Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2022 Financial Results and Declares Increased Distribution of $0.165 Per Share
05/05/2022 - 06:00 AM
LOS ANGELES, May 05, 2022 (GLOBE NEWSWIRE) -- 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, 2022.
Financial Highlights for the Quarter Ended March 31, 2022
Total investment income was $64.3 million ($0.35 per share) for the second fiscal quarter of 2022, as compared with $64.9 million ($0.36 per share) for the first fiscal quarter of 2022. Adjusted total investment income was $60.3 million ($0.33 per share) for the second fiscal quarter of 2022, as compared with $62.1 million ($0.34 per share) for the first fiscal quarter of 2022. The decreases were primarily driven by lower dividend income, partially offset by higher prepayment fees. GAAP net investment income was $40.1 million ($0.22 per share) for the second fiscal quarter of 2022, as compared with $32.3 million ($0.18 per share) for the first fiscal quarter of 2022. The increase was principally from higher interest income, resulting primarily from higher interest income accretion related to merger-related accounting adjustments, higher prepayment fees and a reversal of accrued capital gains incentive fees. This was partially offset by higher interest expense and higher part I incentive fees.Adjusted net investment income was $32.3 million ($0.18 per share) for the second fiscal quarter of 2022, as compared with $31.2 million ($0.17 per share) for the first fiscal quarter of 2022. The increase for the quarter primarily reflected higher prepayment fees and OID acceleration related to exited investments as well as lower professional fees, partially offset by higher interest expense and higher part I incentive fees.Net asset value ("NAV") per share was $7.26 as of March 31, 2022, down 1.1% from $7.34 as of December 31, 2021. The decrease was primarily driven by unrealized losses related to credit spread widening, partially offset by undistributed net investment income. Originated $227.9 million of new investment commitments and received $180.1 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended March 31, 2022. Of these new investment commitments, 72% were first lien loans, 7% were second lien loans, 13% were subordinated debt investments and 8% were equity investments. The weighted average yield on new debt investments was 8.7% .No investments were on non-accrual status as of March 31, 2022.Issued and sold 2.6 million shares of common stock under the Company's "at the market" equity offering during the three months ended March 31, 2022. The shares were issued at a premium to NAV, resulting in net proceeds of $19.4 million after giving effect to sale agents' commissions and offering expenses.Total debt outstanding was $1,395.0 million as of March 31, 2022. The total debt to equity ratio was 1.05x, and the net debt to equity ratio was 1.02x, after adjusting for cash and cash equivalents. Liquidity as of March 31, 2022 was composed of $39.4 million of unrestricted cash and cash equivalents and $455.0 million of undrawn capacity under the credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $243.8 million , or $194.8 million excluding unfunded commitments to the Company's joint ventures. Of the $194.8 million , approximately $152.4 million can be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies.A quarterly cash distribution was declared of $0.165 per share, up 3% from the prior quarter and the eighth consecutive quarterly distribution increase. The distribution is payable in cash on June 30, 2022 to stockholders of record on June 15, 2022.Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, “OCSL generated strong results in the second fiscal quarter. Our earnings were again solid, reflecting robust origination activity and successful exits of certain investments. Credit quality remains healthy with no non-accruals, a testament to our disciplined, risk-controlled investment approach. Based on our strong and consistent performance, we increased our dividend for the eighth consecutive quarter to $0.165 per share. We are well-positioned for this increasingly volatile market environment and believe OCSL will continue to deliver attractive returns to our shareholders.”
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.165 per share, an increase of 3% , or $0.005 per share, from the prior quarter and the eighth consecutive quarterly distribution increase. The distribution is payable in cash on June 30, 2022 to stockholders of record on June 15, 2022.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
Results of Operations
For the three months ended ($ in thousands, except per share data) March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) GAAP operating results: Interest income $ 57,019 $ 55,450 $ 35,655 PIK interest income 4,674 4,663 3,801 Fee income 1,905 912 2,278 Dividend income 700 3,916 209 Total investment income 64,298 64,941 41,943 Net expenses 24,200 29,338 23,829 Net investment income before taxes 40,098 35,603 18,114 (Provision) benefit for taxes on net investment income — (3,308 ) — Net investment income 40,098 32,295 18,114 Net realized and unrealized gains (losses), net of taxes (25,657 ) 7,113 70,003 Net increase (decrease) in net assets resulting from operations $ 14,441 $ 39,408 $ 88,117 Total investment income per common share $ 0.35 $ 0.36 $ 0.29 Net investment income per common share $ 0.22 $ 0.18 $ 0.12 Net realized and unrealized gains (losses), net of taxes per common share $ (0.14 ) $ 0.04 $ 0.48 Earnings (loss) per common share — basic and diluted $ 0.08 $ 0.22 $ 0.60 Non-GAAP Financial Measures 1 : Adjusted total investment income $ 60,290 $ 62,093 $ 41,278 Adjusted net investment income $ 32,344 $ 31,198 $ 21,058 Adjusted net realized and unrealized gains (losses), net of taxes $ (21,649 ) $ 9,959 $ 36,607 Adjusted earnings (loss) $ 14,441 $ 39,406 $ 54,056 Adjusted total investment income per share $ 0.33 $ 0.34 $ 0.28 Adjusted net investment income per share $ 0.18 $ 0.17 $ 0.14 Adjusted net realized and unrealized gains (losses), net of taxes per share $ (0.12 ) $ 0.06 $ 0.25 Adjusted earnings (loss) per share $ 0.08 $ 0.22 $ 0.37
______________________1 See Non-GAAP Financial Measures below for a description of the non-GAAP measures and the reconciliations from the most comparable GAAP financial measures to the Company's non-GAAP measures, including on a per share basis. The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company’s performance without giving effect to non-cash income/gain resulting from the merger of Oaktree Strategic Income Corporation with and into the Company (the "Merger") and in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of non-GAAP measures 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, 2022 (unaudited) December 31, 2021 (unaudited) September 30, 2021 Select balance sheet and other data: Cash and cash equivalents $ 39,366 $ 43,765 $ 29,334 Investment portfolio at fair value 2,644,775 2,588,623 2,556,629 Total debt outstanding (net of unamortized financing costs) 1,363,660 1,285,461 1,268,743 Net assets 1,330,376 1,325,061 1,312,823 Net asset value per share 7.26 7.34 7.28 Total debt to equity ratio 1.05x 0.98x 0.97x Net debt to equity ratio 1.02x 0.95x 0.95x
$60.3 million and included $53.0 million of interest income from portfolio investments, $4.7 million of payment-in-kind ("PIK") interest income, $1.9 million of fee income and $0.7 million of dividend income. The decrease of $1.8 million was primarily driven by $3.2 million of lower dividend income resulting from one investment that paid a non-recurring tax-related distribution in the prior quarter, partially offset by $1.0 million of higher prepayment fees and $0.4 million of higher interest income primarily related to OID acceleration.
Net expenses for the quarter ended March 31, 2022 totaled $24.2 million , down $5.1 million from the quarter ended December 31, 2021. The decrease was driven by a $5.5 million decrease in accrued capital gains incentive fees resulting from unrealized losses on investments during the quarter and $0.5 million of lower professional fees, partially offset by $0.5 million of higher interest expense and $0.2 million of higher part I incentive fees.
Adjusted net investment income was $32.3 million ($0.18 per share) for the quarter ended March 31, 2022, up from $31.2 million ($0.17 per share) for the quarter ended December 31, 2021. The increase of $1.1 million primarily reflected $1.0 million of higher prepayment fees, $0.4 million of higher interest income and $0.5 million of lower professional fees, partially offset by $0.5 million of higher interest expense and $0.2 million of higher part I incentive fees.
Adjusted net realized and unrealized losses, net of taxes, were $21.6 million for the quarter ended March 31, 2022, respectively, primarily reflecting unrealized losses on certain debt and equity investments.
Portfolio and Investment Activity
As of ($ in thousands) March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) Investments at fair value $ 2,644,775 $ 2,588,623 $ 2,327,353 Number of portfolio companies 146 140 137 Average portfolio company debt size $ 17,700 $ 18,500 $ 17,600 Asset class: Senior secured debt 86.4 % 87.4 % 86.5 % Unsecured debt 2.1 % 1.0 % 1.1 % Equity 4.5 % 4.2 % 4.4 % JV interests 7.1 % 7.4 % 8.0 % Non-accrual debt investments: Non-accrual investments at fair value $ — $ — $ — Non-accrual investments as a percentage of debt investments — % — % — % Number of investments on non-accrual — — — Interest rate type: Percentage floating-rate 89.0 % 91.6 % 91.8 % Percentage fixed-rate 11.0 % 8.4 % 8.2 % Yields: Weighted average yield on debt investments1 8.8 % 8.7 % 8.3 % Cash component of weighted average yield on debt investments 7.6 % 7.5 % 7.1 % Weighted average yield on total portfolio investments2 8.4 % 8.3 % 7.8 % Investment activity 3 : New investment commitments $ 227,900 $ 299,900 $ 317,700 New funded investment activity4 $ 236,200 $ 240,800 $ 301,800 Proceeds from prepayments, exits, other paydowns and sales $ 180,100 $ 235,000 $ 228,900 Net new investments5 $ 56,100 $ 5,800 $ 72,900 Number of new investment commitments in new portfolio companies 16 12 18 Number of new investment commitments in existing portfolio companies 9 9 2 Number of portfolio company exits 10 10 12
______________________1 Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments, including the Company's share of the return on debt investments in the SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see Non-GAAP Financial Measures below) for the assets acquired in connection with the Merger. 2 Annual stated yield earned plus net annual amortization of OID 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 and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 for the assets acquired in connection with the Merger. 3 Excludes the assets acquired as part of the Merger. 4 New funded investment activity includes drawdowns on existing revolver and delayed draw term loan commitments. 5 Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
As of March 31, 2022, the fair value of the investment portfolio was $2.6 billion and was composed of investments in 146 companies. These included debt investments in 132 companies, equity investments in 34 companies, and the Company's joint venture investments in SLF JV I ("SLF JV I") and OCSI Glick JV LLC ("Glick JV"). 22 of the equity investments were in companies in which the Company also had a debt investment.
As of March 31, 2022, 94.2% of the Company's portfolio at fair value consisted of debt investments, including 69.0% of first lien loans, 17.3% of second lien loans and 7.8% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV. This compared to 69.7% of first lien loans, 17.7% of second lien loans and 6.9% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV, as of December 31, 2021.
As of March 31, 2022, there were no investments on non-accrual status.
The Company's investments in SLF JV I totaled $133.0 million at fair value as of March 31, 2022, down 1% from $134.7 million as of December 31, 2021. This decrease was primarily driven by unrealized losses on quoted debt investments held by SLF JV I, partially offset by undistributed net investment income.
As of March 31, 2022, SLF JV I had $389.9 million in assets, including senior secured loans to 60 portfolio companies. This compared to $393.3 million in assets, including senior secured loans to 61 portfolio companies, as of December 31, 2021. As of March 31, 2022, there were no investments held by SLF JV I on non-accrual status. SLF JV I generated cash interest income of $1.9 million for the Company during the quarter ended March 31, 2022, down from $2.0 million in the prior quarter. In addition, SLF JV I generated dividend income of $0.7 million for the Company during the quarter ended March 31, 2022, up from $0.5 million in the prior quarter. As of March 31, 2022, SLF JV I had $40.0 million of undrawn capacity (subject to borrowing base and other limitations) on its $260 million senior revolving credit facility, and its debt to equity ratio was 1.4x.
The Company's investments in Glick JV totaled $55.6 million at fair value as of March 31, 2022, down slightly from $55.9 million as of December 31, 2021. As of March 31, 2022, Glick JV had $149.9 million in assets, including senior secured loans to 44 portfolio companies. This compared to $145.1 million in assets, including senior secured loans to 44 portfolio companies, as of December 31, 2021. As of March 31, 2022, there were no investments held by Glick JV on non-accrual status. Glick JV generated cash interest income of $0.7 million during the quarter ended March 31, 2022, which was unchanged as compared to the prior quarter. As of March 31, 2022, Glick JV had $13.9 million of undrawn capacity (subject to borrowing base and other limitations) on its $90 million senior revolving credit facility, and its debt to equity ratio was 1.2x.
Liquidity and Capital Resources
As of March 31, 2022, the Company had total principal value of debt outstanding of $1,395.0 million , including $745.0 million of outstanding borrowings under its revolving credit facilities, $300.0 million of the 3.500% Notes due 2025 and $350.0 million of the 2.700% Notes due 2027. The funding mix was composed of 53% secured and 47% unsecured borrowings as of March 31, 2022. The Company was in compliance with all financial covenants under its credit facilities as of March 31, 2022.
As of March 31, 2022, the Company had $39.4 million of unrestricted cash and cash equivalents and $455.0 million of undrawn capacity on its credit facilities (subject to borrowing base and other limitations). As of March 31, 2022, unfunded investment commitments were $243.8 million , or $194.8 million excluding unfunded commitments to the Company's joint ventures. Of the $194.8 million , approximately $152.4 million could be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies. The Company has analyzed cash and cash equivalents, availability under its credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believes its liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate.
As of March 31, 2022, the weighted average interest rate on debt outstanding, including the effect of the interest rate swap agreement, was 2.5% , up from 2.3% as of December 31, 2021.
The Company’s total debt to equity ratio was 1.05x and 0.98x as of March 31, 2022 and December 31, 2021, respectively. The Company's net debt to equity ratio was 1.02x and 0.95x as of March 31, 2022 and December 31, 2021, respectively.
In February, the Company entered into an equity distribution agreement with Keefe, Bruyette & Woods, Inc., JMP Securities LLC, Raymond James & Associates, Inc. and SMBC Nikko Securities America, Inc., as placement agents, in connection with the issuance and sale by the Company of shares of common stock, having an aggregate offering price of up to $125.0 million . During the three months ended March 31, 2022, the Company issued and sold 2.6 million shares of common stock under the Company's "at the market" equity offering with net proceeds totaling $19.4 million after giving effect to sale agents' commissions and offering expenses.
Non-GAAP Financial Measures
On a supplemental basis, the Company is disclosing certain adjusted financial measures, each of which is calculated and presented on a basis of methodology other than in accordance with GAAP (“non-GAAP”). The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company’s performance without giving effect to non-cash income/gain resulting from the Merger and in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of the below non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.
"Adjusted Total Investment Income" and "Adjusted Total Investment Income Per Share" – represents total investment income excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the Merger.“Adjusted Net Investment Income” and “Adjusted Net Investment Income Per Share” – represents net investment income, excluding (i) any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the Merger and (ii) capital gains incentive fees ("Part II incentive fees"). “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes” and “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes Per Share” – represents net realized and unrealized gains (losses) net of taxes excluding any net realized and unrealized gains (losses) resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the Merger.“Adjusted Earnings (Loss)” and “Adjusted Earnings (Loss) Per Share” – represents the sum of (i) Adjusted Net Investment Income and (ii) Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes and includes the impact of Part II incentive fees1 , if any.On March 19, 2021, the Company completed the Merger. The Merger was accounted for as an asset acquisition in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations—Related Issues ("ASC 805"). The consideration paid to stockholders of Oaktree Strategic Income Corporation ("OCSI") was allocated to the individual assets acquired and liabilities assumed based on the relative fair values of the net identifiable assets acquired other than "non-qualifying" assets, which established a new cost basis for the acquired OCSI investments under ASC 805 that, in aggregate, was significantly lower than the historical cost basis of the acquired OCSI investments prior to the Merger. Additionally, immediately following the completion of the Merger, the acquired OCSI investments were marked to their respective fair values under ASC 820, Fair Value Measurements , which resulted in unrealized appreciation. The new cost basis established by ASC 805 on debt investments acquired will accrete over the life of each respective debt investment through interest income, with a corresponding adjustment recorded to unrealized appreciation on such investment acquired through its ultimate disposition. The new cost basis established by ASC 805 on equity investments acquired will not accrete over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, the Company will recognize a realized gain with a corresponding reversal of the unrealized appreciation on disposition of such equity investments acquired.
The Company’s management uses the non-GAAP financial measures described above internally to analyze and evaluate financial results and performance and to compare its financial results with those of other business development companies that have not adjusted the cost basis of certain investments pursuant to ASC 805. The Company’s management believes "Adjusted Total Investment Income", "Adjusted Total Investment Income Per Share", "Adjusted Net Investment Income" and "Adjusted Net Investment Income Per Share" are useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to the accretion income resulting from the new cost basis of the OCSI investments acquired in the Merger because these amounts do not impact the fees payable to Oaktree Fund Advisors, LLC (the "Adviser") under its amended and restated advisory agreement (the "A&R Advisory Agreement"), and specifically as its relates to "Adjusted Net Investment Income" and "Adjusted Net Investment Income Per Share", without giving effect to Part II incentive fees. In addition, the Company’s management believes that “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes”, “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes Per Share”, “Adjusted Earnings (Loss)” and “Adjusted Earnings (Loss) Per Share” are useful to investors as they exclude the non-cash income/gain resulting from the Merger and are used by management to evaluate the economic earnings of its investment portfolio. Moreover, these metrics align the Company's key financial measures with the calculation of incentive fees payable to the Adviser under with the A&R Advisory Agreement (i.e., excluding amounts resulting solely from the lower cost basis of the acquired OCSI investments established by ASC 805 that would have been to the benefit of the Adviser absent such exclusion).
________________________1 Adjusted earnings (loss) includes accrued Part II incentive fees. For the three months ended March 31, 2022, $3.7 million of accrued Part II incentive fees were reversed. As of March 31, 2022, the total accrued Part II incentive fee liability was $6.8 million . Part II incentive fees are contractually calculated and paid at the end of the fiscal year in accordance with the A&R Advisory Agreement, which differs from Part II incentive fees accrued under GAAP. Hypothetically, if Part II incentive fees were calculated as of March 31, 2022 under the A&R Advisory Agreement, the amount payable would have been $0.6 million .
The following table provides a reconciliation of total investment income (the most comparable U.S. GAAP measure) to adjusted total investment income for the periods presented:
For the three months ended March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) ($ in thousands, except per share data) Amount Per Share Amount Per Share Amount Per Share GAAP total investment income $ 64,298 $ 0.35 $ 64,941 $ 0.36 $ 41,943 $ 0.29 Less: Interest income accretion related to merger accounting adjustments (4,008 ) (0.02 ) (2,848 ) (0.02 ) (665 ) — Adjusted total investment income $ 60,290 $ 0.33 $ 62,093 $ 0.34 $ 41,278 $ 0.28
For the three months ended March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) ($ in thousands, except per share data) Amount Per Share Amount Per Share Amount Per Share GAAP net investment income $ 40,098 $ 0.22 $ 32,295 $ 0.18 $ 18,114 $ 0.12 Less: Interest income accretion related to merger accounting adjustments (4,008 ) (0.02 ) (2,848 ) (0.02 ) (665 ) — Add: Part II incentive fee (3,746 ) (0.02 ) 1,751 0.01 3,609 0.02 Adjusted net investment income $ 32,344 $ 0.18 $ 31,198 $ 0.17 21,058 $ 0.14
For the three months ended March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) ($ in thousands, except per share data) Amount Per Share Amount Per Share Amount Per Share GAAP net realized and unrealized gains (losses), net of taxes $ (25,657 ) $ (0.14 ) $ 7,113 $ 0.04 $ 70,003 $ 0.48 Less: Net realized and unrealized losses (gains) related to merger accounting adjustments 4,008 0.02 2,846 0.02 (33,396 ) (0.23 ) Adjusted net realized and unrealized gains (losses), net of taxes $ (21,649 ) $ (0.12 ) $ 9,959 $ 0.06 $ 36,607 $ 0.25
For the three months ended March 31, 2022 (unaudited) December 31, 2021 (unaudited) March 31, 2021 (unaudited) ($ in thousands, except per share data) Amount Per Share Amount Per Share Amount Per Share Net increase (decrease) in net assets resulting from operations $ 14,441 $ 0.08 $ 39,408 $ 0.22 $ 88,117 $ 0.60 Less: Interest income accretion related to merger accounting adjustments (4,008 ) (0.02 ) (2,848 ) (0.02 ) (665 ) — Less: Net realized and unrealized losses (gains) related to merger accounting adjustments 4,008 0.02 2,846 0.02 (33,396 ) (0.23 ) Adjusted earnings (loss) $ 14,441 $ 0.08 $ 39,406 $ 0.22 $ 54,056 $ 0.37
Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2022 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 5, 2022. The conference call may be accessed by dialing (877) 507-4376 (U.S. callers) or +1 (412) 317-5239 (non-U.S. callers). All callers will need to reference “Oaktree Specialty Lending” once connected with the operator. Alternatively, a live webcast of the conference call can be accessed through the Investors section of Oaktree Specialty Lending’s website, www.oaktreespecialtylending.com
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 4588025, 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, future performance or financial condition. The forward-looking statements may include statements as to: future operating results of the Company and distribution projections; business prospects of the Company and the prospects of its portfolio companies; and the impact of the investments that the Company expects 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. Certain factors could cause actual results and conditions to differ materially from those projected, including the uncertainties associated with (i) changes in the economy, financial markets and political environment, (ii) risks associated with possible disruption in the operations of the Company or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic; (iii) future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities); (iv) conditions in the Company’s operating areas, particularly with respect to business development companies or regulated investment companies; (v) general considerations associated with the COVID-19 pandemic; and (vi) other considerations that may be disclosed from time to time in the Company’s publicly disseminated documents and filings. The Company has based the forward-looking statements included in this press release on information available to it on the date of this press release, and the Company assumes no obligation to update any such forward-looking statements. The Company undertakes 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 it may make directly to you or through reports that the Company 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:ocsl-ir@oaktreecapital.com
Media Relations:mediainquiries@oaktreecapital.com
Oaktree Specialty Lending Corporation Consolidated Statements of Assets and Liabilities (in thousands, except per share amounts)
March 31, 2022 (unaudited) December 31, 2021 (unaudited) September 30, 2021 ASSETS Investments at fair value: Control investments (cost March 31, 2022: $272,975; cost December 31, 2021: $272,970; cost September 30, 2021: $283,599) $ 250,580 $ 259,469 $ 270,765 Affiliate investments (cost March 31, 2022: $21,106; cost December 31, 2021: $18,845; cost September 30, 2021: $18,763) 20,244 18,120 18,289 Non-control/Non-affiliate investments (cost March 31, 2022: $2,365,667; cost December 31, 2021: $2,283,055; cost September 30, 2021: $2,236,759) 2,373,951 2,311,034 2,267,575 Total investments at fair value (cost March 31, 2022: $2,659,748; cost December 31, 2021: $2,574,870; cost September 30, 2021: $2,539,121) 2,644,775 2,588,623 2,556,629 Cash and cash equivalents 39,366 43,765 29,334 Restricted cash 2,395 2,292 2,301 Interest, dividends and fees receivable 17,335 18,508 22,125 Due from portfolio companies 2,338 2,793 1,990 Receivables from unsettled transactions 9,893 25,823 8,150 Due from broker 25,120 3,450 1,640 Deferred financing costs 8,486 9,055 9,274 Deferred offering costs 32 34 34 Deferred tax asset, net 1,668 1,673 714 Derivative assets at fair value 2,764 1,075 1,912 Other assets 2,510 2,848 2,284 Total assets $ 2,756,682 $ 2,699,939 $ 2,636,387 LIABILITIES AND NET ASSETS Liabilities: Accounts payable, accrued expenses and other liabilities $ 2,453 $ 6,169 $ 3,024 Base management fee and incentive fee payable 22,833 26,190 32,649 Due to affiliate 3,249 3,503 4,357 Interest payable 4,379 6,698 4,597 Director fees payable 38 123 — Payables from unsettled transactions 6,422 40,803 8,086 Derivative liability at fair value 23,272 5,931 2,108 Credit facilities payable 745,000 650,000 630,000 Unsecured notes payable (net of $5,761, $6,131 and $6,501 of unamortized financing costs as of March 31, 2022, December 31, 2021 and September 30, 2021, respectively) 618,660 635,461 638,743 Total liabilities 1,426,306 1,374,878 1,323,564 Commitments and contingencies Net assets: Common stock, $0.01 par value per share, 250,000 shares authorized; 183,205, 180,469 and 180,361 shares issued and outstanding as of March 31, 2022, December 31, 2021 and September 30, 2021, respectively 1,832 1,805 1,804 Additional paid-in-capital 1,825,257 1,805,139 1,804,354 Accumulated overdistributed earnings (496,713 ) (481,883 ) (493,335 ) Total net assets (equivalent to $7.26, $7.34 and $7.28 per common share as of March 31, 2022, December 31, 2021 and September 30, 2021, respectively) 1,330,376 1,325,061 1,312,823 Total liabilities and net assets $ 2,756,682 $ 2,699,939 $ 2,636,387
Consolidated Statements of Operations (in thousands, except per share amounts)
Three months ended Three months ended December 31, 2021 (unaudited) Three months ended Six months ended Six months ended Interest income: Control investments $ 3,334 $ 3,480 $ 2,374 $ 6,814 $ 4,717 Affiliate investments 366 334 143 700 248 Non-control/Non-affiliate investments 53,314 51,635 33,133 104,949 62,317 Interest on cash and cash equivalents 5 1 5 6 6 Total interest income 57,019 55,450 35,655 112,469 67,288 PIK interest income: Non-control/Non-affiliate investments 4,674 4,663 3,801 9,337 6,890 Total PIK interest income 4,674 4,663 3,801 9,337 6,890 Fee income: Control investments 13 13 18 26 33 Affiliate investments 5 5 5 10 10 Non-control/Non-affiliate investments 1,887 894 2,255 2,781 5,587 Total fee income 1,905 912 2,278 2,817 5,630 Dividend income: Control investments 700 3,916 209 4,616 339 Total dividend income 700 3,916 209 4,616 339 Total investment income 64,298 64,941 41,943 129,239 80,147 Expenses: Base management fee 10,082 9,952 7,074 20,034 13,615 Part I incentive fee 6,704 6,457 4,444 13,161 8,593 Part II incentive fee (3,746 ) 1,751 3,609 (1,995 ) 13,149 Professional fees 822 1,322 1,017 2,144 1,884 Directors fees 160 123 157 283 300 Interest expense 9,908 9,400 6,568 19,308 12,663 Administrator expense 307 390 293 697 626 General and administrative expenses 713 693 775 1,406 1,293 Total expenses 24,950 30,088 23,937 55,038 52,123 Fees waived (750 ) (750 ) (108 ) (1,500 ) (108 ) Net expenses 24,200 29,338 23,829 53,538 52,015 Net investment income before taxes 40,098 35,603 18,114 75,701 28,132 (Provision) benefit for taxes on net investment income — (3,308 ) — (3,308 ) — Net investment income 40,098 32,295 18,114 72,393 28,132 Unrealized appreciation (depreciation): Control investments (8,894 ) (667 ) 18,411 (9,561 ) 26,746 Affiliate investments (137 ) (251 ) 394 (388 ) 104 Non-control/Non-affiliate investments (19,696 ) (2,831 ) 42,803 (22,527 ) 84,740 Foreign currency forward contracts 1,689 (837 ) 3,536 852 1,110 Net unrealized appreciation (depreciation) (27,038 ) (4,586 ) 65,144 (31,624 ) 112,700 Realized gains (losses): Control investments — 1,868 — 1,868 — Non-control/Non-affiliate investments 991 4,481 8,179 5,472 16,917 Foreign currency forward contracts 411 2,972 (2,323 ) 3,383 (2,846 ) Net realized gains (losses) 1,402 9,321 5,856 10,723 14,071 (Provision) benefit for taxes on realized and unrealized gains (losses) (21 ) 2,378 (997 ) 2,357 (1,242 ) Net realized and unrealized gains (losses), net of taxes (25,657 ) 7,113 70,003 (18,544 ) 125,529 Net increase (decrease) in net assets resulting from operations $ 14,441 $ 39,408 $ 88,117 $ 53,849 $ 153,661 Net investment income per common share — basic and diluted $ 0.22 $ 0.18 $ 0.12 $ 0.40 $ 0.20 Earnings (loss) per common share — basic and diluted $ 0.08 $ 0.22 $ 0.60 $ 0.30 $ 1.07 Weighted average common shares outstanding — basic and diluted 181,598 180,381 146,652 180,982 143,775
