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): May 8, 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. ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Common stock, par value $0.01 per share | OCSL | The Nasdaq Global Select Market | ||
| 5.875% Unsecured Notes due 2024 | OSLE | The New York Stock Exchange | ||
| 6.125% Unsecured Notes due 2028 | OCSLL | The Nasdaq Global Select Market |
Item 2.02. Results of Operations and Financial Condition.
On May 8, 2019, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended March 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1.
On May 8, 2019, the Company will host a conference call to discuss its financial results for the fiscal quarter ended March 31, 2019. 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 May 8, 2019 |
| 99.2 | Oaktree Specialty Lending Corporation Second 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: May 8, 2019 | By: | /s/ Mel Carlisle | ||||
| Name: Mel Carlisle | ||||||
| Title: Chief Financial Officer and Treasurer | ||||||
Exhibit 99.1
Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2019 Financial Results and Declares Distribution of $0.095 Per Share
LOS ANGELES, CA, May 8, 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 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 $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
1
Results of Operations
|
|
||||||||||||
| For the three months ended | ||||||||||||
| ($ 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 | ||||||
|
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|
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|
|||||||
| 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 $46.8 million, reflecting realized gains in two investments and unrealized appreciation in certain debt and equity investments.
2
Portfolio and Investment Activity
|
|
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| As of | ||||||||||||
| ($ 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.
3
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.
4
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
5
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 | |||||||||
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| 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 | |||||||||
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| Total assets |
$ | 1,541,317 | $ | 1,541,524 | $ | 1,551,458 | ||||||
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| 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 | ||||||
|
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|
|
|
|
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6
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 | |||||||||||||||
|
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|
|
|
|
|
|
|
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|
|||||||||||
| Total interest income |
34,309 | 35,789 | 26,633 | 70,098 | 56,571 | |||||||||||||||
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|
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|
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| 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 | |||||||||||||||
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|
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|
|
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|
|||||||||||
| Total PIK interest income |
2,280 | 832 | 1,946 | 3,112 | 3,813 | |||||||||||||||
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|
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|
|
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| 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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
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|
|||||||||||
| Total fee income |
1,132 | 1,202 | 3,942 | 2,334 | 4,973 | |||||||||||||||
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|
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|
|
|
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|||||||||||
| 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 | |||||||||||||||
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|
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|
|
|
|
|
|
|
|||||||||||
| 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 | |||||||||||||||
7
Second Quarter Fiscal Year 2019 Earnings Presentation May 8, 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 for the fiscal year ended September 30, 2018 and our quarterly report on Form 10-Q for the quarter ended December 31, 2018. 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 March 31, 2019.
Net asset value per share (“NAV”) increased to $6.55, up $0.36 from the prior quarter Highlights for the Quarter Ended March 31, 2019 1Excludes investments in Senior Loan Fund JV I, LLC (“Kemper JV”), a joint venture that invests primarily in middle market and other corporate debt securities. 2Includes $20 million of commitments made subsequent to March 31, 2019. Actual interest rate depends on senior debt coverage ratio. 3Becomes effective once the 150% asset coverage requirements under Section 61(a)(2) of the Investment Company Act of 1940 become applicable to OCSL. 1 Net investment income of $0.13 per share 2 Continued progress rotating portfolio 3 Improved capital structure through credit facility amendments 4 NAV has grown by over $96 million ($0.68 per share) or 12% since March 31, 2018 Fifth consecutive quarter of NAV growth 16% increase from the quarter ended March 31, 2018 Board of Directors declared a dividend of $0.095 per share, payable on June 28, 2019 to stockholders of record as of June 14, 2019 Exited $58 million in three non-core investments during the quarter, including $41 million on non-accrual and a $3 million equity investment Received $78 million of proceeds from these exits, which contributed $20 million ($0.14 per share) to the increase in NAV Total commitments increased from $600 million to $700 million, final maturity extended by over two years to February 2024 and interest rate reduced from LIBOR + 2.25%-2.75% to LIBOR + 2.00%-2.25%2 Modified asset coverage covenant from 200% to 165%3
Portfolio Summary as of March 31, 2019 (As % of total portfolio at fair value; $ in millions) (As % of total portfolio, at fair value) Portfolio Composition Top 10 Industries2 Portfolio Characteristics (at fair value) Note:Numbers may not sum due to rounding. 1Excludes investments in the Kemper JV. 2Excludes multi-sector holdings, which is primarily comprised of investments in the Kemper JV. $1.5 billion invested in 110 companies 93% of the total portfolio consists of debt investments $15 million average debt investment size1 9.0% weighted average yield on debt investments 86% of debt portfolio consists of floating rate investments
Portfolio Diversity OCSL’s portfolio is diverse across borrowers and industries (As % of total portfolio at fair value) Portfolio by Industry1,2 Diversity by Investment Size Top 10 Investments 25% Next 15 Investments 25% Remaining 84 Investments 42% Kemper JV 8% Average Investment Size1 $13 million As of March 31, 2019 1Excludes investments in the Kemper JV. 2 Based on GICS industry classifications. Industry Group % of Portfolio Software 9.7% Healthcare Providers & Services 9.3% IT Services 8.7% Biotechnology 5.1% Insurance 4.8% Energy Equipment & Services 4.2% Pharmaceuticals 4.1% Diversified Financial Services 3.8% Oil, Gas & Consumable Fuels 3.7% Healthcare Technology 3.7% Auto Components 3.0% Specialty Retail 3.0% Remaining 23 Industries 36.9% Average Industry Exposure 2.9% (As % of total portfolio at fair value)
Debt Portfolio Company Metrics OCSL’s portfolio has transitioned into higher quality, larger borrowers with lower leverage, reflecting our defensive investment approach Debt Portfolio Company EBITDA1 Debt Portfolio Company Leverage1 Median Debt Portfolio Company EBITDA ($ in millions) Source: S&P Global Market Intelligence. 1 Excludes negative EBITDA borrowers, investments in aviation subsidiaries and recurring revenue software investments. 2 Excludes one investment on non-accrual and one venture capital investment. 3 Represents average debt multiples for respective LTM periods, as there were not enough middle market observations during each respective quarter to produce a meaningful average. 3 9/30/17 3/31/18 9/30/18 3/31/19 $50 $56 $103 $122 2 2 3
Non-core Investments: 21% of portfolio Non-core Investments: 63% of portfolio Historical Portfolio Progression Non-core private loans and non-accruals currently represent only 13% of OCSL’s portfolio ($ in millions, at fair value) Portfolio by Category1 -67% since 9/30/17 Non-core Investments 1Excludes investments in the Kemper JV. 2Other non-core investments includes liquid debt investments, investments in aviation entities, equity investments and non-accruals. +110% since 9/30/17 Core Investments Other Non-core Investments: 2
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 $95 million at fair value in seven companies Net leverage through tranche: 4.0x Average debt price: 95.0% Equity Investments1 $63 million at fair value in 24 positions and limited partnership interests in two third party managed funds $13 million sequential increase primarily attributable to price appreciation in one listed equity $10 million received from exits during the quarter Aviation $33 million at fair value in one entity Liquid Debt Investments $20 million at fair value in three companies Comprised of publicly quoted liquid loans Average debt price: 98.2% Non-accruals $86 million at fair value in six companies Average debt price: 44.9% Realized par recovery ($64 million) from exit of Maverick Healthcare Group (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 $296
Q2 2019 Portfolio Originations1 $100 million of new investment commitments $111 million of new funded investments 6 portfolio companies 5 industries 8.7% weighted average yield at cost of new debt investments 95% of new debt investment commitments at floating rates 97% of new investments also held by other Oaktree funds New Investment Highlights (As % of new investment commitments, at fair value) New Investment Industry Composition (As % of new investment commitments; $ 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.
Historical Financial Information ($ in thousands, except per share amounts) Operating Results Q2’19 Q1’19 Q4’18 Q3’18 Q2’18 Mar-19 Dec-18 Sep-18 Jun-18 Mar-18 Interest income $34,309 $35,789 $35,306 $26,634 $26,633 PIK interest income 2,280 832 499 1,457 1,946 Fee income 1,132 1,202 2,034 2,425 3,942 Dividend & other income 523 453 381 1,331 2,258 Total investment income 38,244 38,276 38,220 31,847 34,779 Base management fee 5,731 5,568 5,767 5,909 5,386 Parts I & II incentive fees 11,983 5,548 3,675 2,733 3,247 Interest expense 8,970 8,904 9,323 8,291 8,530 Other operating expenses1 1,752 2,503 2,132 2,032 2,305 Total expenses 28,436 22,523 20,897 18,965 19,468 Fees recouped/(waived) (7,901) (1,564) 292 (1,548) 48 Net expenses 20,535 20,959 21,189 17,417 19,516 Net investment income 17,709 17,317 17,031 14,430 15,263 Net realized and unrealized gains (losses) 46,685 10,987 16,922 9,822 4,357 Provision for income taxes 91 (586) (622) - - Net increase/decrease in net assets resulting from operations $64,485 $27,718 $33,331 $24,252 $19,620 Net investment income per common share $0.13 $0.12 $0.12 $0.10 $0.11 Net realized and unrealized gains (losses) per common share 0.33 0.08 0.12 0.07 0.03 Earnings (loss) per common share – basic and diluted $0.46 $0.20 $0.24 $0.17 $0.14 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses.
Historical Financial Information (continued) ($ in thousands, except per share amounts) Select Balance Sheet and Other Data Q2’19 Q1’19 Q4’18 Q3’18 Q2’18 Mar-19 Dec-18 Sep-18 Jun-18 Mar-18 Investment Portfolio (at fair value) $1,504,888 $1,464,885 $1,491,201 $1,520,518 $1,400,684 Total Debt Outstanding1 592,178 607,141 637,213 607,082 579,430 Total Net Assets 923,456 872,362 858,035 838,095 827,234 Net Asset Value per share $6.55 $6.19 $6.09 $5.95 $5.87 Total Leverage 0.64x 0.70x 0.75x 0.73x 0.71x Weighted Average Yield on Debt Investments2 9.0% 8.7% 8.4% 8.8% 9.3% Cash Component of Weighted Average Yield on Debt Investments 8.3% 8.0% 8.2% 8.5% 8.7% Weighted Average Yield on Total Portfolio Investments3 8.3% 8.1% 8.1% 8.4% 8.6% Weighted Average Cost of Debt 5.1% 5.3% 5.1% 5.2% 4.9% 1Net of unamortized financing costs. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on debt investments in the Kemper JV. 3Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on debt investments in the Kemper JV.
Historical Portfolio Activity ($ in thousands) Q2’19 Q1’19 Q4’18 Q3’18 Q2’18 Mar-19 Dec-18 Sep-18 Jun-18 Mar-18 Investments at Fair Value $1,504,888 $1,464,885 $1,491,201 $1,520,518 $1,400,684 Number of Portfolio Companies 110 110 113 116 115 Average Portfolio Company Debt Investment Size $15,000 $15,000 $14,800 $14,500 $14,600 Asset Class: Senior Secured Debt 78.9% 80.0% 75.4% 76.0% 76.6% Unsecured Debt 8.0% 7.8% 11.0% 10.9% 6.7% Equity 4.2% 3.3% 4.4% 3.8% 5.5% Limited Partnership Interests 0.5% 0.5% 0.5% 0.6% 1.8% Kemper JV 8.4% 8.4% 8.7% 8.7% 9.5% Interest Rate Type for Debt Investments: % Floating-Rate 86.3% 86.6% 83.2% 82.9% 84.6% % Fixed-Rate 13.7% 13.4% 16.8% 17.1% 15.4% Investment Activity at Cost: New Investment Commitments $100,000 $231,100 $228,400 $379,800 $223,200 New Funded Investment Activity1 111,100 162,400 218,400 389,000 227,800 Proceeds from Prepayments, Exits, Other Paydowns and Sales 120,700 208,300 267,500 280,700 241,900 Net New Investments2 (9,600) (45,900) (49,100) 108,300 (14,100) Number of New Investment Commitments in New Portfolio Companies 5 14 13 24 9 Number of New Investment Commitments in Existing Portfolio Companies 1 3 3 4 1 Number of Portfolio Company Exits 4 14 18 28 17 1New funded investment activity is reflected net of drawdowns on existing revolver commitments. 2Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
Net Asset Value Per Share Bridge Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1
Capital Structure Overview ($ in millions) ($ in millions) (As % of total funding sources) ($ in millions) Funding Sources Interest Rate Type Historical Principal Outstanding and Leverage Ratio3 Maturity Profile of Liabilities Committed Principal Outstanding Interest Rate Maturity Credit Facility $7001 $425 LIBOR+2.00%2 2/25/2024 2024 Notes 750 75 5.875% 10/30/2024 2028 Notes 860 86 6.125% 4/30/2028 Total $8810 $586 As of March 31, 2019 Note:Excludes secured borrowings. 1Includes $20 million of commitments made subsequent to March 31, 2019. 2Interest rate spread can increase up to 2.25% depending on the senior coverage ratio. 3 Represents carrying value of debt, including secured borrowings. Target Leverage Ratio: 0.70x-0.85x debt-to-equity Increased size and extended maturity of credit facility; no debt maturities until 2024 Amended Credit Facility1 Original Credit Facility
On February 25, 2019, we amended, extended and increased the size of our revolving credit facility Credit Facility Amendments Improve Flexibility and Reduce Costs Increased Facility Size Increased total commitments from $600 million to $680 million; additional $20 million was added in April 2019, bringing total commitments to $700 million Two new lenders added to the facility Extended Maturity Extended maturity by over two years to February 2024; revolving period expires February 2023 Lowered Interest Rate Interest rate reduced from LIBOR + 2.25-2.75% to LIBOR + 2.00%-2.25%1 Enhanced Flexibility Amended asset coverage covenant from 200% to 165% effective once the modified asset coverage requirements under Section 61(a)(2) of the Investment Company Act of 1940 become applicable to the Company 1 Depending on the senior coverage ratio.
Redeploy non-interest generating investments Opportunities to Increase Return on Equity 1 Rotate into higher-yielding proprietary investments 2 Utilize additional investment capacity at the Kemper JV 3 Exited over $44 million of non-interest generating investments during the quarter ended March 31, 2019 $156 million of non-interest generating investments remain, including $86 million of non-accruals and $70 million of equity investments $32 million of broadly syndicated loans priced below LIBOR + 4.00% as of March 31, 2019 $8 million decrease from the prior quarter Originated $62 million of investments across 12 issuers during the quarter ended March 31, 2019 Total assets have grown 12% from the prior quarter $109 million remaining investment capacity (assuming 2.0x leverage) As of March 31, 2019 We believe OCSL is well-positioned to enhance return on equity
Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com