698,686 | 536,468 | 473,367 | |||||||||
Net assets | 752,224 | 931,082 | 930,630 | |||||||||
Net asset value per share | 5.34 | 6.61 | 6.60 | |||||||||
Total debt to equity ratio | 0.94x | 0.58x | 0.51x | |||||||||
Net debt to equity ratio | 0.82x | 0.56x | 0.49x |
Total investment income for the quarter ended
Net expenses for the quarter totaled
______________________
2 To ensure compliance with Section 15(f) of the Investment Company Act,
Adjusted net investment income was
Oaktree has voluntarily deferred the payment of Part I incentive fees incurred by the Company during the quarter ended
Net realized and unrealized losses, net of taxes, were
Portfolio and Investment Activity
As of | ||||||||||||
($ in thousands) | (unaudited) |
December 31, 2019 (unaudited) | (unaudited) |
|||||||||
Investments at fair value | $ | 1,392,187 | $ | 1,467,627 | $ | 1,504,888 | ||||||
Number of portfolio companies | 128 | 106 | 110 | |||||||||
Average portfolio company debt size | $ | 11,900 | $ | 15,300 | $ | 15,000 | ||||||
Asset class: | ||||||||||||
Senior secured debt | 81.9 | % | 79.5 | % | 78.9 | % | ||||||
Unsecured debt | 5.8 | % | 4.8 | % | 8.0 | % | ||||||
Equity | 5.5 | % | 6.7 | % | 4.2 | % | ||||||
SLF JV I | 6.6 | % | 8.8 | % | 8.4 | % | ||||||
Limited partnership interests | 0.2 | % | 0.2 | % | 0.5 | % | ||||||
Non-accrual debt investments: | ||||||||||||
Non-accrual investments at fair value | $ | 5,864 | $ | 461 | $ | 85,854 | ||||||
Non-accrual investments as a percentage of debt investments | 0.5 | % | — | % | 6.1 | % | ||||||
Number of investments on non-accrual | 3 | 3 | 6 | |||||||||
Interest rate type: | ||||||||||||
Percentage floating-rate | 90.6 | % | 90.6 | % | 86.3 | % | ||||||
Percentage fixed-rate | 9.4 | % | 9.4 | % | 13.7 | % | ||||||
Yields: | ||||||||||||
Weighted average yield on debt investments2 | 8.0 | % | 8.6 | % | 9.0 | % | ||||||
Cash component of weighted average yield on debt investments | 6.9 | % | 7.8 | % | 8.3 | % | ||||||
Weighted average yield on total portfolio investments3 | 7.5 | % | 7.9 | % | 8.3 | % | ||||||
Investment activity: | ||||||||||||
New investment commitments | $ | 272,900 | $ | 134,200 | $ | 100,000 | ||||||
New funded investment activity4 | $ | 251,700 | $ | 136,200 | $ | 111,100 | ||||||
Proceeds from prepayments, exits, other paydowns and sales | $ | 154,500 | $ | 97,000 | $ | 120,700 | ||||||
Net new investments5 | $ | 97,200 | $ | 39,200 | $ | (9,600 | ) | |||||
Number of new investment commitments in new portfolio companies | 32 | 9 | 5 | |||||||||
Number of new investment commitments in existing portfolio companies | 8 | 4 | 1 | |||||||||
Number of portfolio company exits | 10 | 7 | 4 |
______________________
1 Includes Level 2 and Level 3 debt securities that are valued based on broker quotations.
2 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.
3 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.
4 New funded investment activity includes drawdowns on existing revolver commitments.
5 Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
As of
As of
During the quarter ended
As of
The Company's investments in SLF JV I totaled
As of
Liquidity and Capital Resources
On
The Company was in compliance with all financial covenants under its credit facility as of
As of
As of
As of
During the quarter, the Company increased its target debt to equity ratio from 0.70x to 0.85x to 0.85x to 1.0x as the Company plans to continue to opportunistically deploy capital into the markets. The Company’s total debt to equity ratio was 0.94x and 0.58x as of
Recent Developments
From
As of
On
Non-GAAP Financial Measures
Adjusted Net Investment Income
On a supplemental basis, the Company is disclosing adjusted net investment income and per share adjusted net investment income, each of which is a financial measure that is calculated and presented on a basis of methodology other than in accordance with
The following table provides a reconciliation of net investment income (the most comparable
For the three months ended | ||||||||||||||||||||||||
(unaudited) |
(unaudited) |
(unaudited) |
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($ in thousands, except per share data) | Amount | Per Share | Amount | Per Share | Amount | Per Share | ||||||||||||||||||
GAAP net investment income | $ | 22,841 | $ | 0.16 | $ | 7,836 | $ | 0.06 | $ | 17,709 | $ | 0.13 | ||||||||||||
Part II incentive fee (net of waivers) | (6,608 | ) | (0.05 | ) | 6,251 | 0.04 | — | — | ||||||||||||||||
Adjusted net investment income | $ | 16,233 | $ | 0.12 | $ | 14,087 | $ | 0.10 | $ | 17,709 | $ | 0.13 |
Conference Call Information
During the earnings conference call,
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 (
About
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, natural disasters or the COVID-19 pandemic; 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; general considerations associated with the COVID-19 pandemic; 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
Contacts
Investor Relations:
(212) 284-1900
ocsl-ir@oaktreecapital.com
Media Relations:
(310) 478-2700
mediainquiries@oaktreecapital.com
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)
March 31, 2020 (unaudited) | December 31, 2019 (unaudited) | ||||||||||
ASSETS | |||||||||||
Investments at fair value: | |||||||||||
Control investments (cost |
$ | 187,267 | $ | 192,528 | $ | 209,178 | |||||
Affiliate investments (cost |
9,414 | 9,106 | 9,170 | ||||||||
Non-control/Non-affiliate investments (cost |
1,195,506 | 1,265,993 | 1,219,694 | ||||||||
Total investments at fair value (cost |
1,392,187 | 1,467,627 | 1,438,042 | ||||||||
Cash and cash equivalents | 89,509 | 21,527 | 15,406 | ||||||||
Interest, dividends and fees receivable | 6,217 | 10,356 | 11,167 | ||||||||
Due from portfolio companies | 1,774 | 2,931 | 2,616 | ||||||||
Receivables from unsettled transactions | 1,868 | 5,458 | 4,586 | ||||||||
Deferred financing costs | 5,671 | 6,034 | 6,396 | ||||||||
Deferred offering costs | 45 | 65 | — | ||||||||
Deferred tax asset, net | 821 | — | — | ||||||||
Derivative assets at fair value | 1,268 | — | 490 | ||||||||
Other assets | 2,267 | 2,602 | 2,335 | ||||||||
Total assets | $ | 1,501,627 | $ | 1,516,600 | $ | 1,481,038 | |||||
LIABILITIES AND |
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Liabilities: | |||||||||||
Accounts payable, accrued expenses and other liabilities | $ | 1,750 | $ | 1,540 | $ | 1,589 | |||||
Base management fee and incentive fee payable | 8,739 | 15,971 | 10,167 | ||||||||
Due to affiliate | 2,651 | 2,548 | 2,689 | ||||||||
Interest payable | 1,681 | 2,402 | 2,296 | ||||||||
Payable to syndication partners | — | 1 | — | ||||||||
Payables from unsettled transactions | 35,896 | 24,687 | 59,596 | ||||||||
Derivative liability at fair value | — | 972 | — | ||||||||
Deferred tax liability | — | 929 | 704 | ||||||||
Credit facility payable | 404,825 | 377,825 | 314,825 | ||||||||
Unsecured notes payable (net of |
293,861 | 158,643 | 158,542 | ||||||||
Total liabilities | 749,403 | 585,518 | 550,408 | ||||||||
Commitments and contingencies | |||||||||||
Net assets: | |||||||||||
Common stock, |
1,409 | 1,409 | 1,409 | ||||||||
Additional paid-in-capital | 1,487,774 | 1,487,774 | 1,487,774 | ||||||||
Accumulated overdistributed earnings | (736,959 | ) | (558,101 | ) | (558,553 | ) | |||||
Total net assets (equivalent to |
752,224 | 931,082 | 930,630 | ||||||||
Total liabilities and net assets | $ | 1,501,627 | $ | 1,516,600 | $ | 1,481,038 |
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended (unaudited) |
Three months ended |
Three months ended (unaudited) |
Six months ended |
Six months ended |
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Interest income: | |||||||||||||||||||
Control investments | $ | 2,393 | $ | 2,551 | $ | 2,852 | $ | 4,944 | $ | 6,191 | |||||||||
Affiliate investments | 138 | 114 | 22 | 252 | 35 | ||||||||||||||
Non-control/Non-affiliate investments | 27,149 | 25,659 | 31,231 | 52,808 | 63,398 | ||||||||||||||
Interest on cash and cash equivalents | 218 | 81 | 204 | 299 | 474 | ||||||||||||||
Total interest income | 29,898 | 28,405 | 34,309 | 58,303 | 70,098 | ||||||||||||||
PIK interest income: | |||||||||||||||||||
Control investments | — | — | — | — | 67 | ||||||||||||||
Non-control/Non-affiliate investments | 1,946 | 1,161 | 2,280 | 3,107 | 3,045 | ||||||||||||||
Total PIK interest income | 1,946 | 1,161 | 2,280 | 3,107 | 3,112 | ||||||||||||||
Fee income: | |||||||||||||||||||
Control investments | 8 | 6 | 7 | 14 | 13 | ||||||||||||||
Affiliate investments | 5 | 5 | 5 | 10 | 9 | ||||||||||||||
Non-control/Non-affiliate investments | 2,037 | 1,060 | 1,120 | 3,097 | 2,312 | ||||||||||||||
Total fee income | 2,050 | 1,071 | 1,132 | 3,121 | 2,334 | ||||||||||||||
Dividend income: | |||||||||||||||||||
Control investments | 277 | 323 | 523 | 600 | 976 | ||||||||||||||
Total dividend income | 277 | 323 | 523 | 600 | 976 | ||||||||||||||
Total investment income | 34,171 | 30,960 | 38,244 | 65,131 | 76,520 | ||||||||||||||
Expenses: | |||||||||||||||||||
Base management fee | 5,295 | 5,607 | 5,731 | 10,902 | 11,299 | ||||||||||||||
Part I incentive fee | 3,444 | 2,988 | 3,813 | 6,432 | 7,541 | ||||||||||||||
Part II incentive fee | (6,608 | ) | 1,051 | 8,170 | (5,557 | ) | 9,990 | ||||||||||||
Professional fees | 669 | 640 | 499 | 1,309 | 1,465 | ||||||||||||||
Directors fees | 142 | 143 | 142 | 285 | 285 | ||||||||||||||
Interest expense | 7,215 | 6,535 | 8,970 | 13,750 | 17,874 | ||||||||||||||
Administrator expense | 393 | 428 | 406 | 821 | 1,169 | ||||||||||||||
General and administrative expenses | 780 | 532 | 705 | 1,312 | 1,336 | ||||||||||||||
Total expenses | 11,330 | 17,924 | 28,436 | 29,254 | 50,959 | ||||||||||||||
Reversal of fees waived / (fees waived) | — | 5,200 | (7,901 | ) | 5,200 | (9,465 | ) | ||||||||||||
Net expenses | 11,330 | 23,124 | 20,535 | 34,454 | 41,494 | ||||||||||||||
Net investment income | 22,841 | 7,836 | 17,709 | 30,677 | 35,026 | ||||||||||||||
Unrealized appreciation (depreciation): | |||||||||||||||||||
Control investments | (55,392 | ) | 1,997 | 3,868 | (53,395 | ) | (1,952 | ) | |||||||||||
Affiliate investments | (1,730 | ) | (64 | ) | (181 | ) | (1,794 | ) | (181 | ) | |||||||||
Non-control/Non-affiliate investments | (108,651 | ) | 2,408 | 17,108 | (106,243 | ) | 16,324 | ||||||||||||
Secured borrowings | — | — | (76 | ) | — | (95 | ) | ||||||||||||
Foreign currency forward contracts | 2,240 | (1,462 | ) | 753 | 778 | 401 | |||||||||||||
Net unrealized appreciation (depreciation) | (163,533 | ) | 2,879 | 21,472 | (160,654 | ) | 14,497 | ||||||||||||
Realized gains (losses): | |||||||||||||||||||
Control investments | 777 | — | — | 777 | — | ||||||||||||||
Non-control/Non-affiliate investments | (24,777 | ) | 3,839 | 25,899 | (20,938 | ) | 42,660 | ||||||||||||
Extinguishment of unsecured notes payable | (2,541 | ) | — | — | (2,541 | ) | — | ||||||||||||
Foreign currency forward contracts | 61 | (551 | ) | (686 | ) | (490 | ) | 515 | |||||||||||
Net realized gains (losses) | (26,480 | ) | 3,288 | 25,213 | (23,192 | ) | 43,175 | ||||||||||||
Provision for income tax (expense) benefit | 1,705 | (160 | ) | 91 | 1,545 | (495 | ) | ||||||||||||
Net realized and unrealized gains (losses), net of taxes | (188,308 | ) | 6,007 | 46,776 | (182,301 | ) | 57,177 | ||||||||||||
Net increase (decrease) in net assets resulting from operations | $ | (165,467 | ) | $ | 13,843 | $ | 64,485 | $ | (151,624 | ) | $ | 92,203 | |||||||
Net investment income per common share — basic and diluted | $ | 0.16 | $ | 0.06 | $ | 0.13 | $ | 0.22 | $ | 0.25 | |||||||||
Earnings (loss) per common share — basic and diluted | $ | (1.17 | ) | $ | 0.10 | $ | 0.46 | $ | (1.08 | ) | $ | 0.65 | |||||||
Weighted average common shares outstanding — basic and diluted | 140,961 | 140,961 | 140,961 | 140,961 | 140,961 |
Source: Oaktree Specialty Lending Corporation