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 10, 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 August 10, 2020, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.
On August 10, 2020, the Company will host a conference call to discuss its financial results for the fiscal quarter ended June 30, 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 August 10, 2020 | |
| 99.2 | Oaktree Specialty Lending Corporation Third 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: August 10, 2020 | By: | /s/ Mel Carlisle | ||||||
| Name: | Mel Carlisle | |||||||
| Title: | Chief Financial Officer and Treasurer | |||||||
Exhibit 99.1
Oaktree Specialty Lending Corporation Announces Third Fiscal Quarter 2020 Financial Results and Declares Increased Distribution of $0.105 Per Share
LOS ANGELES, CA, August 10, 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 June 30, 2020.
Financial Highlights for the Quarter Ended June 30, 2020
| • | Total investment income was $34.4 million ($0.24 per share) for the third fiscal quarter of 2020, up from $34.2 million ($0.24 per share) for the second fiscal quarter of 2020, primarily driven by a larger average investment portfolio and higher yields on new originations, partially offset by lower LIBOR and lower original issuance discount (“OID”) income. |
| • | GAAP net investment income was $16.8 million ($0.12 per share) for the third fiscal quarter of 2020, down from $22.8 million ($0.16 per share) for the second fiscal quarter of 2020, primarily due to a reversal of previously accrued Part II incentive fees. |
| • | Adjusted net investment income was $16.8 million ($0.12 per share) for the third fiscal quarter of 2020, up from $16.2 million ($0.12 per share) for the second fiscal quarter of 2020, primarily driven by interest expense savings from the recent unsecured bond issuance and lower LIBOR, as well as higher investment income and lower professional fees and general and administrative expenses. This was partially offset by higher base management fees resulting from a larger investment portfolio. |
| • | Net asset value (“NAV”) per share was $6.09 as of June 30, 2020, up 14% from $5.34 as of March 31, 2020. The increase in NAV was primarily attributable to unrealized gains resulting from price increases on liquid debt investments and the impact of tighter credit spreads on private debt investment valuations following the improvement in broader credit market conditions. Also contributing to the NAV increase were unrealized gains on recent opportunistic investments made in the June quarter. |
| • | Originated $260.5 million of new investment commitments and received $127.8 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended June 30, 2020. Of these new investment commitments, 67.8% were first lien loans, 3.2% were second lien loans and 29.0% were subordinated debt investments. The weighted average yield on new investments was 10.5%. |
| • | Total debt outstanding was $766.8 million as of June 30, 2020. The total debt to equity ratio was 0.89x, and the net debt to equity ratio was 0.83x, after adjusting for cash and cash equivalents. |
| • | Liquidity as of June 30, 2020 was composed of $50.7 million of unrestricted cash and cash equivalents and $233.2 million of undrawn capacity under the credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $154.6 million, with approximately $75.9 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 $0.105 per share, an 11% increase from the Company’s prior quarter distribution. The distribution will be paid in cash and is payable September 30, 2020 to stockholders of record on September 15, 2020. |
Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, “OCSL delivered strong results in the third quarter, highlighted by solid earnings and portfolio performance. We leveraged Oaktree’s opportunistic credit platform to originate $261 million of new investments at attractive yields during the quarter. NAV rebounded by 14 percent, reflecting the improvement in credit market conditions, and overall, credit quality remained stable amid the uncertain economic environment. As a result of the growth of our investment portfolio and optimistic outlook on new investment opportunities, our Board of Directors announced an 11 percent increase to our September dividend to $0.105 per share. We believe OCSL is poised to deliver continued strong risk-adjusted returns to our shareholders.”
1
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.105 per share, an increase of 11% or $0.01 per share from the prior quarter distribution, payable on September 30, 2020 to stockholders of record on September 15, 2020.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
2
Results of Operations
| For the three months ended | ||||||||||||
| ($ in thousands, except per share data) | June 30, 2020 (unaudited) |
March 31, 2020 (unaudited) |
June 30, 2019 (unaudited) |
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| GAAP operating results: |
||||||||||||
| Interest income |
$ | 30,112 | $ | 29,898 | $ | 32,910 | ||||||
| PIK interest income |
2,183 | 1,946 | 1,198 | |||||||||
| Fee income |
1,827 | 2,050 | 1,826 | |||||||||
| Dividend income |
281 | 277 | 735 | |||||||||
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| Total investment income |
34,403 | 34,171 | 36,669 | |||||||||
| Net expenses |
17,633 | 11,330 | 20,061 | |||||||||
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| Net investment income |
16,770 | 22,841 | 16,608 | |||||||||
| Net realized and unrealized gains (losses), net of taxes |
103,461 | (188,308 | ) | 3,378 | ||||||||
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| Net increase (decrease) in net assets resulting from operations |
$ | 120,231 | $ | (165,467 | ) | $ | 19,986 | |||||
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| Net investment income per common share |
$ | 0.12 | $ | 0.16 | $ | 0.12 | ||||||
| Net realized and unrealized gains (losses), net of taxes per common share |
$ | 0.73 | $ | (1.33 | ) | $ | 0.02 | |||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.85 | $ | (1.17 | ) | $ | 0.14 | |||||
| Non-GAAP Financial Measures1: |
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| Adjusted net investment income |
$ | 16,770 | $ | 16,233 | $ | 17,293 | ||||||
| Adjusted net investment income per common share |
$ | 0.12 | $ | 0.12 | $ | 0.12 | ||||||
| 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) | June 30, 2020 (unaudited) |
March 31, 2020 (unaudited) |
September 30, 2019 | |||||||||
| Select balance sheet and other data: |
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| Cash and cash equivalents |
$ | 50,728 | $ | 89,509 | $ | 15,406 | ||||||
| Investment portfolio at fair value |
1,561,153 | 1,392,187 | 1,438,042 | |||||||||
| Total debt outstanding (net of unamortized financing costs) |
761,002 | 698,686 | 473,367 | |||||||||
| Net assets |
859,063 | 752,224 | 930,630 | |||||||||
| Net asset value per share |
6.09 | 5.34 | 6.60 | |||||||||
| Total debt to equity ratio |
0.89 | x | 0.94 | x | 0.51 | x | ||||||
| Net debt to equity ratio |
0.83 | x | 0.82 | x | 0.49 | x | ||||||
Total investment income for the quarter ended June 30, 2020 was $34.4 million and included $30.1 million of interest income from portfolio investments, $2.2 million of payment-in-kind (“PIK”) interest income, $1.8 million of fee income and $0.3 million of dividend income. Total investment income increased by $0.2 million as compared to the quarter ended March 31, 2020, primarily driven by a larger average investment portfolio and higher yields on new originations, partially offset by lower LIBOR and lower OID income.
Net expenses for the quarter totaled $17.6 million, up $6.3 million from the quarter ended March 31, 2020. The increase in net expenses was primarily due to a reversal of previously accrued Part II incentive fees in the second quarter and higher base management fees resulting from a larger investment portfolio, partially offset by interest expense savings from the recent unsecured bond issuance and lower LIBOR, as well as lower professional fees and general and administrative expenses.
Adjusted net investment income was $16.8 million ($0.12 per share) for the quarter ended June 30, 2020, up from $16.2 million ($0.12 per share) for the quarter ended March 31, 2020, primarily driven by interest expense savings from the recent unsecured bond issuance and lower LIBOR, as well as higher investment income and lower professional fees and general and administrative expenses. This was partially offset by higher base management fees resulting from a larger investment portfolio.
Oaktree voluntarily deferred the payment of Part I incentive fees incurred by the Company during the quarter ended March 31, 2020. The Company expects to settle this payment in the fourth fiscal quarter of 2020.
3
Net realized and unrealized gains, net of taxes, were $103.5 million for the quarter and were primarily attributable to an increase in the prices of certain liquid debt investments and tighter credit spreads resulting from the improvement in broader credit market conditions during the quarter.
Portfolio and Investment Activity
| As of | ||||||||||||
| ($ in thousands) | June 30, 2020 (unaudited) |
March 31, 2020 (unaudited) |
June 30, 2019 (unaudited) |
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| Investments at fair value |
$ | 1,561,153 | $ | 1,392,187 | $ | 1,455,031 | ||||||
| Number of portfolio companies |
119 | 128 | 105 | |||||||||
| Average portfolio company debt size |
$ | 14,600 | $ | 11,900 | $ | 15,400 | ||||||
| Asset class: |
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| Senior secured debt |
80.9 | % | 81.9 | % | 79.7 | % | ||||||
| Unsecured debt |
7.2 | % | 5.8 | % | 7.0 | % | ||||||
| Equity |
4.7 | % | 5.5 | % | 4.3 | % | ||||||
| SLF JV I |
7.0 | % | 6.6 | % | 8.8 | % | ||||||
| Limited partnership interests |
0.2 | % | 0.2 | % | 0.2 | % | ||||||
| Non-accrual debt investments: |
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| Non-accrual investments at fair value |
$ | 2,497 | $ | 5,864 | $ | 86,796 | ||||||
| Non-accrual investments as a percentage of debt investments |
0.2 | % | 0.5 | % | 6.4 | % | ||||||
| Number of investments on non-accrual |
3 | 3 | 5 | |||||||||
| Interest rate type: |
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| Percentage floating-rate |
86.2 | % | 90.6 | % | 88.5 | % | ||||||
| Percentage fixed-rate |
13.8 | % | 9.4 | % | 11.5 | % | ||||||
| Yields: |
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| Weighted average yield on debt investments1 |
8.1 | % | 8.0 | % | 8.7 | % | ||||||
| Cash component of weighted average yield on debt investments |
6.9 | % | 6.9 | % | 8.0 | % | ||||||
| Weighted average yield on total portfolio investments2 |
7.6 | % | 7.5 | % | 8.2 | % | ||||||
| Investment activity: |
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| New investment commitments |
$ | 260,500 | $ | 272,900 | $ | 66,800 | ||||||
| New funded investment activity3 |
$ | 198,500 | $ | 251,700 | $ | 74,100 | ||||||
| Proceeds from prepayments, exits, other paydowns and sales |
$ | 127,800 | $ | 154,500 | $ | 138,300 | ||||||
| Net new investments4 |
$ | 70,700 | $ | 97,200 | $ | (64,200 | ) | |||||
| Number of new investment commitments in new portfolio companies |
10 | 32 | 3 | |||||||||
| Number of new investment commitments in existing portfolio companies |
8 | 8 | 4 | |||||||||
| Number of portfolio company exits |
19 | 10 | 8 | |||||||||
| 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, 2020, the fair value of the investment portfolio was $1.6 billion and was composed of investments in 119 companies. These included debt investments in 96 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”). Ten of the equity investments were in companies in which the Company also had a debt investment.
As of June 30, 2020, 94.2% of the Company’s portfolio at fair value consisted of debt investments, including 61.3% of first lien loans, 19.6% of second lien loans and 13.3% of unsecured debt investments, including the debt investments in SLF JV I. This compared to 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 at fair value as of March 31, 2020.
4
As of June 30, 2020, non-accruals represented 1.3% of the debt portfolio at cost and 0.2% at fair value in three positions. During the quarter ended June 30, 2020, the Company placed one new investment on non-accrual status, which represented 0.1% of the debt portfolio at both cost and fair value, and the Company exited one investment that was previously on non-accrual status.
The Company’s investments in SLF JV I totaled $110.0 million at fair value as of June 30, 2020, up 19% from $92.2 million as of March 31, 2020. The sequential increase 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 appreciation in the underlying investment portfolio resulting from the improvement in broader credit market conditions during the quarter.
As of June 30, 2020, SLF JV I had $315.4 million in assets, including senior secured loans to 53 portfolio companies. This compared to $329.6 million in assets, including senior secured loans to 53 portfolio companies, as of March 31, 2020. As of June 30, 2020, one investment held by SLF JV I was on non-accrual status, which represented 0.7% of the SLF JV I portfolio at cost and 0.3% at fair value, respectively. The joint venture generated income of $2.0 million for the Company during the quarter ended June 30, 2020, down slightly as compared to the prior quarter. As of June 30, 2020, SLF JV I had $76.1 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 1.4x.
Liquidity and Capital Resources
As of June 30, 2020, the Company had total principal value of debt outstanding of $766.8 million, including $466.8 million of outstanding borrowings under the revolving credit facility and $300 million of unsecured notes. The funding mix was composed of 61% secured and 39% unsecured borrowings as of June 30, 2020. The Company has no near-term debt maturities, as the next scheduled maturity is for the revolving credit facility in February 2024. The Company was in compliance with all financial covenants under its credit facility as of June 30, 2020.
As of June 30, 2020, the Company had $50.7 million of unrestricted cash and cash equivalents and $233.2 million of undrawn capacity on its credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $154.6 million as of June 30, 2020, with approximately $75.9 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 June 30, 2020, the weighted average interest rate on debt outstanding was 2.7%, down from 3.1% as of March 31, 2020, primarily reflecting lower LIBOR.
The Company’s total debt to equity ratio was 0.89x and 0.94x as of June 30, 2020 and March 31, 2020, respectively. Net debt to equity ratio was 0.83x and 0.82x as of June 30, 2020 and March 31, 2020, respectively.
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.
5
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 | ||||||||||||||||||||||||
| June 30, 2020 (unaudited) |
March 31, 2020 (unaudited) |
June 30, 2019 (unaudited) |
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| ($ in thousands, except per share data) |
Amount | Per Share | Amount | Per Share | Amount | Per Share | ||||||||||||||||||
| GAAP net investment income |
$ | 16,770 | $ | 0.12 | $ | 22,841 | $ | 0.16 | $ | 16,608 | $ | 0.12 | ||||||||||||
| Part II incentive fee (net of waivers) |
— | — | (6,608 | ) | (0.05 | ) | 685 | — | ||||||||||||||||
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| Adjusted net investment income |
$ | 16,770 | $ | 0.12 | $ | 16,233 | $ | 0.12 | $ | 17,293 | $ | 0.12 | ||||||||||||
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6
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss its third fiscal quarter 2020 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on August 10, 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, the Company intends to refer to an investor presentation that will be available on its 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 10145873, 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’s investment objective is 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, and 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)
| June 30, 2020 (unaudited) |
March 31, 2020 (unaudited) |
September 30, 2019 | ||||||||||
| ASSETS | ||||||||||||
| Investments at fair value: |
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| Control investments (cost June 30, 2020: $255,481; cost March 31, 2020: $255,739; cost September 30, 2019: $224,255) |
$ | 200,799 | $ | 187,267 | $ | 209,178 | ||||||
| Affiliate investments (cost June 30, 2020: $8,367; cost March 31, 2020: $10,487; cost September 30, 2019: $8,449) |
7,249 | 9,414 | 9,170 | |||||||||
|
Non-control/Non-affiliate investments (cost June 30, 2020: $1,432,729; cost March 31, 2020: $1,362,354; cost September 30, 2019: $1,280,310) |
1,353,105 | 1,195,506 | 1,219,694 | |||||||||
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| Total investments at fair value (cost June 30, 2020: $1,696,577; cost March 31, 2020: $1,628,580; cost September 30, 2019: $1,513,014) |
1,561,153 | 1,392,187 | 1,438,042 | |||||||||
| Cash and cash equivalents |
50,728 | 89,509 | 15,406 | |||||||||
| Interest, dividends and fees receivable |
8,768 | 6,217 | 11,167 | |||||||||
| Due from portfolio companies |
2,719 | 1,774 | 2,616 | |||||||||
| Receivables from unsettled transactions |
14,106 | 1,868 | 4,586 | |||||||||
| Deferred financing costs |
6,383 | 5,671 | 6,396 | |||||||||
| Deferred offering costs |
67 | 45 | — | |||||||||
| Deferred tax asset, net |
766 | 821 | — | |||||||||
| Derivative assets at fair value |
870 | 1,268 | 490 | |||||||||
| Other assets |
2,007 | 2,267 | 2,335 | |||||||||
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| Total assets |
$ | 1,647,567 | $ | 1,501,627 | $ | 1,481,038 | ||||||
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| LIABILITIES AND NET ASSETS | ||||||||||||
| Liabilities: |
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| Accounts payable, accrued expenses and other liabilities |
$ | 903 | $ | 1,750 | $ | 1,589 | ||||||
| Base management fee and incentive fee payable |
12,989 | 8,739 | 10,167 | |||||||||
| Due to affiliate |
2,213 | 2,651 | 2,689 | |||||||||
| Interest payable |
4,225 | 1,681 | 2,296 | |||||||||
| Payables from unsettled transactions |
7,172 | 35,896 | 59,596 | |||||||||
| Deferred tax liability |
— | — | 704 | |||||||||
| Credit facility payable |
466,825 | 404,825 | 314,825 | |||||||||
| Unsecured notes payable (net of $3,457, $3,645 and $2,708 of unamortized financing costs as of June 30, 2020, March 31, 2020 and September 30, 2019, respectively) |
294,177 | 293,861 | 158,542 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities |
788,504 | 749,403 | 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 June 30, 2020, March 31, 2020 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 |
(630,120 | ) | (736,959 | ) | (558,553 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total net assets (equivalent to $6.09, $5.34 and $6.60 per common share as of June 30, 2020, March 31 and September 30, 2019, respectively) |
859,063 | 752,224 | 930,630 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total liabilities and net assets |
$ | 1,647,567 | $ | 1,501,627 | $ | 1,481,038 | ||||||
|
|
|
|
|
|
|
|||||||
8
Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
| Three months ended June 30, 2020 (unaudited) |
Three months ended March 31, 2020 (unaudited) |
Three months ended June 30, 2019 (unaudited) |
Nine months ended June 30, 2020 |
Nine months ended June 30, 2019 |
||||||||||||||||
| Interest income: |
||||||||||||||||||||
| Control investments |
$ | 2,558 | $ | 2,393 | $ | 2,859 | $ | 7,502 | $ | 9,050 | ||||||||||
| Affiliate investments |
127 | 138 | 70 | 379 | 105 | |||||||||||||||
|
Non-control/Non-affiliate investments |
27,406 | 27,149 | 29,850 | 80,214 | 93,248 | |||||||||||||||
| Interest on cash and cash equivalents |
21 | 218 | 131 | 320 | 605 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total interest income |
30,112 | 29,898 | 32,910 | 88,415 | 103,008 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| PIK interest income: |
||||||||||||||||||||
| Control investments |
— | — | — | — | 67 | |||||||||||||||
|
Non-control/Non-affiliate investments |
2,183 | 1,946 | 1,198 | 5,290 | 4,243 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total PIK interest income |
2,183 | 1,946 | 1,198 | 5,290 | 4,310 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Fee income: |
||||||||||||||||||||
| Control investments |
13 | 8 | 6 | 27 | 19 | |||||||||||||||
| Affiliate investments |
5 | 5 | 5 | 15 | 14 | |||||||||||||||
|
Non-control/Non-affiliate investments |
1,809 | 2,037 | 1,815 | 4,906 | 4,127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total fee income |
1,827 | 2,050 | 1,826 | 4,948 | 4,160 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Dividend income: |
||||||||||||||||||||
| Control investments |
281 | 277 | 735 | 881 | 1,711 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total dividend income |
281 | 277 | 735 | 881 | 1,711 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total investment income |
34,403 | 34,171 | 36,669 | 99,534 | 113,189 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Expenses: |
||||||||||||||||||||
| Base management fee |
5,988 | 5,295 | 5,548 | 16,890 | 16,847 | |||||||||||||||
| Part I incentive fee |
3,556 | 3,444 | 3,787 | 9,988 | 11,328 | |||||||||||||||
| Part II incentive fee |
— | (6,608 | ) | 607 | (5,557 | ) | 10,597 | |||||||||||||
| Professional fees |
545 | 669 | 721 | 1,854 | 2,186 | |||||||||||||||
| Directors fees |
143 | 142 | 143 | 428 | 428 | |||||||||||||||
| Interest expense |
6,406 | 7,215 | 7,592 | 20,156 | 25,466 | |||||||||||||||
| Administrator expense |
373 | 393 | 384 | 1,194 | 1,553 | |||||||||||||||
| General and administrative expenses |
622 | 780 | 645 | 1,934 | 1,981 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total expenses |
17,633 | 11,330 | 19,427 | 46,887 | 70,386 | |||||||||||||||
| Reversal of fees waived / (fees waived) |
— | — | 634 | 5,200 | (8,831 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net expenses |
17,633 | 11,330 | 20,061 | 52,087 | 61,555 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income |
16,770 | 22,841 | 16,608 | 47,447 | 51,634 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Unrealized appreciation (depreciation): |
||||||||||||||||||||
| Control investments |
13,790 | (55,392 | ) | 3,419 | (39,605 | ) | 1,467 | |||||||||||||
| Affiliate investments |
(45 | ) | (1,730 | ) | — | (1,839 | ) | (181 | ) | |||||||||||
|
Non-control/Non-affiliate investments |
87,225 | (108,651 | ) | 20,744 | (19,018 | ) | 37,068 | |||||||||||||
| Secured borrowings |
— | — | — | — | (95 | ) | ||||||||||||||
| Foreign currency forward contracts |
(398 | ) | 2,240 | (768 | ) | 380 | (367 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net unrealized appreciation (depreciation) |
100,572 | (163,533 | ) | 23,395 | (60,082 | ) | 37,892 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Realized gains (losses): |
||||||||||||||||||||
| Control investments |
— | 777 | — | 777 | — | |||||||||||||||
|
Non-control/Non-affiliate investments |
2,821 | (24,777 | ) | (21,112 | ) | (18,117 | ) | 21,548 | ||||||||||||
| Extinguishment of unsecured notes payable |
— | (2,541 | ) | — | (2,541 | ) | — | |||||||||||||
| Foreign currency forward contracts |
— | 61 | 1,268 | (490 | ) | 1,783 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized gains (losses) |
2,821 | (26,480 | ) | (19,844 | ) | (20,371 | ) | 23,331 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Provision for income tax (expense) benefit |
68 | 1,705 | (173 | ) | 1,613 | (668 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net realized and unrealized gains (losses), net of taxes |
103,461 | (188,308 | ) | 3,378 | (78,840 | ) | 60,555 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 120,231 | $ | (165,467 | ) | $ | 19,986 | $ | (31,393 | ) | $ | 112,189 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net investment income per common share — basic and diluted |
$ | 0.12 | $ | 0.16 | $ | 0.12 | $ | 0.34 | $ | 0.37 | ||||||||||
| Earnings (loss) per common share — basic and diluted |
$ | 0.85 | $ | (1.17 | ) | $ | 0.14 | $ | (0.22 | ) | $ | 0.80 | ||||||||
| Weighted average common shares outstanding — basic and diluted |
140,961 | 140,961 | 140,961 | 140,961 | 140,961 | |||||||||||||||
9
Third Quarter Fiscal Year 2020 Earnings Presentation August 10, 2020 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 Fund Advisors, LLC (“Oaktree”) to reposition our portfolio and to implement Oaktree’s future plans with respect to our business; the ability of Oaktree and its affiliates 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 June 30, 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 June 30, 2020.
Highlights for the Quarter Ended June 30, 2020 Adjusted Net Investment Income1 $0.12 per share for the quarter ended June 30, 2020, flat as compared to $0.12 for the quarter ended March 31, 2020 GAAP net investment income was $0.12 per share for the quarter ended June 30, 2020 Dividend Declared a cash distribution of $0.105 per share, an increase of 11% ($0.01 per share) from the prior distribution Distribution will be payable on September 30, 2020 to stockholders of record as of September 15, 2020 Net Asset Value $6.09 per share as of June 30, 2020, up 14% as compared to $5.34 as of March 31, 2020 Increase primarily due to unrealized gains resulting from price increases on liquid debt investments and the impact of tighter credits spreads on private investment valuations, as well as write-ups on certain originations made during the quarter ended June 30, 2020 Investment Activity $261 million of new investment commitments at a 10.5% weighted average yield $199 million of new investment fundings and received $128 million of proceeds from prepayments, exits, other paydowns and sales $71 million of net new investments2 Investment Portfolio $1.6 billion at fair value diversified across 119 portfolio companies 8.1% weighted average yield on debt investments as of June 30, 2020, up as compared to 8.0% as of March 31, 2020 0.2% non-accruals at fair value in three portfolio companies Capital Structure & Liquidity 0.89x total debt to equity ratio; 0.83x net debt to equity ratio $767 million total debt outstanding Strong liquidity with $51 million of cash and $233 million of undrawn capacity on credit facility $155 million of unfunded commitments, with $76 million of unfunded commitments that are eligible to be drawn3 1See page 18 for a description of this non-GAAP measure and a reconciliation from net investment income per share to adjusted net investment income per share. 2New funded investments less proceeds from prepayments, exits, other paydowns and sales. 3Approximately $79 million of unfunded commitments were ineligible to be immediately drawn due to certain milestones that must be met by portfolio companies.
Portfolio Summary as of June 30, 2020 (As % of total portfolio at fair value; $ in millions) (As % of total portfolio at fair value) Portfolio Composition Top Ten Industries2,3 Portfolio Characteristics 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 sub-industry classification. 3Excludes 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. $1.6 billion Total Investments 119 Portfolio Companies 8.1% Weighted Average Yield on Debt Investments $152 million Median Debt Portfolio Company EBITDA1 81% Senior Secured Debt Investments 0.2% Non-Accruals (At fair value)
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 23% Next 15 Investments 24% Remaining 93 Investments 45% Kemper JV 7% As of June 30, 2020 Note:Numbers may not sum due to rounding. 1 Based on GICS industry classification. Industry Group % of Portfolio Software 13.1% IT Services 8.9% Health Care Providers & Services 6.4% Oil, Gas & Consumable Fuels 6.4% Pharmaceuticals 6.4% Biotechnology 5.8% Diversified Financial Services 3.7% Real Estate Management & Development 3.4% Personal Products 3.3% Insurance 3.1% Entertainment 2.8% Diversified Telecommunication Services 2.7% Remaining 26 Industries 26.9% Kemper JV 7.0% (As % of total portfolio at fair value)
Portfolio Originations New Investment Highlights (As % of new investment commitments; $ in millions) New Investment Composition ($ in millions) Historical Funded 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 $261 million New Investment Commitments $199 million New Investment Fundings 10.5% Weighted Average Yield on New Debt Commitments 100% Also Held by Other Oaktree Funds $242 million New Investment Commitments in New Portfolio Companies $19 million New Investment Commitments in Existing Portfolio Companies
Originations Detail ($ 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 Primary (Public) Secondary (Public) 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 $125 11 $64 $7 $54 $88 $23 $14 73% May 67 5 47 0 20 - 46 21 74% June 69 2 66 1 2 66 2 1 92% Total 3Q2020 $261 18 $177 $8 $76 $154 $71 $35 74% Note:Numbers may not sum due to rounding, excludes any positions originated, purchased and sold within the same quarter.
9% of Portfolio2 63% of Portfolio2 Note:Numbers may not sum due to rounding. 1Excludes equity positions in non-accrual debt positions and equity in aviation entities. 2Excludes investments in the Kemper JV. Non-Core Investment Portfolio Detail Non-Core Investment Portfolio Characteristics Private Loans $59 million at fair value in four companies Average debt price: 96.3% as of June 30, 2020, an increase from 92.2% as of March 31, 2020 Equity Investments1 $58 million at fair value in 22 companies and limited partnership interests in two third-party managed funds Exited a $2 million equity investment during the quarter at its previous fair value Aviation $15 million at fair value in one aircraft Non-Accruals $1.5 million at fair value in two companies Average debt price: 6.3% (At fair value; $ in millions) Non-Core Portfolio Composition Non-Core Portfolio Progression $134 Non-Core Portfolio: 85% reduction since September 30, 2017
Net Asset Value Per Share Bridge Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1
Financial Highlights 1See page 18 for a description of this non-GAAP measure and a reconciliation from net investment income per share to adjusted net investment income per share. 2Net of unamortized financing costs. ($ in thousands, except per share amounts) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 GAAP Net Investment Income per Share $0.12 $0.16 $0.06 $0.12 $0.12 Adjusted Net Investment Income per Share1 $0.12 $0.12 $0.10 $0.12 $0.12 Net Realized and Unrealized Gains (Losses), Net of Taxes per Share $0.73 $(1.33) $0.04 $(0.02) $0.02 Earnings (Loss) per Share $0.85 $(1.17) $0.10 $0.10 $0.14 Distributions per Share $0.095 $0.095 $0.095 $0.095 $0.095 NAV per Share $6.09 $5.34 $6.61 $6.60 $6.60 Weighted Average Shares Outstanding 140,961 140,961 140,961 140,961 140,961 Investment Portfolio (at Fair Value) $1,561,153 $1,392,187 $1,467,627 $1,438,042 $1,455,031 Cash and Cash Equivalents $50,728 $89,509 $21,527 $15,406 $5,637 Total Assets $1,647,567 $1,501,627 $1,516,600 $1,481,038 $1,485,016 Total Debt Outstanding2 $761,002 $698,686 $536,468 $473,367 $537,278 Net Assets $859,063 $752,224 $931,082 $930,630 $930,050 Total Debt to Equity Ratio 0.89x 0.94x 0.58x 0.51x 0.58x Net Debt to Equity Ratio 0.83x 0.82x 0.56x 0.49x 0.57x Weighted Average Interest Rate on Debt Outstanding 2.7% 3.1% 4.5% 4.8% 5.1%
Portfolio Highlights ($ in thousands) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Investments at Fair Value $1,561,153 $1,392,187 $1,467,627 $1,438,042 $1,455,031 Number of Portfolio Companies 119 128 106 104 105 Average Portfolio Company Debt Investment Size $14,600 $11,900 $15,300 $15,300 $15,400 Asset Class: First Lien 61.3% 62.3% 56.7% 53.5% 54.0% Second Lien 19.6% 19.7% 22.8% 25.1% 25.8% Unsecured Debt 7.2% 5.8% 4.8% 5.7% 7.0% Equity 4.7% 5.5% 6.7% 6.7% 4.3% Limited Partnership Interests 0.2% 0.2% 0.2% 0.2% 0.2% Kemper JV 7.0% 6.6% 8.8% 8.8% 8.8% Interest Rate Type for Debt Investments: % Floating-Rate 86.2% 90.6% 90.6% 89.8% 88.5% % Fixed-Rate 13.8% 9.4% 9.4% 10.2% 11.5% Yields: Weighted Average Yield on Debt Investments1 8.1% 8.0% 8.6% 8.9% 8.7% Cash Component of Weighted Average Yield on Debt Investments 6.9% 6.9% 7.8% 8.1% 8.0% Weighted Average Yield on Total Portfolio Investments2 7.6% 7.5% 7.9% 8.2% 8.2% Note:Numbers may not sum due to rounding. 1Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on debt investments in the Kemper JV. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on debt investments in the Kemper JV.
Investment Activity ($ in thousands) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 New Investment Commitments $260,500 $272,900 $134,200 $138,400 $66,800 New Funded Investment Activity1 $198,500 $251,700 $136,200 $128,500 $74,100 Proceeds from Prepayments, Exits, Other Paydowns and Sales $127,800 $154,500 $97,000 $139,000 $138,300 Net New Investments2 $70,700 $97,200 $39,200 $(10,500) $(64,200) New Investment Commitments in New Portfolio Companies 10 32 9 5 3 New Investment Commitments in Existing Portfolio Companies 8 8 3 4 4 Portfolio Company Exits 18 10 7 7 8 Weighted Average Yield at Cost on New Debt Investment Commitments 10.5% 7.9% 8.1% 7.7% 8.0% 1New funded investment activity includes drawdowns on existing revolver commitments. 2Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
Capital Structure Overview ($ 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 $467 LIBOR+2.00%1 2/25/2024 2025 Notes 300 300 3.500% 2/25/2025 Cash and Cash Equivalents - (51) - - Total $1,000 $716 As of June 30, 2020 Note:As of June 30, 2020, we have 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. 1Interest rate spread can increase up to 2.75% depending on the senior coverage ratio and our stockholders’ equity. 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 39% of principal outstanding Next scheduled maturity is in 2024 Realized full period of interest expense savings following issuance of 3.500% unsecured notes due 2025 and repayment of $75 million of 5.875% unsecured notes due 2024 and $86 million of 6.125% unsecured notes due 2028 Investment grade rated by Moody’s and Fitch
Funding and Liquidity Metrics Leverage Utilization Liquidity Rollforward 1Includes unfunded commitments ineligible to be drawn due to certain limitations in credit agreements. 2As of June 30, 2020, we have 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. 12/31/2019 3/31/2020 6/30/2020 Credit Facility Committed $700 $700 $700 Credit Facility Drawn (378) (405) (467) Cash and Cash Equivalents 22 90 51 Total Liquidity 344 385 284 Total Unfunded Commitments (102) (92) (155) Unavailable Unfunded Commitments1 39 31 79 Adjusted Liquidity $281 $324 $208 ($ in millions) 12/31/2019 3/31/2020 6/30/2020 Cash $22 $90 $51 Net Assets $931 $752 $859 Net Leverage 0.56x 0.82x 0.83x Total Leverage 0.58x 0.94x 0.89x ($ in millions) Ample liquidity to support funding needs2
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 June 30, 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: 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Total Investments $291 $300 $330 $345 First Lien 94% 94% 92% 92% Second Lien & Other 6% 6% 8% 8% Number of Debt Investments 53 53 51 51 Average Investment Size $5 $5 $6 $7 Non-Accruals 0.3% 0.0% 0.0% 0.0% Wt. Avg. Debt Portfolio Yield 5.6% 5.5% 6.5% 6.7% Leverage Ratio 1.4x 1.8x 1.3x 1.2x Credit Facility $174 Investment Portfolio $291 OCSL $110 (87.5%) Other Assets & Unsettled Trades $9 Kemper $16 (12.5%) ($ in millions) Committed Principal Outstanding Interest Rate Maturity Credit Facility $250 $174 LIBOR + 2.1% June 2026 Current Leverage Ratio: 1.4x debt-to-equity Target Leverage Ratio: 1.5x to 2.0x debt-to-equity
Opportunities to Increase Return on Equity As of June 30, 2020 1For senior secured loans that have a cost basis above 92.5%. 2Subject to borrowing base and other limitations. We believe OCSL is well-positioned to enhance return on equity Rotate into higher-yielding proprietary investments $219 million at fair value ($233 million par value) of senior secured loans priced at or below LIBOR + 4.50%1 as of June 30, 2020 Opportunistically sold $37 million of lower yielding senior secured loans during the quarter ended June 30, 2020 $261 million of new investment commitments had a weighted average yield of 10.5% during the quarter ended June 30, 2020 We believe that the continued uncertainty about the duration and economic impact of the pandemic has created an attractive investing environment Operate within target leverage range of 0.85x-1.00x debt-to-equity 0.89x total debt to equity; 0.83x net debt to equity $233 million of undrawn capacity under credit facility2 Continued optimization of the Kemper JV 1.4x total debt to equity, slightly below target leverage range of 1.5x to 2.0x $76 million of undrawn capacity on senior revolving credit facility2 2 1 3
Appendix
Historical Statement of Operations ($ in thousands, except per share amounts) For the three months ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Interest income $30,112 $29,898 $28,405 $30,662 $32,910 PIK interest income 2,183 1,946 1,161 1,187 1,198 Fee income 1,827 2,050 1,071 2,550 1,826 Dividend income 281 277 323 114 735 Total investment income 34,403 34,171 30,960 34,513 36,669 Base management fee 5,988 5,295 5,607 5,496 5,548 Part I incentive fees 3,553 3,444 2,988 3,545 3,787 Part II incentive fees - (6,608) 1,051 (403) 607 Interest expense 6,406 7,215 6,535 6,960 7,592 Other operating expenses1 1,686 1,984 1,743 1,799 1,893 Total expenses 17,633 11,330 17,924 17,397 19,427 Reversal of fees waived / (fees waived) - - 5,200 841 634 Net expenses 17,633 11,330 23,124 18,238 20,061 GAAP net investment income 16,770 22,841 7,836 16,275 16,608 Net realized and unrealized gains (losses) 103,393 (188,308) 6,167 (1,961) 3,551 Provision for income tax (expense) benefit 68 1,705 (160) (343) (173) Net increase/decrease in net assets resulting from operations $120,231 $(165,467) $13,843 $13,971 $19,986 Adjusted net investment income2 $16,770 $16,233 $14,087 $16,713 $17,293 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses. 2See page 18 for a description of this non-GAAP measure and a reconciliation from net investment income to adjusted net investment income.
Reconciliation of Adjusted Net Investment Income ($ in thousands, except per share amounts) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 GAAP net investment income $16,770 $22,841 $7,836 $16,275 $16,608 Part II incentive fee (net of waivers) - (6,608) 6,251 438 685 Adjusted net investment income $16,770 $16,233 $14,087 $16,713 $17,293 Per share: GAAP net investment income $0.12 $0.16 $0.06 $0.12 $0.12 Part II incentive fee (net of waivers) - (0.05) 0.04 0.00 0.00 Adjusted net investment income $0.12 $0.12 $0.10 $0.12 $0.12 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.
Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com