8-K

 

 

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 7, 2020

 

 

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 Stock Market LLC

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 May 7, 2020, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended March 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1.

On May 7, 2020, the Company will host a conference call to discuss its financial results for the fiscal quarter ended March 31, 2020. 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 7, 2020
99.2    Oaktree Specialty Lending Corporation Second Quarter 2020 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 7, 2020     By:   /s/ Mel Carlisle
      Name: Mel Carlisle
      Title: Chief Financial Officer and Treasurer
EX-99.1

Exhibit 99.1

 

LOGO

Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2020 Financial

Results and Declares Distribution of $0.095 Per Share

LOS ANGELES, CA, May 7, 2020 - Oaktree Specialty Lending Corporation (NASDAQ: OCSL) (“Oaktree Specialty Lending” or the “Company”), a specialty finance company, today announced its financial results for the fiscal quarter ended March 31, 2020.

Financial Highlights for the Quarter Ended March 31, 2020

 

   

Total investment income was $34.2 million ($0.24 per share) for the second fiscal quarter of 2020, up from $31.0 million ($0.22 per share) for the first fiscal quarter of 2020, primarily as a result of higher original issue discount (“OID”) acceleration and prepayment fees from exits of investments as well as higher structuring fees on new originations as compared to the prior quarter.

 

   

GAAP net investment income was $22.8 million ($0.16 per share) for the second fiscal quarter of 2020, up from $7.8 million ($0.06 per share) for the first fiscal quarter of 2020, resulting from higher investment income and lower net expenses mainly due to a reversal of previously accrued Part II incentive fees in the quarter as a result of unrealized depreciation on investments. This was partially offset by higher interest expense resulting from higher average borrowings outstanding during the quarter.

 

   

Adjusted net investment income was $16.2 million ($0.12 per share) for the second fiscal quarter of 2020, up from $14.1 million ($0.10 per share) for the first fiscal quarter of 2020, primarily as a result of higher investment income, partially offset by higher interest expense.

 

   

Net asset value (“NAV”) per share was $5.34 as of March 31, 2020, down 19% from $6.61 as of December 31, 2019. The decrease in NAV was primarily due to increased market volatility and wider credit spreads resulting from the COVID-19 pandemic. The decline in the fair value of the investment portfolio was primarily unrealized and concentrated in liquid senior secured loans, which experienced sharp price declines in March.

 

   

Originated $272.9 million of new investment commitments and received $154.5 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended March 31, 2020. Of these new investment commitments, 76.8% were first lien loans, 7.8% were second lien loans and 15.4% were subordinated debt investments.

 

   

Total debt outstanding was $704.8 million as of March 31, 2020. The total debt to equity ratio was 0.94x, and the net debt to equity ratio was 0.82x, after adjusting for cash and cash equivalents.

 

   

The Company issued $300 million of unsecured notes during the quarter ended March 31, 2020 that mature on February 25, 2025 and bear interest at a rate of 3.500%. Proceeds from the sale of notes were used to redeem $161 million of unsecured notes previously outstanding and pay down borrowings on the Company’s revolving credit facility.

 

   

Liquidity as of March 31, 2020 was comprised of $89.5 million of unrestricted cash and cash equivalents and $295.2 million of undrawn capacity on its credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $91.6 million, with approximately $61 million that can be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies.

 

   

A quarterly cash distribution was declared of $0.095 per share, which is consistent with the Company’s prior eight distributions. The distribution will be paid in cash and is payable on June 30, 2020 to stockholders of record on June 15, 2020.

Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, “During this challenging period adjusted net investment income grew by 15%, reflecting portfolio growth on robust origination activity and opportunistic purchases in March. Our Board of Directors declared a $0.095 cash distribution payable in June, which is consistent with our prior eight distributions.”

 

1


“We successfully priced a public offering of $300 million of 3.500% unsecured notes in February, using proceeds to redeem $161 million of unsecured notes that had a blended coupon rate of approximately 6.0% and pay down borrowings under our credit facility,” Mr. Panossian continued. “This transaction enhanced our liquidity position and significantly reduced our cost of funding. While the broader market volatility resulting from the COVID-19 pandemic led to a decline in the prices of certain liquid debt investments in March, we have experienced some recovery in the prices of these investments through the end of April. In this environment we will continue to opportunistically deploy capital. For example, in April, we committed $132 million across 13 companies, including a co-investment with our flagship Opportunities funds. We believe these transactions present an attractive risk-reward and will benefit our stockholders over the long term.”

Distribution Declaration

The Board of Directors declared a quarterly distribution of $0.095 per share, payable on June 30, 2020 to stockholders of record on June 15, 2020.

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.

 

2


Results of Operations

 

     For the three months ended  
($ in thousands, except per share data)    March 31,
2020
(unaudited)
     December 31,
2019
(unaudited)
     March 31,
2019
(unaudited)
 

GAAP operating results:

        

Interest income

   $ 29,898      $ 28,405      $ 34,309  

PIK interest income

     1,946        1,161        2,280  

Fee income

     2,050        1,071        1,132  

Dividend income

     277        323        523  
  

 

 

    

 

 

    

 

 

 

Total investment income

     34,171        30,960        38,244  

Net expenses

     11,330        23,124        20,535  
  

 

 

    

 

 

    

 

 

 

Net investment income

     22,841        7,836        17,709  

Net realized and unrealized gains (losses), net of taxes

     (188,308      6,007        46,776  
  

 

 

    

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (165,467    $ 13,843      $ 64,485  
  

 

 

    

 

 

    

 

 

 

Net investment income per common share

   $ 0.16      $ 0.06      $ 0.13  

Net realized and unrealized gains (losses), net of taxes per common share

   $ (1.33    $ 0.04      $ 0.33  

Earnings (loss) per common share — basic and diluted

   $ (1.17    $ 0.10      $ 0.46  

Non-GAAP Financial Measures1:

        

Adjusted net investment income

   $ 16,233      $ 14,087      $ 17,709  

Adjusted net investment income per common share

   $ 0.12      $ 0.10      $ 0.13  

 

1

See Non-GAAP Financial Measures — Adjusted Net Investment Income below for a description of this non-GAAP measure and a reconciliation from net investment income to adjusted net investment income, including on a weighted-average per share basis. The Company’s management uses this non-GAAP financial measure internally to analyze and evaluate financial results and performance and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to capital gains incentive fees. The presentation of adjusted net investment income is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.

 

     As of  
($ in thousands, except per share data and ratios)    March 31,
2020
(unaudited)
     December 31,
2019
(unaudited)
     September 30,
2019
 

Select balance sheet and other data:

        

Cash and cash equivalents

   $ 89,509      $ 21,527      $ 15,406  

Investment portfolio at fair value

     1,392,187        1,467,627        1,438,042  

Total debt outstanding (net of unamortized financing costs)

     698,686        536,468        473,367  

Net assets

     752,224        931,082        930,630  

Net asset value per share

     5.34        6.61        6.60  

Total debt to equity ratio

     0.94x        0.58x        0.51x  

Net debt to equity ratio

     0.82x        0.56x        0.49x  

Total investment income for the quarter ended March 31, 2020 was $34.2 million and included $29.9 million of interest income from portfolio investments, $1.9 million of payment-in-kind (“PIK”) interest income, $2.1 million of fee income and $0.3 million of dividend income. Total investment income increased by $3.2 million as compared to the quarter ended December 31, 2019, primarily reflecting higher OID acceleration and prepayment fees from exits of investments as compared to the prior quarter as well as higher structuring fees on new originations as compared to the prior quarter.

Net expenses for the quarter totaled $11.3 million, down $11.8 million from the quarter ended December 31, 2019. The decrease in net expenses was primarily due to a $6.6 million reversal of previously accrued Part II incentive fees in the current quarter as a result of unrealized depreciation on investments and a $5.2 million reversal of previously accrued fee waivers2 in the prior quarter.

 

2 

To ensure compliance with Section 15(f) of the Investment Company Act, Oaktree Capital Management, L.P. (“Oaktree”) entered into a two-year contractual fee waiver with the Company, which ended on October 17, 2019, pursuant to which Oaktree waived any management or incentive fees payable under the investment advisory agreement that exceeded what would have been paid to the Company’s former investment adviser in the aggregate under the former investment advisory agreement. At the end of the two-year period, Oaktree permanently waived $3.9 million. Prior to the end of the two-year period, amounts potentially subject to waiver under the two-year contractual fee waiver were accrued quarterly based on a theoretical “liquidation basis.” As of September 30, 2019, the Company had accrued cumulative fee waivers of $9.1 million. During the three months ended December 31, 2019, the Company reversed $5.2 million of previously accrued fee waivers since the two-year fee waiver period has ended.

 

3


Adjusted net investment income was $16.2 million ($0.12 per share) for the quarter ended March 31, 2020, up from $14.1 million ($0.10 per share) for the quarter ended December 31, 2019, primarily reflecting higher investment income, partially offset by higher interest expense resulting from additional borrowings during the quarter.

Oaktree has voluntarily deferred the payment of Part I incentive fees incurred by the Company during the quarter ended March 31, 2020.

Net realized and unrealized losses, net of taxes, were $188.3 million for the quarter, and included $145 million of unrealized losses related to liquid debt investments1 and $41 million of unrealized losses in private investments on investments still held at March 31, 2020.

Portfolio and Investment Activity

 

     As of  
($ in thousands)    March 31,
2020
(unaudited)
    December 31,
2019
(unaudited)
    March 31,
2019
(unaudited)
 

Investments at fair value

   $ 1,392,187     $ 1,467,627     $ 1,504,888  

Number of portfolio companies

     128       106       110  

Average portfolio company debt size

   $ 11,900     $ 15,300     $ 15,000  

Asset class:

      

Senior secured debt

     81.9     79.5     78.9

Unsecured debt

     5.8     4.8     8.0

Equity

     5.5     6.7     4.2

SLF JV I

     6.6     8.8     8.4

Limited partnership interests

     0.2     0.2     0.5

Non-accrual debt investments:

      

Non-accrual investments at fair value

   $ 5,864     $ 461     $ 85,854  

Non-accrual investments as a percentage of debt investments

     0.5     —       6.1

Number of investments on non-accrual

     3       3       6  

Interest rate type:

      

Percentage floating-rate

     90.6     90.6     86.3

Percentage fixed-rate

     9.4     9.4     13.7

Yields:

      

Weighted average yield on debt investments2

     8.0     8.6     9.0

Cash component of weighted average yield on debt investments

     6.9     7.8     8.3

Weighted average yield on total portfolio investments3

     7.5     7.9     8.3

Investment activity:

      

New investment commitments

   $ 272,900     $ 134,200     $ 100,000  

New funded investment activity4

   $ 251,700     $ 136,200     $ 111,100  

Proceeds from prepayments, exits, other paydowns and sales

   $ 154,500     $ 97,000     $ 120,700  

Net new investments5

   $ 97,200     $ 39,200     $ (9,600

Number of new investment commitments in new portfolio companies

     32       9       5  

Number of new investment commitments in existing portfolio companies

     8       4       1  

Number of portfolio company exits

     10       7       4  

 

1

Includes Level 2 and Level 3 debt securities that are valued based on broker quotations.

2

Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including the Company’s share of the return on debt investments in the SLF JV I.

3

Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including the Company’s share of the return on debt investments in the SLF JV I.

4

New funded investment activity includes drawdowns on existing revolver commitments.

5

Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.

 

4


As of March 31, 2020, the fair value of the investment portfolio was $1.4 billion and was comprised of investments in 128 companies. These included debt investments in 103 companies, equity investments in 32 companies, including our limited partnership interests in two private equity funds, and the Company’s investment in Senior Loan Fund JV I, LLC (“SLF JV I”). Eight of the equity investments were in companies in which the Company also had a debt investment.

As of March 31, 2020, 94.3% of the Company’s portfolio at fair value as of March 31, 2020 consisted of debt investments, including 62.3% of first lien loans, 19.6% of second lien loans and 12.4% of unsecured debt investments, including the debt investments in SLF JV I. This compared to 56.7% of first liens, 22.8% of second liens and 11.4% of unsecured debt investments, including the debt investments in SLF JV I at fair value as of December 31, 2019. First lien loans increased from 56.7% to 62.3% sequentially, reflecting the Company’s efforts to gradually migrate the portfolio towards more senior securities.

During the quarter ended March 31, 2020, with the exception of one portfolio company that modified its scheduled interest payment to PIK in order to preserve liquidity, all of the Company’s portfolio companies made their scheduled interest payments.

As of March 31, 2020, non-accruals represented 1.8% of the debt portfolio at cost and 0.5% at fair value. Two liquid debt investments were added to non-accrual status during the quarter after experiencing price deterioration in the quarter. Together these two investments represented 0.7% of the debt portfolio at cost and 0.4% at fair value

The Company’s investments in SLF JV I totaled $92.2 million at fair value as of March 31, 2020, down 28% from $128.5 million as of December 31, 2019. The sequential decline in the value of the Company’s investments in SLF JV I was primarily driven by SLF JV I’s use of leverage and unrealized price declines in the underlying investment portfolio resulting from the broader market volatility. Excluding the impact of leverage, SLF JV I’s underlying investment portfolio at fair value declined 13% during the quarter ended March 31, 2020.

As of March 31, 2020, SLF JV I had $329.6 million in assets, including senior secured loans to 53 portfolio companies. This compared to $351.7 million in assets, including senior secured loans to 51 portfolio companies, as of December 31, 2019. The joint venture generated income of $2.1 million for the Company during the quarter ended March 31, 2020, down slightly from $2.2 million in the prior quarter. As of March 31, 2020, SLF JV I had $56.1 million of undrawn capacity (subject to borrowing base and other limitations) on its $250 million senior revolving credit facility, and its debt to equity ratio was 1.8x.

Liquidity and Capital Resources

On February 25, 2020, the Company closed on its public offering of $300 million aggregate principal amount of 3.500% notes due 2025 (the “2025 Notes”). Net proceeds from this offering were used to reduce outstanding debt, including the redemption in full of the $75 million 5.875% unsecured notes due 2024 and $86 million 6.125% unsecured notes due 2028, as well as a portion of the borrowings under its revolving credit facility.

The Company was in compliance with all financial covenants under its credit facility as of March 31, 2020.

As of March 31, 2020, the Company had total principal value of debt outstanding of $704.8 million, including $404.8 million of outstanding borrowings under the revolving credit facility and $300 million of unsecured notes. The funding mix was comprised of 57% secured and 43% unsecured borrowings as of March 31, 2020. The Company has no near-term debt maturities, as the next scheduled maturity is for the revolving credit facility in February 2024.

As of March 31, 2020, the Company had $89.5 million of unrestricted cash and cash equivalents and $295.2 million of undrawn capacity on its credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $91.6 million as of March 31, 2020, with approximately $61 million that can be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies. The Company has analyzed cash and cash equivalents, availability under our credit facility, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believe our liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate.

As of March 31, 2020, the weighted average interest rate on debt outstanding was 3.1%, down from 4.5% as of December 31, 2019, primarily reflecting the impact of the issuance of the 2025 Notes and the redemption of the 5.875% unsecured notes due 2024 and the 6.125% unsecured notes due 2028 as well as the impact of decreases in LIBOR on the Company’s revolving credit facility.

 

5


During the quarter, the Company increased its target debt to equity ratio from 0.70x to 0.85x to 0.85x to 1.0x as the Company plans to continue to opportunistically deploy capital into the markets. The Company’s total debt to equity ratio was 0.94x and 0.58x as of March 31, 2020 and December 31, 2019, respectively. Net debt to equity ratio was 0.82x and 0.56x as of March 31, 2020 and December 31, 2019, respectively.

Recent Developments

From April 1, 2020 to April 30, 2020, originations totaled $132 million with a weighted average yield of 10.6% and were primarily comprised of opportunistic purchases made in both the private and public markets. Of these new investment commitments, 50% were first lien loans, 5% were second lien loans and 45% were subordinated debt investments.

As of April 30, 2020, the Company had $68 million of unrestricted cash and cash equivalents and $260 million of undrawn capacity on its credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $122 million as of April 30, 2020, with approximately $76 million that can be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies.

On May 6, 2020, the Company amended its revolving credit facility (1) to reduce the minimum shareholders’ equity covenant from $700 million to $550 million, (ii) to increase the interest rate margin up to 2.75% on LIBOR loans or 1.75% on alternative base rate loans if the Company’s minimum shareholders’ equity is below $700 million depending on its senior coverage ratio and (iii) to reduce the maximum size of the facility under the “accordion” feature to the greater of $800 million or the Company’s net worth on the date of such increase.

Non-GAAP Financial Measures

Adjusted Net Investment Income

On a supplemental basis, the Company is disclosing adjusted net investment income and per share adjusted net investment income, each of which is a financial measure that is calculated and presented on a basis of methodology other than in accordance with U.S. GAAP (“non-GAAP”). Adjusted net investment income represents net investment income, excluding capital gains incentive fees (“Part II incentive fee”). The Company’s management uses this non-GAAP financial measure internally to analyze and evaluate financial results and performance and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to capital gains incentive fees. The Company’s investment advisory agreement provides that a capital gains-based incentive fee is determined and paid annually with respect to realized capital gains (but not unrealized capital appreciation) to the extent such realized capital gains exceed realized capital losses and unrealized capital depreciation on a cumulative basis. Refer to Note 11 – Related Party Transactions in our Quarterly Report on Form 10-Q for further discussion. The Company believes that adjusted net investment income is a useful performance measure because it reflects the net investment income produced on the Company’s investments during a period without giving effect to any changes in the value of such investments and any related capital gains incentive fees between periods. The presentation of adjusted net investment income is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.

The following table provides a reconciliation of net investment income (the most comparable U.S. GAAP measure) to adjusted net investment income for the periods presented:

 

     For the three months ended  
     March 31, 2020
(unaudited)
    December 31, 2019
(unaudited)
     March 31, 2019
(unaudited)
 
($ in thousands, except per share data)    Amount     Per
Share
    Amount      Per
Share
     Amount      Per
Share
 

GAAP net investment income

   $ 22,841     $ 0.16     $ 7,836      $ 0.06      $ 17,709      $ 0.13  

Part II incentive fee (net of waivers)

     (6,608     (0.05     6,251        0.04        —          —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net investment income

   $ 16,233     $ 0.12     $ 14,087      $ 0.10      $ 17,709      $ 0.13  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

6


Conference Call Information

Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2020 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 7, 2020. 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.” Alternatively, a live webcast of the conference call can be accessed on Oaktree Specialty Lending’s website, www.oaktreespecialtylending.com. During the earnings conference call, Oaktree Specialty Lending intends to refer to an investor presentation that will be available 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 10141939, 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 Company 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 externally managed by Oaktree Fund Advisors, LLC, an affiliate of 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, natural disasters or the COVID-19 pandemic; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; general considerations associated with the COVID-19 pandemic; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission, 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

 

7


Oaktree Specialty Lending Corporation

Consolidated Statements of Assets and Liabilities

(in thousands, except per share amounts)

 

     March 31,
2020
(unaudited)
    December 31,
2019
(unaudited)
    September 30,
2019
 
ASSETS       

Investments at fair value:

      

Control investments (cost March 31, 2020: $255,739; cost December 31, 2019: $205,608; cost September 30, 2019: $224,255)

   $ 187,267     $ 192,528     $ 209,178  

Affiliate investments (cost March 31, 2020: $10,487; cost December 31, 2019: $8,449; cost September 30, 2019: $8,449)

     9,414       9,106       9,170  

Non-control/Non-affiliate investments (cost March 31, 2020: $1,362,354; cost December 31, 2019: $1,324,201; cost September 30, 2019: $1,280,310)

     1,195,506       1,265,993       1,219,694  
  

 

 

   

 

 

   

 

 

 

Total investments at fair value (cost March 31, 2020: $1,628,580; cost December 31, 2019: $1,538,258; cost September 30, 2019: $1,513,014)

     1,392,187       1,467,627       1,438,042  

Cash and cash equivalents

     89,509       21,527       15,406  

Interest, dividends and fees receivable

     6,217       10,356       11,167  

Due from portfolio companies

     1,774       2,931       2,616  

Receivables from unsettled transactions

     1,868       5,458       4,586  

Deferred financing costs

     5,671       6,034       6,396  

Deferred offering costs

     45       65       —    

Deferred tax asset, net

     821       —         —    

Derivative assets at fair value

     1,268       —         490  

Other assets

     2,267       2,602       2,335  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,501,627     $ 1,516,600     $ 1,481,038  
  

 

 

   

 

 

   

 

 

 
LIABILITIES AND NET ASSETS       

Liabilities:

      

Accounts payable, accrued expenses and other liabilities

   $ 1,750     $ 1,540     $ 1,589  

Base management fee and incentive fee payable

     8,739       15,971       10,167  

Due to affiliate

     2,651       2,548       2,689  

Interest payable

     1,681       2,402       2,296  

Payable to syndication partners

     —         1       —    

Payables from unsettled transactions

     35,896       24,687       59,596  

Derivative liability at fair value

     —         972       —    

Deferred tax liability

     —         929       704  

Credit facility payable

     404,825       377,825       314,825  

Unsecured notes payable (net of $3,645, $2,607 and $2,708 of unamortized financing costs as of March 31, 2020, December 31, 2019 and September 30, 2019, respectively)

     293,861       158,643       158,542  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     749,403       585,518       550,408  
  

 

 

   

 

 

   

 

 

 

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, 2020, December 31, 2019 and September 30, 2019

     1,409       1,409       1,409  

Additional paid-in-capital

     1,487,774       1,487,774       1,487,774  

Accumulated overdistributed earnings

     (736,959     (558,101     (558,553
  

 

 

   

 

 

   

 

 

 

Total net assets (equivalent to $5.34, $6.61 and $6.60 per common share as of March 31, 2020, December 31, 2019 and September 30, 2019, respectively)

     752,224       931,082       930,630  
  

 

 

   

 

 

   

 

 

 

Total liabilities and net assets

   $ 1,501,627     $ 1,516,600     $ 1,481,038  
  

 

 

   

 

 

   

 

 

 

 

8


Oaktree Specialty Lending Corporation

Consolidated Statements of Operations

(in thousands, except per share amounts)

 

     Three months
ended
March 31,
2020
(unaudited)
    Three months
ended
December 31,
2019
(unaudited)
    Three months
ended
March 31,
2019
(unaudited)
    Six months
ended
March 31,
2020
    Six months
ended
March 31,
2019
 

Interest income:

          

Control investments

   $ 2,393     $ 2,551     $ 2,852     $ 4,944     $ 6,191  

Affiliate investments

     138       114       22       252       35  

Non-control/Non-affiliate investments

     27,149       25,659       31,231       52,808       63,398  

Interest on cash and cash equivalents

     218       81       204       299       474  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     29,898       28,405       34,309       58,303       70,098  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PIK interest income:

          

Control investments

     —         —         —         —         67  

Non-control/Non-affiliate investments

     1,946       1,161       2,280       3,107       3,045  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total PIK interest income

     1,946       1,161       2,280       3,107       3,112  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fee income:

          

Control investments

     8       6       7       14       13  

Affiliate investments

     5       5       5       10       9  

Non-control/Non-affiliate investments

     2,037       1,060       1,120       3,097       2,312  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

     2,050       1,071       1,132       3,121       2,334  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividend income:

          

Control investments

     277       323       523       600       976  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     277       323       523       600       976  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     34,171       30,960       38,244       65,131       76,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Base management fee

     5,295       5,607       5,731       10,902       11,299  

Part I incentive fee

     3,444       2,988       3,813       6,432       7,541  

Part II incentive fee

     (6,608     1,051       8,170       (5,557     9,990  

Professional fees

     669       640       499       1,309       1,465  

Directors fees

     142       143       142       285       285  

Interest expense

     7,215       6,535       8,970       13,750       17,874  

Administrator expense

     393       428       406       821       1,169  

General and administrative expenses

     780       532       705       1,312       1,336  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,330       17,924       28,436       29,254       50,959  

Reversal of fees waived / (fees waived)

     —         5,200       (7,901     5,200       (9,465
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

     11,330       23,124       20,535       34,454       41,494  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     22,841       7,836       17,709       30,677       35,026  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized appreciation (depreciation):

          

Control investments

     (55,392     1,997       3,868       (53,395     (1,952

Affiliate investments

     (1,730     (64     (181     (1,794     (181

Non-control/Non-affiliate investments

     (108,651     2,408       17,108       (106,243     16,324  

Secured borrowings

     —         —         (76     —         (95

Foreign currency forward contracts

     2,240       (1,462     753       778       401  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized appreciation (depreciation)

     (163,533     2,879       21,472       (160,654     14,497  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized gains (losses):

          

Control investments

     777       —         —         777       —    

Non-control/Non-affiliate investments

     (24,777     3,839       25,899       (20,938     42,660  

Extinguishment of unsecured notes payable

     (2,541     —         —         (2,541     —    

Foreign currency forward contracts

     61       (551     (686     (490     515  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gains (losses)

     (26,480     3,288       25,213       (23,192     43,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income tax (expense) benefit

     1,705       (160     91       1,545       (495
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses), net of taxes

     (188,308     6,007       46,776       (182,301     57,177  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ (165,467   $ 13,843     $ 64,485     $ (151,624   $ 92,203  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income per common share — basic and diluted

   $ 0.16     $ 0.06     $ 0.13     $ 0.22     $ 0.25  

Earnings (loss) per common share — basic and diluted

   $ (1.17   $ 0.10     $ 0.46     $ (1.08   $ 0.65  

Weighted average common shares outstanding — basic and diluted

     140,961       140,961       140,961       140,961       140,961  

 

9

EX-99.2

Slide 0

Second Quarter Fiscal Year 2020 Earnings Presentation May 7, 2020 Nasdaq: OCSL Exhibit 99.2


Slide 1

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 Fund Advisors, LLC (“Oaktree”) to reposition our portfolio and to implement Oaktree’s future plans with respect to our business; the ability of Oaktree to attract and retain highly talented professionals; 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, 2019 and our quarterly report on Form 10-Q for the quarter ended March 31, 2020. Other factors that could cause actual results to differ materially include: changes or potential disruptions in our operations, the economy, financial markets or political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; general considerations associated with the COVID-19 pandemic; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings. We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the 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, 2020.


Slide 2

Highlights for the Quarter Ended March 31, 2020 Adjusted Net Investment Income1 $0.12 per share for the quarter ended March 31, 2020, up $0.02 as compared to $0.10 for the quarter ended December 31, 2019 15% sequential increase primarily due to growth in the investment portfolio and higher structuring fees received in connection with new originations GAAP net investment income was $0.16 per share for the quarter ended March 31, 2020 Dividend Declared a cash distribution of $0.095 per share payable on June 30, 2020 to stockholders of record as of June 15, 2020 Consistent with prior eight distributions Net Asset Value $5.34 per share as of March 31, 2020, down as compared to $6.61 as of December 31, 2019 Decline primarily due to increased market volatility and wider credit spreads resulting from the COVID-19 pandemic Investment Activity $273 million of new investment commitments and received $154 million of proceeds from prepayments, exits, other paydowns and sales $64 million (par value) of opportunistic secondary market purchases made during March selloff; 82% average purchase price Originated $132 million of new investment commitments from April 1, 2020 through April 30, 2020; $95 million funded at a 10.6% weighted average yield at cost Capital Structure & Liquidity On February 25, 2020, closed public offering of $300 million of 3.500% notes due 2025 Reduced cost of funding by repaying $75 million of 5.875% unsecured notes due 2024 and $86 million of 6.125% unsecured notes due 2028 Strong liquidity with $90 million in cash and $295 million of undrawn capacity on credit facility; approximately $60 million of unfunded commitments that are eligible to be drawn2 1See page 20 for a description of this non-GAAP measure and a reconciliation from net investment income per share to adjusted net investment income per share. 2Approximately $31 million of unfunded commitments were ineligible to be drawn due to certain limitations in credit agreements.


Slide 3

Portfolio Summary as of March 31, 2020 (As % of total portfolio at fair value; $ in millions) (As % of total portfolio at fair value) Portfolio Composition Top Ten Industries3,4 Portfolio Characteristics (at fair value) Note:Numbers may not sum due to rounding. 1Excludes negative EBITDA borrowers, investments in aviation subsidiaries, investments in structured products and recurring revenue software investments. 2Based on GICS industry classification. 3Based on GICS sub-industry classification. 4Excludes multi-sector holdings, which is primarily composed of investments in Senior Loan Fund JV I (“Kemper JV”), a joint venture that invests primarily in middle market and other corporate debt securities. $1.4 billion at fair value invested in 128 companies 8.0% weighted average yield on debt investments $164 million median debt portfolio company EBITDA1 Select industry exposures2 Energy: 4.6% Airlines and Transportation Infrastructure: 2.6% Aerospace & Defense: 2.1% Hotels, Restaurants & Leisure and Entertainment: 1.4% Food & Staples Retailing and Specialty Retail: 0.6% All portfolio companies made their regularly scheduled interest payments during the quarter ended March 31, 2020 with the exception of one that modified its interest payment to PIK $5.9 million at fair value (0.5% of the total debt portfolio) was on non-accrual Two investments, which represented 0.7% of the debt portfolio at cost and 0.4% at fair value, were added to non-accrual status as of March 31, 2020


Slide 4

Portfolio Diversity OCSL’s portfolio is diverse across borrowers and industries (As % of total portfolio at fair value) Portfolio by Industry1 Diversity by Investment Size Top 10 Investments 25% Next 15 Investments 24% Remaining 103 Investments 44% Kemper JV 7% As of March 31, 2020 Note:Numbers may not sum due to rounding. 1 Based on GICS industry classification. Industry Group % of Portfolio Software 15.2% IT Services 9.5% Healthcare Providers & Services 7.4% Biotechnology 5.2% Diversified Financial Services 4.5% Pharmaceuticals 4.2% Oil, Gas & Consumable Fuels 4.0% Personal Products 3.7% Auto Components 3.3% Insurance 3.3% Diversified Telecommunication Services 2.9% Professional Services 2.6% Remaining 27 Industries 27.6% Kemper JV 6.6% (As % of total portfolio at fair value)


Slide 5

Non-Core Investments: 11% of portfolio Non-Core Investments: 63% of portfolio Historical Portfolio Progression ($ in millions; at fair value) Portfolio by Category1 -84% since 9/30/17 Non-Core Investments 1Excludes investments in the Kemper JV. 2Other non-core investments include liquid debt investments, investments in aviation entities, equity investments and non-accruals. +125% since 9/30/17 Core Investments Non-Core Investment Detail: Non-core portfolio has been reduced by $751 million (84%) since September 30, 2017 Exited eight investments on non-accrual, realizing $40 million of gains since September 30, 2017 Exited 65 other non-core investments2, realizing $51 million of gains since September 30, 2017 Core portfolio has grown by $643 million (125%) since September 30, 2017


Slide 6

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 $57 million at fair value in four companies Average debt price: 92.2% Equity Investments1 $68 million at fair value in 23 companies and limited partnership interests in two third-party managed funds Aviation $15 million at fair value in one aircraft Non-Accruals $2.1 million at fair value in two companies Average debt price: 9.2% Activity During Quarter Ended March 31, 2020 Restructured Dominion Diagnostics Converted existing senior and subordinated debt into mix of first lien debt and common equity Exited $17 million in two equity investments, Yeti Holdings and Lytx Holdings Received $3 million of proceeds in excess of December 31, 2019 fair values Exited Cenegenics (previously on non-accrual) Received $1.6 million of proceeds in excess of December 31, 2019 fair value (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 $142 < 1%


Slide 7

Portfolio Originations $273 million of new investment commitments $220 million in 32 new and $53 million in 8 existing portfolio companies Diversified across 21 industries $252 million of new funded investments1 7.9% weighted average yield at cost of new debt investments 91% of new debt investment commitments at floating rates 100% of new investments also held by other Oaktree funds Originations from April 1, 2020 through April 30, 2020 $132 million of investment commitments $95 million of funded par investments 10.6% weighted average yield at cost New Investment Highlights (As % of new investment commitments; $ in millions) New Investment Composition ($ in millions) Historical Originations and Exits Note:Numbers rounded to the nearest million or percentage point and may not sum as a result. 1 New funded investments includes drawdowns on existing revolver commitments. 2Investment exits includes proceeds from prepayments, exits, other paydowns and sales. 1 2


Slide 8

Originations Detail ($ in millions) New Investment Commitment Detail by Month Security Type Market Month Investment Commitments Number of Deals First Lien Second Lien Unsecured & Other Private Placement Public - Primary Public - Secondary Secondary Purchase Price January $112 6 $105 $6 - $87 $22 $2 95% February 43 4 8 15 20 - 35 8 88% March 118 33 96 - 22 54 - 64 82% Total 2Q2020 $273 39 $210 $21 $42 $141 $58 $75 83% April $132 13 $66 $7 $59 $88 $28 $16 72% Note:Numbers may not sum due to rounding.


Slide 9

Financial Highlights 1See page 20 for a description of this non-GAAP measure and a reconciliation from net investment income per share to adjusted net investment income per share. 2Net of unamortized financing costs. ($ in thousands, except per share amounts) As of 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 GAAP Net Investment Income per Share $0.16 $0.06 $0.12 $0.12 $0.13 Adjusted Net Investment Income per Share1 $0.12 $0.10 $0.12 $0.12 $0.13 Net Realized and Unrealized Gains (Losses), Net of Taxes per Share $(1.33) $0.04 $(0.02) $0.02 $0.33 Earnings (Loss) per Share $(1.17) $0.10 $0.10 $0.14 $0.46 Distributions per Share $0.095 $0.095 $0.095 $0.095 $0.095 NAV per Share $5.34 $6.61 $6.60 $6.60 $6.55 Weighted Average Shares Outstanding 140,961 140,961 140,961 140,961 140,961 Investment Portfolio (at Fair Value) $1,392,187 $1,467,627 $1,438,042 $1,455,031 $1,504,888 Cash and Cash Equivalents $89,509 $21,527 $15,406 $5,637 $12,815 Total Assets $1,501,627 $1,516,600 $1,481,038 $1,485,016 $1,541,317 Total Debt Outstanding2 $698,686 $536,468 $473,367 $537,278 $592,178 Net Assets $752,224 $931,082 $930,630 $930,050 $923,456 Total Debt to Equity Ratio 0.94x 0.58x 0.51x 0.58x 0.64x Net Debt to Equity Ratio 0.82x 0.56x 0.49x 0.57x 0.63x Weighted Average Interest Rate on Debt Outstanding 3.1% 4.5% 4.8% 5.1% 5.1%


Slide 10

Portfolio Highlights ($ in thousands) As of 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 Investments at Fair Value $1,392,187 $1,467,627 $1,438,042 $1,455,031 $1,504,888 Number of Portfolio Companies 128 106 104 105 110 Average Portfolio Company Debt Investment Size $11,900 $15,300 $15,300 $15,400 $15,000 Asset Class: First Lien 62.3% 56.7% 53.5% 54.0% 51.8% Second Lien 19.7% 22.8% 25.1% 25.8% 27.1% Unsecured Debt 5.8% 4.8% 5.7% 7.0% 8.0% Equity 5.5% 6.7% 6.7% 4.3% 4.2% Limited Partnership Interests 0.2% 0.2% 0.2% 0.2% 0.5% Kemper JV 6.6% 8.8% 8.8% 8.8% 8.4% Interest Rate Type for Debt Investments: % Floating-Rate 90.6% 90.6% 89.8% 88.5% 86.3% % Fixed-Rate 9.4% 9.4% 10.2% 11.5% 13.7% Yields: Weighted Average Yield on Debt Investments1 8.0% 8.6% 8.9% 8.7% 9.0% Cash Component of Weighted Average Yield on Debt Investments 6.9% 7.8% 8.1% 8.0% 8.3% Weighted Average Yield on Total Portfolio Investments2 7.5% 7.9% 8.2% 8.2% 8.3% Note:Numbers may not sum due to rounding. 1Annual 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. 2Annual 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.


Slide 11

Investment Activity ($ in thousands) As of 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 New Investment Commitments $272,900 $134,200 $138,400 $66,800 $100,000 New Funded Investment Activity1 $251,700 $136,200 $128,500 $74,100 $111,100 Proceeds from Prepayments, Exits, Other Paydowns and Sales $154,500 $97,000 $139,000 $138,300 $120,700 Net New Investments2 $97,200 $39,200 $(10,500) $(64,200) $(9,600) New Investment Commitments in New Portfolio Companies 32 9 5 3 5 New Investment Commitments in Existing Portfolio Companies 8 3 4 4 1 Portfolio Company Exits 10 7 7 8 4 Weighted Average Yield at Cost on New Debt Investments 7.9% 8.1% 7.7% 8.0% 8.7% 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.


Slide 12

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


Slide 13

Q2 2020 Net Unrealized Depreciation Attribution ($ in millions, except per share amounts) 2Q 2020 Unrealized Depreciation by Asset Type1 March 31, 2020 Unrealized Gains (Losses) Per Share Liquid Debt Investments2 $(114) $(0.81) Private Debt Investments (19) (0.13) Total Debt Portfolio Net Unrealized Appreciation (Depreciation) (133) (0.94) Equity Investments (22) (0.15) Joint Venture Investments (36) (0.26) Total Net Unrealized Appreciation (Depreciation) $(192) $(1.35) 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 2Level 2 or Level 3 debt securities that are valued based on broker prices. 53% of the portfolio at fair value (excluding the Kemper JV) was composed of liquid debt investments2 7% of the portfolio at fair value was composed of investments in the Kemper JV, which primarily invests in first lien liquid debt investments2; $36 million (19%) of total net unrealized depreciation was related to the Kemper JV $114 million (60%) of total net unrealized depreciation was related to liquid debt portfolio following credit market selloff in March $19 million (10%) of total net unrealized depreciation related to private debt portfolio


Slide 14

Capital Structure Overview ($ in millions) (As % of total funding sources) ($ in millions) Funding Sources and Key Highlights Funding Sources by Type Maturity Profile of Liabilities Committed Principal Outstanding Interest Rate Maturity Credit Facility $700 $405 LIBOR+2.00%1 2/25/2024 2025 Notes 300 300 3.500% 2/25/2025 Cash and Cash Equivalents - (91) - - Net Debt $1,000 $614 As of March 31, 2020 Note:As of March 31, 2020, we have analyzed cash and cash equivalents, availability under our credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believe our liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate. 1Interest rate spread can increase up to 2.25% depending on the senior coverage ratio. Target Leverage Ratio: 0.85x to 1.00x debt-to-equity Diverse and flexible funding sources with no near-term debt maturities Unsecured debt represented 42% of principal outstanding Next scheduled maturity is in 2024 Issued $300 million of 3.500% unsecured notes due 2025 during the quarter ended March 31, 2020 Proceeds were primarily used to repay $75 million of 5.875% unsecured notes due 2024, $86 million of 6.125% unsecured notes due 2028 and pay down borrowings on the credit facility Increased target leverage range to 0.85x to 1.00x from 0.70x to 0.85x Finding more attractive investment opportunities amid market dislocation Investment grade rated by Moody’s and Fitch


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Funding and Liquidity Metrics Leverage Utilization Liquidity Rollforward Note:Actual leverage and liquidity as of June 30, 2020 may differ materially. OCSL’s independent registered public accounting firm has not audited, reviewed, compiled or performed any procedures with respect to the liquidity and unfunded commitments data presented herein. 1Includes unfunded commitments ineligible to be drawn due to certain limitations in credit agreements. 2As of March 31, 2020, we have analyzed cash and cash equivalents, availability under our credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believe our liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate. 12/31/2019 3/31/2020 4/30/2020 Credit Facility Committed $700 $700 $700 Credit Facility Drawn (378) (405) (440) Cash and Cash Equivalents 22 90 68 Total Liquidity $344 $385 $328 Total Unfunded Commitments (102) (92) (122) Unavailable Unfunded Commitments1 39 31 46 Adjusted Liquidity $281 $324 $252 ($ in millions) 12/31/2019 3/31/2020 Cash $22 $90 Net Assets 931 752 Net Leverage 0.56x 0.82x Total Leverage 0.58x 0.94x ($ in millions) Ample liquidity to support funding needs2


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Joint Venture Summary ($ in millions; at fair value) ($ in millions; at fair value) (As % of total portfolio at fair value) OCSL’s Joint Venture with Kemper Corporation Portfolio Summary Joint Venture Structure Debt Portfolio Top Ten Industries1 As of March 31, 2020 1Based on GICS sub-industry classification. Primarily invests in senior secured loans of middle market companies as well as other corporate debt securities Joint venture structure Equity ownership: 87.5% OCSL and 12.5% Kemper Shared voting control: 50% OCSL and 50% Kemper Funded by $250 million credit facility: 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Total Investments $300 $330 $345 $329 First Lien 94% 92% 92% 94% Second Lien & Other 6% 8% 8% 6% Number of Debt Investments 53 51 51 51 Average issuer size $5 $6 $7 $6 Wt. avg. debt portfolio yield 5.5% 6.5% 6.7% 6.9% Leverage ratio 1.8x 1.3x 1.2x 1.3x Credit Facility $194 Investment Portfolio $300 OCSL $92 (87.5%) Other Assets & Unsettled Trades $(1) Kemper $13 (12.5%) ($ in millions) Committed Principal Outstanding Interest Rate Maturity Credit Facility $250 $194 LIBOR + 2.1% June 2026 Current Leverage Ratio: 1.8x debt-to-equity Target Leverage Ratio: 1.5x to 2.0x debt-to-equity


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Rotate into higher-yielding proprietary investments Opportunities to Increase Return on Equity As of March 31, 2020 Note:Numbers may not sum due to rounding. 1For senior secured loans that have a cost basis above 92.5%. 1 Operate within new target leverage range of 0.85x-1.00x debt-to-equity 2 Continued optimization of Kemper JV 3 $234 million of senior secured loans priced at or below LIBOR + 4.50%1 at fair value as of March 31, 2020 Opportunistically exited approximately $18 million of lower yielding senior secured loans from April 1, 2020 through April 30, 2020 $95 million of new funded investments at a weighted average yield of 10.6% at cost from April 1, 2020 through April 30, 2020 Revised target leverage range to 0.85x-1.00x from 0.70x-0.85x Finding more attractive investment opportunities amid broader market volatility resulting from COVID-19 pandemic Total debt to equity was 0.94x as of March 31, 2020; net debt to equity was 0.82x Invested $41 million across 19 issuers in both the primary and secondary markets during the quarter ended March 31, 2020 1.8x total debt to equity, within target leverage range of 1.5x to 2.0x We believe OCSL is well-positioned to enhance return on equity


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Appendix


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Historical Statement of Operations ($ in thousands, except per share amounts) For the three months ended 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 Interest income $29,898 $28,405 $30,662 $32,910 $34,309 PIK interest income 1,946 1,161 1,187 1,198 2,280 Fee income 2,050 1,071 2,550 1,826 1,132 Dividend income 277 323 114 735 523 Total investment income 34,171 30,960 34,513 36,669 38,244 Base management fee 5,295 5,607 5,496 5,548 5,731 Part I incentive fees 3,444 2,988 3,545 3,787 3,813 Part II incentive fees (6,608) 1,051 (403) 607 8,170 Interest expense 7,215 6,535 6,960 7,592 8,970 Other operating expenses1 1,984 1,743 1,799 1,893 1,752 Total expenses 11,330 17,924 17,397 19,427 28,436 Reversal of fees waived / (fees waived) - 5,200 841 634 (7,901) Net expenses 11,330 23,124 18,238 20,061 20,535 GAAP net investment income 22,841 7,836 16,275 16,608 17,709 Net realized and unrealized gains (losses) (188,308) 6,167 (1,961) 3,551 46,685 Provision for income tax (expense) benefit 1,705 (160) (343) (173) 91 Net increase/decrease in net assets resulting from operations $(165,467) $13,843 $13,971 $19,986 $64,485 Adjusted net investment income2 $16,233 $14,087 $16,713 $17,293 $17,709 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses. 2See page 20 for a description of this non-GAAP measure and a reconciliation from net investment income to adjusted net investment income.


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Reconciliation of Adjusted Net Investment Income ($ in thousands, except per share amounts) As of 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 GAAP net investment income $22,841 $7,836 $16,275 $16,608 $17,709 Part II incentive fee (net of waivers) (6,608) 6,251 438 685 - Adjusted net investment income $16,233 $14,087 $16,713 $17,293 $17,709 Per share: GAAP net investment income $0.16 $0.06 $0.12 $0.12 $0.13 Part II incentive fee (net of waivers) (0.05) 0.04 0.00 0.00 0.00 Adjusted net investment income $0.12 $0.10 $0.12 $0.12 $0.13 Notes: On a supplemental basis, the Company is disclosing adjusted net investment income and per share adjusted net investment income, each of which is a financial measure that is calculated and presented on a basis of methodology other than in accordance with U.S. GAAP (“non-GAAP”). Adjusted net investment income represents net investment income, excluding capital gains incentive fees ("Part II incentive fee"). The Company's management uses this non-GAAP financial measure internally to analyze and evaluate financial results and performance and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to capital gains incentive fees. The Company’s investment advisory agreement provides that a capital gains-based incentive fee is determined and paid annually with respect to realized capital gains (but not unrealized capital appreciation) to the extent such realized capital gains exceed realized capital losses and unrealized capital depreciation on a cumulative basis. Refer to Note 11 – Related Party Transactions in our Quarterly Report on Form 10-Q for further discussion. The Company believes that adjusted net investment income is a useful performance measure because it reflects the net investment income produced on the Company's investments during a period without giving effect to any changes in the value of such investments and any related capital gains incentive fees between periods. The presentation of adjusted net investment income is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. Numbers may not sum due to rounding.


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Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com