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): August 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)) |
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 |
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 August 7, 2019, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1.
On August 7, 2019, the Company will host a conference call to discuss its financial results for the fiscal quarter ended June 30, 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 August 7, 2019 | |
| 99.2 | Oaktree Specialty Lending Corporation Third 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: August 7, 2019 | By: | /s/ Mel Carlisle | ||||||
| Name: | Mel Carlisle | |||||||
| Title: | Chief Financial Officer and Treasurer | |||||||
Exhibit 99.1
Oaktree Specialty Lending Corporation Announces Third Fiscal Quarter 2019 Financial Results and Declares Distribution of $0.095 Per Share
LOS ANGELES, CA, August 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 June 30, 2019.
Financial Highlights for the Quarter Ended June 30, 2019
| • | Total investment income of $36.7 million ($0.26 per share), down from $38.2 million ($0.27 per share) for the second fiscal quarter of 2019, primarily reflecting lower original issue discount (“OID”) accretion, partially offset by the call protection and prepayment fees earned in connection with the exit of two investments. |
| • | Net investment income of $16.6 million ($0.12 per share), down from $17.7 million ($0.13 per share) for the second fiscal quarter of 2019, primarily reflecting lower investment income, partially offset by lower operating expenses. |
| • | Net asset value (“NAV”) per share of $6.60, up from $6.55 for the second fiscal quarter of 2019, primarily driven by income earned in excess of dividends paid and net appreciation on investments. |
| • | Originated $66.8 million of new investment commitments and received $138.3 million of proceeds from prepayments, exits, other paydowns and sales. |
| • | A quarterly distribution was declared of $0.095 per share, payable on September 30, 2019 to stockholders of record on September 13, 2019. |
Edgar Lee, Chief Executive Officer and Chief Investment Officer, said, “The third quarter was highlighted by continued strong financial results and portfolio performance. NAV increased for the sixth consecutive quarter to $6.60 per share, an 11% increase over the same period one year ago, and net investment income remained solid at $0.12 per share. We made further progress in reducing risk in the portfolio, successfully exiting $27 million of non-core investments, while adding $67 million of new investments that are consistent with our late-cycle investment approach. Importantly, with leverage of only 0.58x and $330 million of dry powder, we are well capitalized and have ample capacity to invest in new opportunities.”
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.095 per share, payable on September 30, 2019 to stockholders of record on September 13, 2019.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
1
Results of Operations
|
|
||||||||||||
| For the three months ended | ||||||||||||
| ($ in thousands, except per share data) | June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
|||||||||
| Operating results: |
||||||||||||
| Interest income |
$ | 32,910 | $ | 34,309 | $ | 26,634 | ||||||
| PIK interest income |
1,198 | 2,280 | 1,457 | |||||||||
| Fee income |
1,826 | 1,132 | 2,425 | |||||||||
| Dividend income |
735 | 523 | 1,331 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total investment income |
36,669 | 38,244 | 31,847 | |||||||||
| Net expenses |
20,061 | 20,535 | 17,417 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net investment income |
16,608 | 17,709 | 14,430 | |||||||||
| Net realized and unrealized gains (losses), net of taxes |
3,378 | 46,776 | 9,822 | |||||||||
|
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| Net increase (decrease) in net assets resulting from operations |
$ | 19,986 | $ | 64,485 | $ | 24,252 | ||||||
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|||||||
| Net investment income per common share |
$ | 0.12 | $ | 0.13 | $ | 0.10 | ||||||
| Net realized and unrealized gains (losses), net of taxes per common share |
$ | 0.02 | $ | 0.33 | $ | 0.07 | ||||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.14 | $ | 0.46 | $ | 0.17 | ||||||
|
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||||||||||||
| As of | ||||||||||||
| ($ in thousands, except per share data and ratios) | June 30, 2019 | March 31, 2019 |
September 30, 2018 |
|||||||||
| Select balance sheet and other data: |
||||||||||||
| Investment portfolio at fair value |
$ | 1,455,031 | $ | 1,504,888 | $ | 1,491,201 | ||||||
| Total debt outstanding |
537,278 | 592,178 | 637,213 | |||||||||
| Net assets |
930,050 | 923,456 | 858,035 | |||||||||
| Net asset value per share |
6.60 | 6.55 | 6.09 | |||||||||
| Total leverage |
0.58x | 0.64x | 0.75x | |||||||||
Total investment income for the quarter ended June 30, 2019 was $36.7 million and included $32.9 million of interest income from portfolio investments, $1.2 million of payment-in-kind (“PIK”) interest income, $1.8 million of fee income and $0.7 million of dividend income. Total investment income was lower as compared to the quarter ended March 31, 2019, primarily due to lower OID accretion, partially offset by the call protection and prepayment fees earned in connection with the exit of two investments during the quarter. PIK interest income represented 3.3% of total investment income for the quarter ended June 30, 2019.
Net expenses for the quarter totaled $20.1 million, down from the quarter ended March 31, 2019. The decrease in net expenses was primarily driven by lower interest expense as a result of a lower level of borrowings during the quarter, partially offset by higher accrued capital gains incentive fees (net of fees waived). The capital gains incentive fees are required to be accrued under U.S. GAAP, but payment is not contractually due under the terms of the investment advisory agreement, unless and until realized capital gains exceed realized capital losses and unrealized capital depreciation on a cumulative basis.
Net realized and unrealized gains, net of taxes, were $3.4 million, primarily reflecting unrealized appreciation on certain debt and equity investments.
2
Portfolio and Investment Activity
|
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| As of | ||||||||||||
| ($ in thousands) | June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
|||||||||
| Investments at fair value |
$ | 1,455,031 | $ | 1,504,888 | $ | 1,520,518 | ||||||
| Number of portfolio companies |
105 | 110 | 116 | |||||||||
| Average portfolio company debt size |
$ | 15,400 | $ | 15,000 | $ | 14,500 | ||||||
| Asset class: |
||||||||||||
| Senior secured debt |
79.7 | % | 78.9 | % | 76.0 | % | ||||||
| Unsecured debt |
7.0 | % | 8.0 | % | 10.9 | % | ||||||
| Equity |
4.3 | % | 4.2 | % | 3.8 | % | ||||||
| SLF JV I |
8.8 | % | 8.4 | % | 8.7 | % | ||||||
| Limited partnership interests |
0.2 | % | 0.5 | % | 0.6 | % | ||||||
| Non-accrual debt investments: |
||||||||||||
| Non-accrual investments at fair value |
$ | 86,796 | $ | 85,854 | $ | 67,131 | ||||||
| Non-accrual investments as a percentage of debt investments |
6.4 | % | 6.1 | % | 4.6 | % | ||||||
| Number of investments on non-accrual |
5 | 6 | 8 | |||||||||
| Interest rate type: |
||||||||||||
| Percentage floating-rate |
88.5 | % | 86.3 | % | 82.9 | % | ||||||
| Percentage fixed-rate |
11.5 | % | 13.7 | % | 17.1 | % | ||||||
| Yields: |
||||||||||||
| Weighted average yield on debt investments (1) |
8.7 | % | 9.0 | % | 8.8 | % | ||||||
| Cash component of weighted average yield on debt investments |
8.0 | % | 8.3 | % | 8.5 | % | ||||||
| Weighted average yield on total portfolio investments (2) |
8.2 | % | 8.3 | % | 8.4 | % | ||||||
| Investment activity: |
||||||||||||
| New investment commitments |
$ | 66,800 | $ | 100,000 | $ | 379,800 | ||||||
| New funded investment activity (3) |
$ | 74,100 | $ | 111,100 | $ | 389,000 | ||||||
| Proceeds from prepayments, exits, other paydowns and sales |
$ | 138,300 | $ | 120,700 | $ | 280,700 | ||||||
| Net new investments (4) |
$ | (64,200 | ) | $ | (9,600 | ) | $ | 108,300 | ||||
| Number of new investment commitments in new portfolio companies |
3 | 5 | 24 | |||||||||
| Number of new investment commitments in existing portfolio companies |
4 | 1 | 4 | |||||||||
| Number of portfolio company exits |
8 | 4 | 28 | |||||||||
| (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 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 June 30, 2019, the fair value of the investment portfolio was $1.5 billion and was comprised of investments in 105 companies. These included debt investments in 82 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, 93.4% of the Company’s portfolio as of June 30, 2019 consisted of debt investments, including 54.0% of first liens, 25.8% of second liens and 13.6% of unsecured debt investments, including the debt investments in SLF JV I.
3
As of June 30, 2019, there were five investments on which the Company had stopped accruing cash and/or PIK interest or OID income that, in the aggregate, represented 10.5% of the Company’s debt portfolio at cost and 6.4% at fair value. During the three months ended June 30, 2019, the Company exited one investment which was on non-accrual status.
As of June 30, 2019, SLF JV I had $348.7 million in assets, including senior secured loans to 51 portfolio companies. The joint venture generated income of $2.3 million for Oaktree Specialty Lending during the quarter ended June 30, 2019. During the quarter ended June 30, 2019, SLF JV I increased the size of its senior revolving credit facility from $200 million to $250 million. As of June 30, 2019, SLF JV I had $62.9 million of undrawn capacity on its senior revolving credit facility.
The Company intends to rotate out of approximately $273 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 June 30, 2019, the Company had $5.6 million of cash and cash equivalents, total principal value of debt outstanding of $542.6 million and $330.2 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 June 30, 2019.
As of June 30, 2019, the Company’s total leverage ratio was 0.58x debt-to-equity.
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss its third fiscal quarter 2019 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on August 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 10133101, 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.
4
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)
| June 30, 2019 (unaudited) |
March 31, 2019 (unaudited) |
September 30, 2018 |
||||||||||
| ASSETS | ||||||||||||
| Investments at fair value: |
||||||||||||
| Control investments (cost June 30, 2019: $190,181; cost March 31, 2019: $211,964; cost September 30, 2018: $213,470) |
$ | 175,052 | $ | 193,416 | $ | 196,874 | ||||||
| Affiliate investments (cost June 30, 2019: $5,064; cost March 31, 2019: $3,678; cost September 30, 2018: $1,080) |
5,964 | 4,578 | 2,161 | |||||||||
|
Non-control/Non-affiliate investments (cost June 30, 2019: $1,337,252; cost March 31, 2019: $1,390,882; cost September 30, 2018: $1,392,383) |
1,274,015 | 1,306,894 | 1,292,166 | |||||||||
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| Total investments at fair value (cost June 30, 2019: $1,532,497; cost March 31, 2019: $1,606,524; cost September 30, 2018: $1,606,933) |
1,455,031 | 1,504,888 | 1,491,201 | |||||||||
| Cash and cash equivalents |
5,637 | 12,815 | 13,380 | |||||||||
| Restricted cash |
— | 337 | 109 | |||||||||
| Interest, dividends and fees receivable |
13,156 | 9,822 | 10,272 | |||||||||
| Due from portfolio companies |
1,850 | 1,407 | 1,357 | |||||||||
| Receivables from unsettled transactions |
4 | 1,818 | 26,760 | |||||||||
| Deferred financing costs |
6,759 | 6,848 | 5,209 | |||||||||
| Derivative assets at fair value |
— | 563 | 162 | |||||||||
| Other assets |
2,579 | 2,819 | 3,008 | |||||||||
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| Total assets |
$ | 1,485,016 | $ | 1,541,317 | $ | 1,551,458 | ||||||
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| LIABILITIES AND NET ASSETS | ||||||||||||
| Liabilities: |
||||||||||||
| Accounts payable, accrued expenses and other liabilities |
$ | 1,078 | $ | 1,505 | $ | 3,581 | ||||||
| Base management fee and incentive fee payable |
9,987 | 8,922 | 8,223 | |||||||||
| Due to affiliate |
3,431 | 1,940 | 3,274 | |||||||||
| Interest payable |
2,267 | 2,117 | 3,365 | |||||||||
| Payable to syndication partners |
— | 586 | 109 | |||||||||
| Payables from unsettled transactions |
— | 9,900 | 37,236 | |||||||||
| Derivative liability at fair value |
206 | — | — | |||||||||
| Deferred tax liability |
719 | 713 | 422 | |||||||||
| Credit facility payable |
369,825 | 424,825 | 241,000 | |||||||||
| Unsecured notes payable (net of $2,808, $2,908 and $3,483 of unamortized financing costs as of June 30, 2019, March 31, 2019 and September 30, 2018, respectively) |
158,442 | 158,342 | 386,485 | |||||||||
| Secured borrowings at fair value (proceeds June 30, 2019: $11,502; proceeds March 31, 2019: $11,502; proceeds September 30, 2018: $12,314) |
9,011 | 9,011 | 9,728 | |||||||||
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| Total liabilities |
554,966 | 617,861 | 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 June 30, 2019, March 31, 2019 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 |
(564,098 | ) | (570,692 | ) | (636,113 | ) | ||||||
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| Total net assets (equivalent to $6.60, $6.55 and $6.09 per common share as of June 30, 2019, March 31, 2019 and September 30, 2018, respectively) |
930,050 | 923,456 | 858,035 | |||||||||
|
|
|
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| Total liabilities and net assets |
$ | 1,485,016 | $ | 1,541,317 | $ | 1,551,458 | ||||||
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6
Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three months ended June 30, 2019 |
Three months ended March 31, 2019 |
Three months ended June 30, 2018 |
Nine months ended June 30, 2019 |
Nine months ended June 30, 2018 |
||||||||||||||||
| Interest income: |
||||||||||||||||||||
| Control investments |
$ | 2,859 | $ | 2,852 | $ | 2,737 | $ | 9,050 | $ | 9,011 | ||||||||||
| Affiliate investments |
70 | 22 | 161 | 105 | 2,027 | |||||||||||||||
|
Non-control/Non-affiliate investments |
29,850 | 31,231 | 23,629 | 93,248 | 71,727 | |||||||||||||||
| Interest on cash and cash equivalents |
131 | 204 | 107 | 605 | 440 | |||||||||||||||
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|
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|
|||||||||||
| Total interest income |
32,910 | 34,309 | 26,634 | 103,008 | 83,205 | |||||||||||||||
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| PIK interest income: |
||||||||||||||||||||
| Control investments |
— | — | 1,045 | 67 | 3,446 | |||||||||||||||
| Affiliate investments |
— | — | 52 | — | 416 | |||||||||||||||
|
Non-control/Non-affiliate investments |
1,198 | 2,280 | 360 | 4,243 | 1,408 | |||||||||||||||
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|
|||||||||||
| Total PIK interest income |
1,198 | 2,280 | 1,457 | 4,310 | 5,270 | |||||||||||||||
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| Fee income: |
||||||||||||||||||||
| Control investments |
6 | 7 | 697 | 19 | 945 | |||||||||||||||
| Affiliate investments |
5 | 5 | — | 14 | 48 | |||||||||||||||
|
Non-control/Non-affiliate investments |
1,815 | 1,120 | 1,728 | 4,127 | 6,405 | |||||||||||||||
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|
|||||||||||
| Total fee income |
1,826 | 1,132 | 2,425 | 4,160 | 7,398 | |||||||||||||||
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| Dividend income: |
||||||||||||||||||||
| Control investments |
735 | 523 | 1,331 | 1,711 | 4,629 | |||||||||||||||
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|
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|
|||||||||||
| Total dividend income |
735 | 523 | 1,331 | 1,711 | 4,629 | |||||||||||||||
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|
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|
|||||||||||
| Total investment income |
36,669 | 38,244 | 31,847 | 113,189 | 100,502 | |||||||||||||||
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| Expenses: |
||||||||||||||||||||
| Base management fee |
5,548 | 5,731 | 5,909 | 16,847 | 16,885 | |||||||||||||||
| Part I incentive fee |
3,787 | 3,813 | 2,733 | 11,328 | 6,810 | |||||||||||||||
| Part II incentive fee |
607 | 8,170 | — | 10,597 | — | |||||||||||||||
| Professional fees |
721 | 499 | 924 | 2,186 | 4,837 | |||||||||||||||
| Directors fees |
143 | 142 | 154 | 428 | 507 | |||||||||||||||
| Interest expense |
7,592 | 8,970 | 8,291 | 25,466 | 26,405 | |||||||||||||||
| Administrator expense |
384 | 406 | 466 | 1,553 | 1,351 | |||||||||||||||
| General and administrative expenses |
645 | 705 | 488 | 1,981 | 2,326 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
19,427 | 28,436 | 18,965 | 70,386 | 59,121 | |||||||||||||||
| Fees waived |
634 | (7,901 | ) | (1,548 | ) | (8,831 | ) | (1,634 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
20,061 | 20,535 | 17,417 | 61,555 | 57,487 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income |
16,608 | 17,709 | 14,430 | 51,634 | 43,015 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Unrealized appreciation (depreciation): |
||||||||||||||||||||
| Control investments |
3,419 | 3,868 | 97,000 | 1,467 | 89,825 | |||||||||||||||
| Affiliate investments |
— | (181 | ) | 72 | (181 | ) | (2,159 | ) | ||||||||||||
|
Non-control/Non-affiliate investments |
20,744 | 17,108 | 1,810 | 37,068 | (34,696 | ) | ||||||||||||||
| Secured borrowings |
— | (76 | ) | 377 | (95 | ) | 2,440 | |||||||||||||
| Foreign currency forward contracts |
(768 | ) | 753 | — | (367 | ) | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized appreciation (depreciation) |
23,395 | 21,472 | 99,259 | 37,892 | 55,410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized gains (losses): |
||||||||||||||||||||
| Control investments |
— | — | (91,470 | ) | — | (91,470 | ) | |||||||||||||
| Affiliate investments |
— | — | — | — | 2,048 | |||||||||||||||
|
Non-control/Non-affiliate investments |
(21,112 | ) | 25,899 | 2,033 | 21,548 | 4,548 | ||||||||||||||
| Foreign currency forward contracts |
1,268 | (686 | ) | — | 1,783 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gains (losses) |
(19,844 | ) | 25,213 | (89,437 | ) | 23,331 | (84,874 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Redemption premium on unsecured notes payable |
— | — | — | — | (120 | ) | ||||||||||||||
| Provision for income tax (expense) benefit |
(173 | ) | 91 | — | (668 | ) | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gains (losses), net of taxes |
3,378 | 46,776 | 9,822 | 60,555 | (29,584 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 19,986 | $ | 64,485 | $ | 24,252 | $ | 112,189 | $ | 13,431 | ||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income per common share — basic and diluted |
$ | 0.12 | $ | 0.13 | $ | 0.10 | $ | 0.37 | $ | 0.31 | ||||||||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.14 | $ | 0.46 | $ | 0.17 | $ | 0.80 | $ | 0.10 | ||||||||||
| Weighted average common shares outstanding — basic and diluted |
140,961 | 140,961 | 140,961 | 140,961 | 140,961 | |||||||||||||||
7
Third Quarter Fiscal Year 2019 Earnings Presentation August 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 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 June 30, 2019.
Net asset value per share (“NAV”) increased to $6.60, up $0.05 from the prior quarter Highlights for the Quarter Ended June 30, 2019 1 Net investment income of $0.12 per share 2 Continued progress rotating portfolio 3 Maintained defensive posture and conservative financial position 4 NAV has grown by approximately $92 million ($0.65 per share) or 11% since June 30, 2018 Sixth consecutive quarter of NAV growth 15% increase from the quarter ended June 30, 2018 Board of Directors declared a dividend of $0.095 per share, payable on September 30, 2019 to stockholders of record as of September 13, 2019, consistent with the prior five quarters Exited approximately $27 million of non-core investments, including an investment on non-accrual during the quarter ended June 30, 2019 Non-core investments have been reduced by $620 million or 69% since September 30, 2017 Core investments have more than doubled to $1.1 billion since September 30, 2017 Continuing to be patient and disciplined given current competitive market environment 0.58x leverage (debt-to-equity) is below target leverage range of 0.70x to 0.85x Well positioned with $330 million of dry powder available to invest
Key Earnings Metrics Net Investment Income Per Share NAV Per Share NII has increased by 25% since December 31, 2017 NAV has appreciated 13% since December 31, 2017
Portfolio Summary as of June 30, 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 Senior Loan Fund JV I, LLC (“Kemper JV”), a joint venture that invests primarily in middle market and other corporate debt securities. 2Excludes multi-sector holdings, which is primarily comprised of investments in the Kemper JV. $1.5 billion invested in 105 companies 93% of the total portfolio consists of debt investments $15 million average debt investment size1 8.7% weighted average yield on debt investments 88% of debt portfolio consists of floating rate investments
Portfolio Diversity OCSL’s portfolio is diverse across borrowers and industries (As % of total portfolio at fair value) Portfolio by Industry1,2 Diversity by Investment Size Top 10 Investments 26% Next 15 Investments 25% Remaining 79 Investments 41% Kemper JV 9% As of June 30, 2019 Note:Numbers may not sum due to rounding. 1Excludes investments in the Kemper JV. 2 Based on GICS industry classifications. Industry Group % of Portfolio Software 11.3% Healthcare Providers & Services 9.6% IT Services 9.0% Biotechnology 5.7% Insurance 4.9% Pharmaceuticals 4.6% Healthcare Technology 3.9% Diversified Financial Services 3.9% Oil, Gas & Consumable Fuels 3.3% Specialty Retail 3.2% Commercial Services & Supplies 3.2% Auto Components 3.1% Remaining 24 Industries 34.3% (As % of total portfolio at fair value)
Debt Portfolio Company Metrics OCSL’s portfolio has transitioned into higher quality, larger borrowers with lower leverage, reflecting our defensive investment approach Debt Portfolio Company EBITDA1 Debt Portfolio Company Leverage1 Median Debt Portfolio Company EBITDA ($ 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. 3Represents average debt multiples for respective LTM periods, as there were not enough middle market observations during each respective quarter to produce a meaningful average. 4Represents average debt multiples for 1H 2019. 3 9/30/17 6/30/18 9/30/18 6/30/19 $50 $99 $103 $130 2 2 4 3
Non-core Investments: 21% of portfolio Non-core Investments: 63% of portfolio Historical Portfolio Progression Non-core private loans and non-accruals currently represent only 14% of OCSL’s portfolio ($ in millions, at fair value) Portfolio by Category1 -69% 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. +105% 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 and equity in aviation entities. 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 (unchanged from prior quarter) Average debt price: 95.0% Equity Investments1 $56 million at fair value in 24 positions and limited partnership interests in two third party managed funds $6 million of exits during the quarter Aviation $15 million at fair value with one aircraft remaining Received $21 million from the sale of one aircraft during the quarter Liquid Debt Investments $20 million at fair value in three companies Average debt price: 99.9% Exited $11 million at par during July Non-accruals $87 million at fair value in five companies Average debt price: 52.6% Exited Advanced Pain Management during the quarter (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 $273
Q3 2019 Portfolio Originations $67 million of new investment commitments $74 million of new funded investments1 7 portfolio companies across 5 industries 8.0% weighted average yield at cost of new debt investments 100% of new debt investment commitments at floating rates 94% of new investments also held by other Oaktree funds New Investment Highlights ($ in millions) Historical Originations and Exits (As % of new investment commitments; $ in millions) New Investment Composition Note:Numbers rounded to the nearest million or percentage point. 1 New funded investments includes drawdowns on existing revolver commitments. 2Investment exits includes proceeds from prepayments, exits, other paydowns and sales. Remaining patient and highly selective when evaluating new investment opportunities given competitive market environment 1 2
Historical Financial Information ($ in thousands, except per share amounts) Operating Results For the three months ended 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Interest income $32,910 $34,309 $35,789 $35,306 $26,634 PIK interest income 1,198 2,280 832 499 1,457 Fee income 1,826 1,132 1,202 2,034 2,425 Dividend income 735 523 453 381 1,331 Total investment income 36,669 38,244 38,276 38,220 31,847 Base management fee 5,548 5,731 5,568 5,767 5,909 Parts I & II incentive fees 4,394 11,983 5,548 3,675 2,733 Interest expense 7,592 8,970 8,904 9,323 8,291 Other operating expenses1 1,893 1,752 2,503 2,132 2,032 Total expenses 19,427 28,436 22,523 20,897 18,965 Fees waived 634 (7,901) (1,564) 292 (1,548) Net expenses 20,061 20,535 20,959 21,189 17,417 Net investment income 16,608 17,709 17,317 17,031 14,430 Net realized and unrealized gains (losses) 3,551 46,685 10,987 16,922 9,822 Provision for income taxes (173) 91 (586) (622) - Net increase/decrease in net assets resulting from operations $19,986 $64,485 $27,718 $33,331 $24,252 Net investment income per common share $0.12 $0.13 $0.12 $0.12 $0.10 Net realized and unrealized gains (losses) per common share 0.02 0.33 0.08 0.12 0.07 Earnings (loss) per common share – basic and diluted $0.14 $0.46 $0.20 $0.24 $0.17 Distributions per common share $0.095 $0.095 $0.095 $0.095 $0.095 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses.
Historical Financial Information (continued) ($ in thousands, except per share amounts) Select Balance Sheet and Other Data As of 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Investment Portfolio (at fair value) $1,455,031 $1,504,888 $1,464,885 $1,491,201 $1,520,518 Total Debt Outstanding1 537,278 592,178 607,141 637,213 607,082 Total Net Assets 930,050 923,456 872,362 858,035 838,095 Net Asset Value per share $6.60 $6.55 $6.19 $6.09 $5.95 Total Leverage 0.58x 0.64x 0.70x 0.75x 0.73x Weighted Average Interest Rate on Debt Outstanding 5.1% 5.1% 5.3% 5.1% 5.2% Weighted Average Yield on Debt Investments2 8.7% 9.0% 8.7% 8.4% 8.8% Cash Component of Weighted Average Yield on Debt Investments 8.0% 8.3% 8.0% 8.2% 8.5% Weighted Average Yield on Total Portfolio Investments3 8.2% 8.3% 8.1% 8.1% 8.4% 1Net of unamortized financing costs. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on debt investments in the Kemper JV. 3Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on debt investments in the Kemper JV.
Historical Portfolio Activity ($ in thousands) As of 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Investments at Fair Value $1,455,031 $1,504,888 $1,464,885 $1,491,201 $1,520,518 Number of Portfolio Companies 105 110 110 113 116 Average Portfolio Company Debt Investment Size $15,400 $15,000 $15,000 $14,800 $14,500 Asset Class: Senior Secured Debt 79.7% 78.9% 80.0% 75.4% 76.0% Unsecured Debt 7.0% 8.0% 7.8% 11.0% 10.9% Equity 4.3% 4.2% 3.3% 4.4% 3.8% Limited Partnership Interests 0.2% 0.5% 0.5% 0.5% 0.6% Kemper JV 8.8% 8.4% 8.4% 8.7% 8.7% Interest Rate Type for Debt Investments: % Floating-Rate 88.5% 86.3% 86.6% 83.2% 82.9% % Fixed-Rate 11.5% 13.7% 13.4% 16.8% 17.1% Investment Activity: New Investment Commitments $66,800 $100,000 $231,100 $228,400 $379,800 New Funded Investment Activity1 74,100 111,100 162,400 218,400 389,000 Proceeds from Prepayments, Exits, Other Paydowns and Sales 138,300 120,700 208,300 267,500 280,700 Net New Investments2 (64,200) (9,600) (45,900) (49,100) 108,300 Number of New Investment Commitments in New Portfolio Companies 3 5 14 13 24 Number of New Investment Commitments in Existing Portfolio Companies 4 1 3 3 4 Number of Portfolio Company Exits 8 4 14 18 28 1New funded investment activity includes drawdowns on existing revolver commitments. 2Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
Net Asset Value Per Share Bridge Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1
Capital Structure Overview ($ in millions) ($ in millions) (As % of total funding sources) ($ in millions) Funding Sources Funding Sources by Type Historical Principal Outstanding and Leverage Ratio2 Maturity Profile of Liabilities Committed Principal Outstanding Interest Rate Maturity Credit Facility $700 $370 LIBOR+2.00%1 2/25/2024 2024 Notes 75 75 5.875% 10/30/2024 2028 Notes 86 86 6.125% 4/30/2028 Total $881 $531 As of June 30, 2019 Note:Excludes secured borrowings. 1Interest rate spread can increase up to 2.25% depending on the senior coverage ratio. 2Represents carrying value of debt, including secured borrowings. 3Facility amended, extended and upsized in February 2019 and $20 million of additional commitments were made in April 2019. Target Leverage Ratio: 0.70x-0.85x debt-to-equity No debt maturities until 2024 Amended Credit Facility3 Original Credit Facility
Redeploy non-interest generating investments Opportunities to Increase Return on Equity As of June 30, 2019 1 Operate within target leverage range of 0.70x-0.85x debt-to-equity 2 Utilize additional investment capacity at the Kemper JV 3 Rotate into higher-yielding proprietary investments 4 $152 million of non-interest generating investments remain, including $87 million of non-accruals and $65 million of equity investments Received $196 million in proceeds from exits of non-interest generating investments since September 30, 2017 Current leverage of 0.58x debt-to-equity is below target leverage range (we would need to deploy at least $120 million in order to reach 0.70x leverage) Continue to be highly selective and patient given competitive market environment Continued to position the JV for future growth by upsizing credit facility by $50 million to $250 million 1.3x leverage (debt-to-equity) $104 million remaining investment capacity (assuming 2.0x leverage) $20 million of broadly syndicated loans priced below LIBOR + 4.00% as of June 30, 2019 $12 million decrease from the prior quarter We believe OCSL is well-positioned to enhance return on equity
Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com