UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 7, 2019
Oaktree Specialty Lending Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 814-00755 | 26-1219283 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer \Identification No.) |
| 333 South Grand Avenue, 28th Floor Los Angeles, CA |
90071 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (213) 830-6300
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On February 7, 2019, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended December 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1.
On February 7, 2019, the Company will host a conference call to discuss its financial results for the fiscal quarter ended December 31, 2018. In connection therewith, the Company provided an investor presentation on its website at http://www.oaktreespecialtylending.com. A copy of the investor presentation is attached hereto as Exhibit 99.2.
The information disclosed under this Item 2.02, including Exhibits 99.1 and 99.2 hereto, is being “furnished” and is not deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor is it deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
| (d) | Exhibits |
| 99.1 | Press release of Oaktree Specialty Lending Corporation dated February 7, 2019 | |
| 99.2 | Oaktree Specialty Lending Corporation First Quarter 2019 Earnings Presentation | |
SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| OAKTREE SPECIALTY LENDING CORPORATION | ||||||
| Date: February 7, 2019 | By: | /s/ Mel Carlisle | ||||
| Name: Mel Carlisle | ||||||
| Title: Chief Financial Officer and Treasurer | ||||||
Exhibit 99.1
Oaktree Specialty Lending Corporation Announces First Fiscal Quarter 2019 Financial Results
and Declares Distribution of $0.095 Per Share
LOS ANGELES, CA, February 7, 2019 - 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 December 31, 2018.
Financial Highlights for the Quarter Ended December 31, 2018
| • | Total investment income of $38.3 million ($0.27 per share), up from $38.2 million ($0.27 per share) for the fourth fiscal quarter of 2018. |
| • | Net investment income of $17.3 million ($0.12 per share), up from $17.0 million ($0.12 per share) for the fourth fiscal quarter of 2018. |
| • | Net asset value (“NAV”) per share of $6.19, up from $6.09 for the fourth fiscal quarter of 2018. |
| • | Originated $231.1 million of new investment commitments and received $208.3 million of proceeds from prepayments, exits, other paydowns and sales. |
| • | A quarterly distribution was declared of $0.095 per share, payable on March 29, 2019 to stockholders of record on March 15, 2019. |
| • | Our Board of Directors approved the application of the modified asset coverage requirements under the Investment Company Act of 1940, as amended (the “1940 Act”), to the Company. As a result, the Company’s asset coverage requirements under the 1940 Act will be reduced from 200% to 150%, effective February 1, 2020. |
Edgar Lee, Chief Executive Officer and Chief Investment Officer, said, “OCSL delivered another quarter of strong earnings, as well as the fourth consecutive quarter of increased NAV per share. We successfully exited non-core investments and added $165 million of new investments that are consistent with our late cycle investment approach. Importantly, we remain focused on defensively positioning OCSL’s portfolio and maintaining ample dry powder during this time of increased market volatility.”
Matt Pendo, Chief Operating Officer, said, “We believe the modified asset coverage requirements, once applicable, will provide us with additional operational flexibility and improve our financial position. At this time, we do not anticipate increasing our leverage beyond our current target ratio range of 0.70x-0.85x debt-to-equity. Importantly, preliminary discussions with our bank group regarding this action by the Board of Directors have been positive.”
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.095 per share, payable on March 29, 2019 to stockholders of record on March 15, 2019.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
1
Results of Operations
| For the three months ended | ||||||||||||
| ($ in thousands, expect per share data) | December 31, 2018 |
September 30, 2018 |
December 31, 2017 | |||||||||
| Operating results: |
||||||||||||
| Interest income |
$ | 35,789 | $ | 35,306 | $ | 29,938 | ||||||
| PIK interest income |
832 | 499 | 1,867 | |||||||||
| Fee income |
1,202 | 2,034 | 1,031 | |||||||||
| Dividend and other income |
453 | 381 | 1,040 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total investment income |
38,276 | 38,220 | 33,876 | |||||||||
| Net expenses |
20,959 | 21,189 | 20,554 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Net investment income |
17,317 | 17,031 | 13,322 | |||||||||
| Net realized and unrealized gains (losses), net of taxes |
10,401 | 16,300 | (43,763 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Net increase (decrease) in net assets resulting from operations |
$ | 27,718 | $ | 33,331 | $ | (30,441 | ) | |||||
|
|
|
|
|
|
|
|
|
| ||||
| Net investment income per common share |
$ | 0.12 | $ | 0.12 | $ | 0.09 | ||||||
| Net realized and unrealized gains (losses), net of taxes per common share |
$ | 0.08 | $ | 0.12 | $ | (0.31 | ) | |||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.20 | $ | 0.24 | $ | (0.22 | ) | |||||
| As of | ||||||||
| ($ in thousands, expect per share data and ratios) | December 31, 2018 |
September 30, 2018 |
||||||
| Select balance sheet and other data: |
||||||||
| Investment portfolio at fair value |
$ | 1,464,885 | $ | 1,491,201 | ||||
| Total debt outstanding |
607,141 | 637,213 | ||||||
| Net assets |
872,362 | 858,035 | ||||||
| Net asset value per share |
6.19 | 6.09 | ||||||
| Total leverage |
0.70x | 0.75x | ||||||
Total investment income for the quarter ended December 31, 2018 was $38.3 million, including $35.8 million of cash
interest income from portfolio investments, $0.8 million of payment-in-kind (“PIK”) interest income, $1.2 million of fee income and $0.5 million
of dividend income. PIK interest income, net of PIK collected in cash, represented 2.2% of total investment income for the quarter ended December 31, 2018.
Net expenses for the quarter were $21.0 million, which is comparable to expenses for the quarter ended September 30, 2018.
Net realized and unrealized gains, net of taxes on the investment portfolio for the quarter were $10.4 million.
2
Portfolio and Investment Activity
| As of | ||||||||||||
| (Dollar amounts in thousands) | December 31, 2018 |
September 30, 2018 |
December 31, 2017 |
|||||||||
| Investments at fair value |
$ | 1,464,885 | $ | 1,491,201 | $ | 1,415,404 | ||||||
| Number of portfolio companies |
110 | 113 | 122 | |||||||||
| Average portfolio company debt size |
$ | 15,000 | $ | 14,800 | $ | 14,100 | ||||||
| Asset class: |
||||||||||||
| Senior secured debt |
80.0 | % | 75.4 | % | 75.8 | % | ||||||
| Unsecured debt |
7.8 | % | 11.0 | % | 7.0 | % | ||||||
| Equity |
3.3 | % | 4.4 | % | 6.0 | % | ||||||
| SLF JV I |
8.4 | % | 8.7 | % | 9.4 | % | ||||||
| Limited partnership interests |
0.5 | % | 0.5 | % | 1.8 | % | ||||||
| Non-accrual debt investments: |
||||||||||||
| Non-accrual investments at fair value |
$ | 132,355 | $ | 98,760 | $ | 41,458 | ||||||
| Non-accrual investments as a percentage of debt investments |
9.6 | % | 7.0 | % | 3.2 | % | ||||||
| Number of investments on non-accrual |
7 | 8 | 8 | |||||||||
| Interest rate type: |
||||||||||||
| Percentage floating-rate |
86.6 | % | 83.2 | % | 82.4 | % | ||||||
| Percentage fixed-rate |
13.4 | % | 16.8 | % | 17.6 | % | ||||||
| Yields: |
||||||||||||
| Weighted average yield on debt investments (1) |
8.7 | % | 8.4 | % | 9.0 | % | ||||||
| Cash component of weighted average yield on debt investments |
8.0 | % | 8.2 | % | 8.4 | % | ||||||
| Weighted average yield on total portfolio investments (2) |
8.1 | % | 8.1 | % | 8.5 | % | ||||||
| Investment activity: |
||||||||||||
| New investment commitments |
$ | 231,100 | $ | 228,400 | $ | 183,000 | ||||||
| New funded investment activity (3) |
$ | 162,400 | $ | 218,400 | $ | 200,200 | ||||||
| Proceeds from prepayments, exits, other paydowns and sales |
$ | 208,300 | $ | 267,400 | $ | 284,800 | ||||||
| Net new investments (4) |
$ | (45,900 | ) | $ | (49,000 | ) | $ | (84,600 | ) | |||
| Number of new investment commitments in new portfolio companies |
14 | 13 | 13 | |||||||||
| Number of new investment commitments in existing portfolio companies |
3 | 3 | 1 | |||||||||
| Number of portfolio company exits |
14 | 18 | 17 | |||||||||
__________
| (1) | Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our 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 our share of the return on debt investments in the SLF JV I. |
| (3) | New funded investment activity is reflected net of original issue discount and includes 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 December 31, 2018, the fair value of the investment portfolio was $1.5 billion and was comprised of investments in 110 companies. These included debt investments in 86 companies, the investment in Senior Loan Fund JV I, LLC (“SLF JV I”) and equity investments in 37 companies, including in SLF JV I and 2 private equity funds. Fourteen of these equity investments were in companies in which Oaktree Specialty Lending also had a debt investment.
At fair value, 94.4% of the Company’s portfolio as of December 31, 2018 consisted of debt investments, including 52.2% of first lien loans, 27.8% of second lien loans and 14.4% of unsecured debt investments, including the debt investments in SLF JV I.
3
As of December 31, 2018, there were seven investments on which the Company had stopped accruing cash and/or PIK interest or original issue discount (“OID”) income that, in the aggregate, represented 14.2% of the Company’s debt portfolio at cost and 9.6% at fair value.
As of December 31, 2018, SLF JV I had $309.6 million in assets, including senior secured loans to 42 portfolio companies. The joint venture generated income of $2.8 million for Oaktree Specialty Lending during the quarter ended December 31, 2018.
The Company intends to rotate out of approximately $347 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 December 31, 2018, the Company had $56.7 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $612.9 million and $389.0 million of undrawn capacity on its credit facility, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 5.3% as of December 31, 2018.
As of December 31, 2018, the Company’s total leverage ratio was 0.70x debt-to-equity.
Recent Developments
At a meeting held on February 1, 2019, the Company’s Board of Directors, including a “required majority” of the directors, as defined in Section 57(o) of the 1940 Act, approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act as being in the best interests of the Company and its stockholders. As a result of such approval, provided such approval is not later rescinded and the Company’s compliance with certain disclosure requirements, the asset coverage required for the Company’s senior securities will be 150% rather than 200% effective as of February 1, 2020. Upon effectiveness of the modified asset coverage requirements to the Company, the Company’s investment adviser intends to reduce the base management fee to 1.0% on all assets financed using leverage above 1.0x debt-equity (without giving effect to any debentures issued by a small business investment company subsidiary).
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss its first fiscal quarter 2019 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on February 7, 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 10127865, 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
4
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
5
Oaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)
| December 31, 2018 (unaudited) |
September 30, 2018 | |||||||
| ASSETS | ||||||||
| Investments at fair value: |
||||||||
| Control investments (cost December 31, 2018: $212,583; cost September 30, 2018: $213,470) |
$ | 190,167 | $ | 196,874 | ||||
| Affiliate investments (cost December 31, 2018: $2,659; cost September 30, 2018: $1,080) |
3,740 | 2,161 | ||||||
| Non-control/Non-affiliate investments (cost December 31, 2018: $1,372,068; cost September 30, 2018: $1,392,383) |
1,270,978 | 1,292,166 | ||||||
|
|
|
|
|
|
| |||
| Total investments at fair value (cost December 31, 2018: $1,587,310; cost September 30, 2018: $1,606,933) | 1,464,885 | 1,491,201 | ||||||
| Cash and cash equivalents |
56,186 | 13,380 | ||||||
| Restricted cash |
470 | 109 | ||||||
| Interest, dividends and fees receivable |
9,981 | 10,272 | ||||||
| Due from portfolio companies |
2,122 | 1,357 | ||||||
| Receivables from unsettled transactions |
— | 26,760 | ||||||
| Deferred financing costs |
4,798 | 5,209 | ||||||
| Derivative asset at fair value |
— | 162 | ||||||
| Other assets |
3,082 | 3,008 | ||||||
|
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|
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|
|
| |||
| Total assets |
$ | 1,541,524 | $ | 1,551,458 | ||||
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| |||
| LIABILITIES AND NET ASSETS | ||||||||
| Liabilities: |
||||||||
| Accounts payable, accrued expenses and other liabilities |
$ | 2,362 | $ | 3,581 | ||||
| Base management fee and incentive fee payable |
8,370 | 8,223 | ||||||
| Due to affiliate |
3,553 | 3,274 | ||||||
| Interest payable |
6,233 | 3,365 | ||||||
| Payable to syndication partners |
379 | 109 | ||||||
| Director fees payable |
68 | — | ||||||
| Payables from unsettled transactions |
40,309 | 37,236 | ||||||
| Derivative liability at fair value |
190 | — | ||||||
| Deferred tax liability |
557 | 422 | ||||||
| Credit facility payable |
211,000 | 241,000 | ||||||
| Unsecured notes payable (net of $3,196 and $3,483 of unamortized financing costs as of December 31, 2018 and September 30, 2018, respectively) |
386,839 | 386,485 | ||||||
| Secured borrowings at fair value (proceeds December 31, 2018: $11,869; proceeds September 30, 2018: $12,314) |
9,302 | 9,728 | ||||||
|
|
|
|
|
|
| |||
| Total liabilities |
669,162 | 693,423 | ||||||
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|
| |||
| 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 December 31, 2018 and September 30, 2018 |
1,409 | 1,409 | ||||||
| Additional paid-in-capital |
1,492,739 | 1,492,739 | ||||||
| Accumulated overdistributed earnings |
(621,786 | ) | (636,113 | ) | ||||
|
|
|
|
|
|
| |||
| Total net assets (equivalent to $6.19 and $6.09 per common share as of December 31, 2018 and September 30, 2018, respectively) | 872,362 | 858,035 | ||||||
|
|
|
|
|
|
| |||
| Total liabilities and net assets |
$ | 1,541,524 | $ | 1,551,458 | ||||
|
|
|
|
|
|
| |||
6
Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
| Three months ended December 31, 2018 (unaudited) |
Three months ended September 30, 2018 (unaudited) |
Three months ended December 31, 2017 (unaudited) | ||||||||||
| Interest income: |
||||||||||||
| Control investments |
$ | 3,339 | $ | 3,687 | $ | 3,203 | ||||||
| Affiliate investments |
13 | — | 949 | |||||||||
| Non-control/Non-affiliate investments |
32,167 | 31,496 | 25,565 | |||||||||
| Interest on cash and cash equivalents |
270 | 123 | 221 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total interest income |
35,789 | 35,306 | 29,938 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| PIK interest income: |
||||||||||||
| Control investments |
67 | — | 1,191 | |||||||||
| Affiliate investments |
— | — | 176 | |||||||||
| Non-control/Non-affiliate investments |
765 | 499 | 500 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total PIK interest income |
832 | 499 | 1,867 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Fee income: |
||||||||||||
| Control investments |
6 | 6 | 120 | |||||||||
| Affiliate investments |
4 | — | 4 | |||||||||
| Non-control/Non-affiliate investments |
1,192 | 2,028 | 907 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total fee income |
1,202 | 2,034 | 1,031 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Dividend and other income: |
||||||||||||
| Control investments |
453 | 381 | 1,040 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total dividend and other income |
453 | 381 | 1,040 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total investment income |
38,276 | 38,220 | 33,876 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Expenses: |
||||||||||||
| Base management fee |
5,568 | 5,767 | 5,590 | |||||||||
| Part I incentive fee |
3,728 | 3,675 | 830 | |||||||||
| Part II incentive fee |
1,820 | — | — | |||||||||
| Professional fees |
966 | 859 | 2,898 | |||||||||
| Directors fees |
143 | 143 | 176 | |||||||||
| Interest expense |
8,904 | 9,323 | 9,584 | |||||||||
| Administrator expense |
763 | 336 | 494 | |||||||||
| General and administrative expenses |
631 | 794 | 1,116 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Total expenses |
22,523 | 20,897 | 20,688 | |||||||||
| Fees waived |
(1,564 | ) | 292 | (134 | ) | |||||||
|
|
|
|
|
|
|
|
|
| ||||
| Net expenses |
20,959 | 21,189 | 20,554 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Net investment income |
17,317 | 17,031 | 13,322 | |||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Unrealized appreciation (depreciation): |
||||||||||||
| Control investments |
(5,820 | ) | 26,081 | (1,326 | ) | |||||||
| Affiliate investments |
— | — | (168 | ) | ||||||||
| Non-control/Non-affiliate investments |
(784 | ) | 21,039 | (43,633 | ) | |||||||
| Secured borrowings |
(19 | ) | (87 | ) | 1,655 | |||||||
| Foreign currency forward contracts |
(352 | ) | 162 | — | ||||||||
|
|
|
|
|
|
|
|
|
| ||||
| Net unrealized appreciation (depreciation) |
(6,975 | ) | 47,195 | (43,472 | ) | |||||||
|
|
|
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|
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|
| ||||
| Realized gains (losses): |
||||||||||||
| Control investments |
— | (31,331 | ) | — | ||||||||
| Non-control/Non-affiliate investments |
16,761 | 1,494 | (291 | ) | ||||||||
| Foreign currency forward contracts |
1,201 | (436 | ) | — | ||||||||
|
|
|
|
|
|
|
|
|
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| Net realized gains (losses) |
17,962 | (30,273 | ) | (291 | ) | |||||||
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| Provision for income taxes |
(586 | ) | (622 | ) | — | |||||||
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| Net realized and unrealized gains (losses), net of taxes |
10,401 | 16,300 | (43,763 | ) | ||||||||
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| Net increase (decrease) in net assets resulting from operations |
$ | 27,718 | $ | 33,331 | $ | (30,441 | ) | |||||
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| Net investment income per common share — basic and diluted |
$ | 0.12 | $ | 0.12 | $ | 0.09 | ||||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.20 | $ | 0.24 | $ | (0.22 | ) | |||||
| Weighted average common shares outstanding — basic and diluted |
140,961 | 140,961 | 140,961 | |||||||||
7
First Quarter Fiscal Year 2019 Earnings Presentation February 7, 2019 Nasdaq: OCSL Exhibit 99.2
Forward Looking Statements Some of the statements in this presentation constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this presentation may include statements as to: our future operating results and distribution projections; the ability of Oaktree Capital Management, L.P. (“Oaktree”) to find lower-risk investments to reposition our portfolio and to implement Oaktree’s future plans with respect to our business; our business prospects and the prospects of our portfolio companies; the impact of the investments that we expect to make; the ability of our portfolio companies to achieve their objectives; our expected financings and investments and additional leverage we may seek to incur in the future; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our portfolio companies; and the cost or potential outcome of any litigation to which we may be a party. 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 presentation 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. 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. Unless otherwise indicated, data provided herein are dated as of December 31, 2018.
Q1 2019 Highlights Net asset value per share increased by $0.10 to $6.19 NAV continues to grow, increasing $0.38 per share or approximately 7% since December 31, 2017 Fourth consecutive quarter of NAV growth Unrealized gains resulting from write-ups of certain non-core investments primarily contributed to the sequential NAV increase Net investment income per share of $0.12 Net investment income has increased 30% versus the quarter ended December 31, 2017 Board of Directors declared a dividend of $0.095 per share, payable on March 29, 2019 to stockholders of record as of March 15, 2019 Monetized approximately $30 million of non-core investments Exits included one investment on non-accrual and $18 million of equity investments Core investments represented 74% of the portfolio as of December 31, 20181 Exited approximately $56 million of non-core investments since January 1, 20192; including these exits, non-core investments would have represented 22% of the portfolio1 Originated $231 million and funded $165 million of new investment commitments Senior secured originations represented 95% of new funded investments Weighted average yield on new funded investments was 9.9% 1Excludes investments in the Kemper JV. 2 At fair value as of December 31, 2018. Actual proceeds received were approximately $67 million. 1 2 3 4
Portfolio Summary as of December 31, 2018 (As % of total portfolio at fair value; $ in millions) (As % of total portfolio, at fair value) Portfolio Composition Top 10 Industries1 Portfolio Characteristics (at fair value) Note:Numbers rounded to the nearest million or percentage point. 1Excludes the investments in the Kemper JV. $1.5 billion invested in 110 companies 94% of the total portfolio consists of debt investments $15 million average debt investment size1 8.7% weighted average yield on debt investments 87% of debt portfolio consists of floating rate investments
Portfolio Diversity OCSL’s portfolio is diverse across investments and industries (As % of total portfolio at fair value) Portfolio by Industry1,2 Diversity by Investment Size Top 10 Investments 27% Next 15 Investments 25% Remaining 84 Investments 40% Kemper JV 8% Average Investment Size $12 million1 1Excludes investments in the Kemper JV. 2Based on GICS industry classifications. Industry Group % of Portfolio Healthcare Providers & Services 10.0% Software 8.3% IT Services 5.4% Insurance 5.1% Biotechnology 4.9% Pharmaceuticals 4.5% Healthcare Equipment & Supplies 3.9% Diversified Financial Services 3.8% Healthcare Technology 3.7% Commercial Services & Supplies 3.5% Specialty Retail 3.1% Auto Components 3.1% Remaining 25 Industries 40.8% Average Industry Exposure 2.7% (As % of total portfolio at fair value)
Debt Portfolio Company Metrics OCSL’s portfolio has transitioned into higher quality, larger borrowers with lower leverage, reflecting our defensive investment approach Debt Portfolio Company EBITDA1 Debt Portfolio Company Leverage2 Median Debt Portfolio Company EBITDA ($ in millions) Source: S&P Global Market Intelligence. 1 Excludes negative EBITDA borrowers and investments in aviation subsidiaries. 2 Excludes negative EBITDA borrowers, investments in aviation subsidiaries, and a $35 million recurring revenue software investment. 3 Excludes one investment on non-accrual and one venture capital investment. 4 Represents average debt multiples for CY 2018, as there were not enough middle market observations during the quarter to produce a meaningful average. 4 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/13/81 $50 $54 $56 $99 $103 $117 3 3
Non-core Investments: 22% of portfolio2 Non-core Investments: 63% of portfolio Historical Portfolio Progression Non-core private loans and non-accruals currently represent only 14% of OCSL’s portfolio, down from 43% of the portfolio as of September 30, 2017 ($ in millions, at fair value) Portfolio by Category1 -67% since 9/30/172 Non-core Investments 1 Excludes investments in the Kemper JV. 2 Excludes non-core investments that were exited from January 1, 2019 through February 6, 2019. 3 Other non-core investments includes liquid investments, investments in aviation entities, equity investments and non-accruals. +93% since 9/30/17 Core Investments Other Non-core Investments: 3
Note:Numbers may not sum due to rounding. 1Excludes equity positions in non-accrual debt positions. Non-core Investment Portfolio Detail Non-core Investment Portfolio Characteristics Private Loans $111 million at fair value in eight companies Net leverage through tranche: 4.0x Average debt price: 96.7% Equity Investments $50 million at fair value in 26 equity positions1 and limited partnership interests in two third party managed funds Sold or monetized approximately $18 million during the quarter Aviation $33 million at fair value in one entity Liquid Investments $20 million at fair value in three companies Comprised of publicly quoted liquid loans and bonds Average debt price: 97.2% Non-accruals $132 million at fair value in seven companies Average debt price: 55.1% Exited one non-accrual during the quarter ended December 31, 2018 Activity Since January 1, 2019 Received approximately $67 million of proceeds from exits of Maverick Healthcare Group and EOS Fitness (As % of non-core investment portfolio, at fair value; $ in millions) Non-core Investments by Type (At fair value; $ in millions) Non-core Portfolio Composition $347
Q1 2019 Portfolio Originations1 $231 million of new investment commitments $165 million of new funded investments $150 million in 14 new portfolio companies and $15 million in 3 existing portfolio companies Diversified across 15 industries 9.9% weighted average yield at cost of new debt investments 77% of new debt investment commitments at floating rates 89% of investments also held by other Oaktree funds Average net leverage through tranche: 3.7x2 New Investment Highlights (As % of new investment commitments, at fair value – top 10) New Investment Industry Composition (As % of new funded investments; $ in millions) New Investment Composition Note:Numbers rounded to the nearest million or percentage point. 1 New investments exclude fundings of existing revolver or delayed draw term loan commitments. 2 Excludes new investments with negative EBITDAs.
Historical Financial Information ($ in thousands, except per share amounts) Operating Results Q1’19 Q4’18 Q3’18 Q2’18 Q1’18 Dec-18 Sep-18 Jun-18 Mar-18 Dec-17 Interest income $35,789 $35,306 $26,634 $26,633 $29,938 PIK interest income 832 499 1,457 1,946 1,867 Fee income 1,202 2,034 2,425 3,942 1,031 Dividend & other income 453 381 1,331 2,258 1,040 Total investment income 38,276 38,220 31,847 34,779 33,876 Base management fee 5,568 5,767 5,909 5,386 5,590 Parts I & II incentive fees 5,548 3,675 2,733 3,247 830 Interest expense 8,904 9,323 8,291 8,530 9,584 Other operating expenses1 2,503 2,132 2,032 2,305 4,684 Total expenses 22,523 20,897 18,965 19,468 20,688 Fees recouped/(waived) (1,564) 292 (1,548) 48 (134) Net expenses 20,959 21,189 17,417 19,516 20,554 Net investment income 17,317 17,031 14,430 15,263 13,322 Net realized and unrealized gains (losses) 10,987 16,922 9,822 4,357 (43,763) Provision for income taxes (586) (622) - - - Net increase/decrease in net assets resulting from operations $27,718 $33,331 $24,252 $19,620 ($30,441) Net investment income per common share $0.12 $0.12 $0.10 $0.11 $0.09 Net realized and unrealized gains (losses) 0.08 0.12 0.07 0.03 (0.31) Earnings (loss) per common share – basic and diluted $0.20 $0.24 $0.17 $0.14 ($0.22) Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree, which occurred on October 17, 2017. 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses.
Historical Financial Information (continued) ($ in thousands, except per share amounts) Select Balance Sheet and Other Data Q1’19 Q4’18 Q3’18 Q2’18 Q1’18 Dec-18 Sep-18 Jun-18 Mar-18 Dec-17 Investment Portfolio (at fair value) $1,464,885 $1,491,201 $1,520,518 $1,400,684 $1,415,404 Total Debt Outstanding1 607,141 637,213 607,082 579,430 623,087 Total Net Assets 872,362 858,035 838,095 827,234 819,595 Net Asset Value per share $6.19 $6.09 $5.95 $5.87 $5.81 Total Leverage 0.70x 0.75x 0.73x 0.71x 0.77x Weighted Average Yield on Debt Investments2 8.7% 8.4% 8.8% 9.3% 9.0% Cash Component of Weighted Average Yield on Debt Investments 8.0% 8.2% 8.5% 8.7% 8.4% Weighted Average Yield on Total Portfolio Investments3 8.1% 8.1% 8.4% 8.6% 8.5% Weighted Average Cost of Debt 5.3% 5.1% 5.2% 4.9% 4.8% Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree, which occurred on October 17, 2017. 1Net of unamortized financing costs. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on debt investments in the Kemper JV. 3Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on debt investments in the Kemper JV.
Historical Portfolio Activity ($ in thousands) Q1’19 Q4’18 Q3’18 Q2’18 Q1’18 Dec-18 Sep-18 Jun-18 Mar-18 Dec-17 Investments at Fair Value $1,464,885 $1,491,201 $1,520,518 $1,400,684 $1,415,404 Number of Portfolio Companies 110 113 116 115 122 Average Portfolio Company Debt Investment Size $15,000 $14,800 $14,500 $14,600 $14,100 Asset Class: Senior Secured Debt 80.0% 75.4% 76.0% 76.6% 75.8% Unsecured Debt 7.8% 11.0% 10.9% 6.7% 7.0% Equity 3.3% 4.4% 3.8% 5.5% 6.0% Kemper JV 8.4% 8.7% 8.7% 9.5% 9.4% Limited Partnership Interests 0.5% 0.5% 0.6% 1.8% 1.8% Interest Rate Type for Debt Investments: % Floating-Rate 86.6% 83.2% 82.9% 84.6% 82.4% % Fixed-Rate 13.4% 16.8% 17.1% 15.4% 17.6% Investment Activity at Cost: New Investment Commitments $231,100 $228,400 $379,800 $223,200 $183,000 New Funded Investment Activity1 162,400 218,400 389,000 227,800 200,200 Proceeds from Prepayments, Exits, Other Paydowns and Sales 208,300 267,500 280,700 241,900 284,800 Net New Investments2 (45,900) (49,100) 108,300 (14,100) (84,600) Number of New Investment Commitments in New Portfolio Companies 14 13 24 9 13 Number of New Investment Commitments in Existing Portfolio Companies 3 3 4 1 1 Number of Portfolio Company Exits 14 18 28 17 17 Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree, which occurred on October 17, 2017. 1New funded investment activity is reflected net of original issue discount and includes drawdowns on existing revolver commitments. 2Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
Net Asset Value Per Share Bridge Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1
Capital Structure Overview Funding Sources as of December 31, 2018 Capacity Outstanding Interest Rate Maturity ING Credit Facility $600.0 million $211.0 million LIBOR+2.25%-2.75% November 2021 2019 Notes2 $228.8 million $228.8 million 4.875% March 2019 2024 Notes $75.0 million $75.0 million 5.875% October 2024 2028 Notes $86.3 million $86.3 million 6.125% April 2028 As of December 31, 2018 1Long-term portfolio leverage may vary depending on market conditions. 2The original issue size of these notes was $250 million. We repurchased $21 million of these notes during the quarter ended March 31, 2018. Current leverage of 0.70x, within target range of 0.70x to 0.85x debt-to-equity1 Focused on maintaining a conservative financial position given prevailing market conditions Maintain asset sensitive portfolio that is positioned to benefit if interest rates were to rise given fixed rate borrowings and 87% of debt portfolio consists of floating rate loans We intend to repay the 2019 Notes upon maturity on March 1, 2019 using proceeds from the ING Credit Facility
Capital Structure Update We are currently in discussions with our banking partners to, among other things, amend terms of our $600 million revolving credit facility As part of this process, our Board of Directors approved the application of the modified asset coverage requirements Modified Asset Coverage Requirements Effective February 1, 2020, the required minimum asset coverage ratio will be reduced from 200% to 150% Intend to reduce base management fee to 1.0% on all assets financed using leverage above 1.0x debt-to-equity Revolving Credit Facility Amendments Seeking to amend certain terms, including extending the reinvestment period beyond the current expiration date of November 29, 2020 and modifying the asset coverage ratio covenant No Change to Current Leverage Target or Investment Strategy At this time, we do not intend to change our target leverage ratio range (currently 0.70x to 0.85x debt-to-equity) or investment strategy once the modified asset coverage requirements become applicable
Opportunities to Increase Return on Equity Redeploy non-interest generating investments comprised of equity, limited partnership interests and loans on non-accrual Exited $18 million of non-interest generating investments during the quarter ended December 31, 2018 Approximately $181 million of non-interest generating assets remained as of December 31, 2018 Received $64 million of proceeds related to non-interest generating investment exits since January 1, 2019 Rotate into higher-yielding proprietary investments Temporarily increased broadly syndicated loans priced at LIBOR + 4.00% by $23 million during the quarter $40 million as of December 31, 2018 Utilize additional investment capacity at the Kemper JV Invested in $285 million of investments across 43 companies as of the quarter ended December 31, 2018 93% first lien investments; 98% of debt portfolio consists of floating rate investments Total remaining investment capacity of approximately $150 million (assuming 2.0x leverage) 1 2 3
Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com