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
December 31, 2022.
Financial Highlights for the Quarter Ended
December 31,
20221
- Total investment income was $79.2 million
($1.30 per share) for the first fiscal quarter of 2023, as compared
with $70.1 million ($1.15 per share) for the fourth fiscal quarter
of 2022. Adjusted total investment income was $77.4 million ($1.27
per share) for the first fiscal quarter of 2023, as compared with
$68.0 million ($1.11 per share) for the fourth fiscal quarter of
2022. The increase was primarily driven by higher interest income
from the impact of rising base rates, wider spreads on new
originations and a larger investment portfolio.
- GAAP net investment income was $38.8 million
($0.63 per share) for the first fiscal quarter of 2023, as compared
with $35.9 million ($0.59 per share) for the fourth fiscal quarter
of 2022. The increase was primarily driven by higher total
investment income, partially offset by higher interest
expense.
- Adjusted net investment income was $37.1
million ($0.61 per share) for the first fiscal quarter of 2023, as
compared with $33.7 million ($0.55 per share) for the fourth fiscal
quarter of 2022. The increase primarily reflected higher adjusted
total investment income, partially offset by higher interest
expense.
- Net asset value ("NAV") per share was $19.63
as of December 31, 2022, as compared with $20.38 as of
September 30, 2022. The decrease was primarily the result of the
$0.42 per share special distribution paid by the Company during the
quarter and unrealized depreciation related to credit spread
widening on debt investments.
- Originated $250.3 million of new investment
commitments and received $104.4 million of proceeds from
prepayments, exits, other paydowns and sales during the quarter
ended December 31, 2022. The weighted average yield on new
debt investments was 13.1%.
- No investments were on non-accrual status as
of December 31, 2022.
- Total debt outstanding was $1,510.0 million as
of December 31, 2022. The total debt to equity ratio was
1.26x, and the net debt to equity ratio was 1.24x, after adjusting
for cash and cash equivalents.
- Liquidity as of December 31, 2022 was
composed of $17.4 million of unrestricted cash and cash
equivalents and $340.0 million of undrawn capacity under the
Company's credit facilities (subject to borrowing base and other
limitations). Unfunded investment commitments were
$198.9 million, or $171.8 million excluding unfunded
commitments to the Company's joint ventures. Of the
$171.8 million, approximately $129.8 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
$0.55 per share, up 2% from $0.54 per share in the prior quarter
and the eleventh consecutive quarterly distribution increase. The
distribution is payable in cash on March 31, 2023 to stockholders
of record on March 15, 2023.
Armen Panossian, Chief Executive Officer and Chief Investment
Officer, said, “We produced excellent results to start the fiscal
year, with adjusted net investment income of $0.61 per share, up
10% from the prior quarter, supported by robust origination
activity, which drove our annualized return on equity to just under
12%. Drawing upon the breadth of the Oaktree platform, we
identified attractive investments across a mix of both sponsor and
non-sponsor deals at a weighted average yield of 13%. Still, we
remain highly selective, prudently focusing on deals that are
appropriately risk-adjusted. Our continued solid credit quality
reflects this, and we believe our portfolio is defensively
positioned for the current market environment.”
Mr. Panossian continued, “Subsequent to the end of the quarter,
we closed our previously announced merger with Oaktree Strategic
Income II, Inc. Following closing, we now have more than $3.3
billion of assets and significantly more scale and financial
flexibility to leverage as we pursue compelling new investments in
the year ahead. Altogether, we believe we are in excellent
financial shape in the new year and well-positioned to continue
delivering attractive returns to our
shareholders.”______________________1 As discussed below, the
Company completed a 1-for-3 reverse stock split on January 20,
2023, effective as of the commencement of trading on January 23,
2023. All share amounts and per share information included in this
press release reflect the reverse stock split on a retroactive
basis.
Distribution Declaration
The Board of Directors declared a quarterly distribution of
$0.55 per share, an increase of 2%, or $0.01 per share, from the
prior quarter and the eleventh consecutive quarterly distribution
increase. The distribution is payable in cash on March 31,
2023 to stockholders of record on March 15, 2023.
Distributions are paid primarily from distributable (taxable)
income. To the extent taxable earnings for a fiscal taxable year
fall below the total amount of distributions for that fiscal year,
a portion of those distributions may be deemed a return of capital
to the Company’s stockholders.
Results of Operations
|
|
For the three months ended |
|
|
|
($ in thousands, except per
share data) |
|
December 31, 2022 (unaudited) |
|
September 30, 2022 (unaudited) |
|
December 31, 2021 (unaudited) |
GAAP operating results: |
|
|
|
|
|
|
Interest income |
|
$ |
69,978 |
|
|
$ |
61,719 |
|
|
$ |
55,450 |
|
PIK interest income |
|
|
6,130 |
|
|
|
6,011 |
|
|
|
4,663 |
|
Fee income |
|
|
2,021 |
|
|
|
1,539 |
|
|
|
912 |
|
Dividend income |
|
|
1,050 |
|
|
|
875 |
|
|
|
3,916 |
|
Total investment income |
|
|
79,179 |
|
|
|
70,144 |
|
|
|
64,941 |
|
Net expenses |
|
|
40,293 |
|
|
|
34,286 |
|
|
|
29,338 |
|
Net investment income before taxes |
|
|
38,886 |
|
|
|
35,858 |
|
|
|
35,603 |
|
(Provision) benefit for taxes on net investment income |
|
|
— |
|
|
|
— |
|
|
|
(3,308 |
) |
Excise tax |
|
|
(78 |
) |
|
|
— |
|
|
|
— |
|
Net investment income |
|
|
38,808 |
|
|
|
35,858 |
|
|
|
32,295 |
|
Net realized and unrealized gains (losses), net of taxes |
|
|
(25,636 |
) |
|
|
(22,650 |
) |
|
|
7,113 |
|
Net increase (decrease) in net assets resulting from
operations |
|
$ |
13,172 |
|
|
$ |
13,208 |
|
|
$ |
39,408 |
|
Total investment income per common share |
|
$ |
1.30 |
|
|
$ |
1.15 |
|
|
$ |
1.08 |
|
Net investment income per common share |
|
$ |
0.63 |
|
|
$ |
0.59 |
|
|
$ |
0.54 |
|
Net realized and unrealized gains (losses), net of taxes
per common share |
|
$ |
(0.42 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.12 |
|
Earnings (loss) per common share — basic and
diluted |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.66 |
|
Non-GAAP Financial
Measures1: |
|
|
|
|
|
|
Adjusted total investment income |
|
$ |
77,433 |
|
|
$ |
67,971 |
|
|
$ |
62,093 |
|
Adjusted net investment income |
|
$ |
37,062 |
|
|
$ |
33,685 |
|
|
$ |
31,198 |
|
Adjusted net realized and unrealized gains (losses), net of
taxes |
|
$ |
(23,890 |
) |
|
$ |
(20,477 |
) |
|
$ |
9,959 |
|
Adjusted earnings (loss) |
|
$ |
13,172 |
|
|
$ |
13,208 |
|
|
$ |
39,406 |
|
Adjusted total investment income per share |
|
$ |
1.27 |
|
|
$ |
1.11 |
|
|
$ |
1.03 |
|
Adjusted net investment income per share |
|
$ |
0.61 |
|
|
$ |
0.55 |
|
|
$ |
0.52 |
|
Adjusted net realized and unrealized gains (losses), net of
taxes per share |
|
$ |
(0.39 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.17 |
|
Adjusted earnings (loss) per share |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.66 |
|
______________________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 "OCSI
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) |
|
December 31, 2022(unaudited) |
|
September 30, 2022 |
|
December 31, 2021(unaudited) |
Select balance sheet and other data: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
17,382 |
|
$ |
23,528 |
|
$ |
43,765 |
Investment portfolio at fair value |
|
|
2,642,870 |
|
|
2,494,111 |
|
|
2,588,623 |
Total debt outstanding (net of unamortized financing costs) |
|
|
1,463,624 |
|
|
1,301,043 |
|
|
1,285,461 |
Net assets |
|
|
1,201,989 |
|
|
1,245,563 |
|
|
1,325,061 |
Net asset value per share |
|
|
19.63 |
|
|
20.38 |
|
|
7.34 |
Total debt to equity ratio |
|
1.26x |
|
1.08x |
|
0.98x |
Net debt to equity ratio |
|
1.24x |
|
1.06x |
|
0.95x |
Adjusted total investment income for the quarter ended
December 31, 2022 was $77.4 million and included $68.2 million
of interest income from portfolio investments, $6.1 million of
payment-in-kind ("PIK") interest income, $2.0 million of fee income
and $1.1 million of dividend income. The increase of $9.5 million
from the quarter ended September 30, 2022 was primarily driven by
$8.8 million of higher interest income primarily driven by the
impact of rising interest rates on the Company's floating rate
investments, wider spreads on new originations and a larger
investment portfolio, $0.5 million of higher fee income from exit
fees received on repayments and $0.2 million of higher dividend
income from the Company's investment in SLF JV I LLC ("SLF JV
I").
Net expenses for the quarter ended December 31, 2022
totaled $40.3 million, up $6.0 million from the quarter ended
September 30, 2022. The increase primarily reflected $5.0 million
of higher interest expense as a result of the impact of rising
interest rates on the Company’s floating rate liabilities, $0.7
million of higher part I incentive fees as a result of higher
adjusted total investment income and $0.2 million of higher
management fees as a result of a larger investment portfolio.
Adjusted net investment income was $37.1 million ($0.61 per
share) for the quarter ended December 31, 2022, up from $33.7
million ($0.55 per share) for the quarter ended September 30, 2022.
The increase of $3.4 million primarily reflected $9.5 million of
higher adjusted total investment income, partially offset by $6.0
million of higher net expenses.
Adjusted net realized and unrealized losses, net of taxes, were
$23.9 million for the quarter ended December 31, 2022,
primarily reflecting credit spread widening on debt
investments.
Portfolio and Investment Activity
|
|
As of |
($ in thousands) |
|
December 31, 2022 (unaudited) |
|
September 30, 2022 (unaudited) |
|
December 31, 2021 (unaudited) |
Investments at fair value |
|
$ |
2,642,870 |
|
|
$ |
2,494,111 |
|
|
$ |
2,588,623 |
|
Number of portfolio companies |
|
|
156 |
|
|
|
149 |
|
|
|
140 |
|
Average portfolio company debt size |
|
$ |
16,500 |
|
|
$ |
16,500 |
|
|
$ |
18,500 |
|
|
|
|
|
|
|
|
Asset class: |
|
|
|
|
|
|
Senior secured debt |
|
|
86.3 |
% |
|
|
86.9 |
% |
|
|
87.4 |
% |
Unsecured debt |
|
|
2.4 |
% |
|
|
2.3 |
% |
|
|
1.0 |
% |
Equity |
|
|
4.3 |
% |
|
|
4.2 |
% |
|
|
4.2 |
% |
JV interests |
|
|
7.0 |
% |
|
|
6.7 |
% |
|
|
7.4 |
% |
|
|
|
|
|
|
|
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 |
|
|
87.3 |
% |
|
|
86.5 |
% |
|
|
91.6 |
% |
Percentage fixed-rate |
|
|
12.7 |
% |
|
|
13.5 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
Yields: |
|
|
|
|
|
|
Weighted average yield on debt investments1 |
|
|
11.6 |
% |
|
|
10.6 |
% |
|
|
8.7 |
% |
Cash component of weighted average yield on debt investments |
|
|
10.3 |
% |
|
|
9.3 |
% |
|
|
7.5 |
% |
Weighted average yield on total portfolio investments2 |
|
|
11.2 |
% |
|
|
10.2 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
Investment activity: |
|
|
|
|
|
|
New investment commitments |
|
$ |
250,300 |
|
|
$ |
97,000 |
|
|
$ |
299,900 |
|
New funded investment activity3 |
|
$ |
274,400 |
|
|
$ |
84,500 |
|
|
$ |
240,800 |
|
Proceeds from prepayments, exits, other paydowns and sales |
|
$ |
104,400 |
|
|
$ |
146,100 |
|
|
$ |
235,000 |
|
Net new investments4 |
|
$ |
170,000 |
|
|
$ |
(61,600 |
) |
|
$ |
5,800 |
|
Number of new investment commitments in new portfolio
companies |
|
|
18 |
|
|
|
6 |
|
|
|
12 |
|
Number of new investment commitments in existing portfolio
companies |
|
|
7 |
|
|
|
5 |
|
|
|
9 |
|
Number of portfolio company exits |
|
|
11 |
|
|
|
8 |
|
|
|
10 |
|
______________________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 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 OCSI
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
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 OCSI
Merger.3 New funded investment activity includes drawdowns on
existing revolver and delayed draw term loan commitments.4 Net new
investments consists of new funded investment activity less
proceeds from prepayments, exits, other paydowns and sales.
As of December 31, 2022, the fair value of the investment
portfolio was $2.6 billion and was composed of investments in 156
companies. These included debt investments in 142 companies, equity
investments in 42 companies, and the Company's joint venture
investments in SLF JV I and OCSI Glick JV LLC ("Glick JV"). 30 of
the equity investments were in companies in which the Company also
had a debt investment.
As of December 31, 2022, 94.8% of the Company's portfolio
at fair value consisted of debt investments, including 71.9% of
first lien loans, 14.4% of second lien loans and 8.5% of unsecured
debt investments, including the debt investments in SLF JV I and
Glick JV. This compared to 71.2% of first lien loans, 15.7% of
second lien loans and 8.1% of unsecured debt investments, including
the debt investments in SLF JV I and Glick JV, as of September 30,
2022.
As of December 31, 2022, there were no investments on
non-accrual status.
The Company's investments in SLF JV I totaled $136.8 million at
fair value as of December 31, 2022, up 17% from $117.0 million
as of September 30, 2022. The increase was primarily driven by
$21.9 million of additional contributions by the Company to SLF JV
I as well as undistributed net investment income, partially offset
by SLF JV I’s use of leverage and unrealized price declines in the
underlying investment portfolio resulting from broader market
volatility.
As of December 31, 2022, SLF JV I had $409.4 million in
assets, including senior secured loans to 59 portfolio
companies. This compared to $385.2 million in assets,
including senior secured loans to 60 portfolio companies, as of
September 30, 2022. As of December 31, 2022, there were no
investments held by SLF JV I on non-accrual status. SLF JV I
generated cash interest income of $2.6 million for the Company
during the quarter ended December 31, 2022, up from $2.2
million in the prior quarter. In addition, SLF JV I generated
dividend income of $1.1 million for the Company during the
quarter ended December 31, 2022, up from $0.9 million in the
prior quarter. As of December 31, 2022, SLF JV I had $34.0
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 $49.5 million at
fair value as of December 31, 2022, down 1% from $50.3 million
as of September 30, 2022. The decline was primarily driven by Glick
JV’s use of leverage and unrealized price declines in the
underlying investment portfolio resulting from broader market
volatility.
As of December 31, 2022, Glick JV had $137.5 million
in assets, including senior secured loans to 40 portfolio
companies. This compared to $146.8 million in assets, including
senior secured loans to 43 portfolio companies, as of September 30,
2022. As of December 31, 2022, there were no investments
held by Glick JV on non-accrual status. Glick JV generated cash
interest income of $1.2 million during the quarter ended
December 31, 2022, up from $1.0 million in the prior quarter.
As of December 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 1.3x.
Liquidity and Capital Resources
As of December 31, 2022, the Company had total principal
value of debt outstanding of $1,510.0 million, including $860.0
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 57% secured and 43% unsecured borrowings as of December 31,
2022. The Company was in compliance with all financial covenants
under its credit facilities as of December 31, 2022.
As of December 31, 2022, the Company had $17.4 million of
unrestricted cash and cash equivalents and $340.0 million of
undrawn capacity on its credit facilities (subject to borrowing
base and other limitations). As of December 31, 2022, unfunded
investment commitments were $198.9 million, or $171.8 million
excluding unfunded commitments to the Company's joint ventures. Of
the $171.8 million, approximately $129.8 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 December 31, 2022, the weighted average interest rate
on debt outstanding, including the effect of the interest rate swap
agreement, was 5.6%, up from 4.4% as of September 30, 2022,
primarily driven by the impact of rising interest rates on the
Company’s floating rate liabilities.
The Company’s total debt to equity ratio was 1.26x and 1.08x as
of December 31, 2022 and September 30, 2022, respectively. The
Company's net debt to equity ratio was 1.24x and 1.06x as of
December 31, 2022 and September 30, 2022, respectively.
Recent Developments
Reverse Stock Split
On January 20, 2023, the Company amended its restated
certificate of incorporation, as amended and corrected, to effect a
1-for-3 reverse stock split effective as of the commencement of
trading on January 23, 2023. Following completion of the reverse
stock split, the Company had 61,219,605 shares of common stock
outstanding.
OSI2 Merger
On January 23, 2023, the Company completed the previously
announced acquisition of Oaktree Strategic Income II, Inc. (the
"OSI2 Merger"). At the effective time of the OSI2 Merger, each
outstanding share of OSI2 common stock was converted into the right
to receive 0.9115 shares of the Company’s common stock (with OSI2’s
stockholders receiving cash in lieu of fractional shares of the
Company’s common stock). As a result of the OSI2 Merger, the
Company issued an aggregate of 15,860,200 shares of its common
stock to former OSI2 stockholders. Following completion of the OSI2
Merger, the Company had 77,079,805 shares of common stock
outstanding.
OSI2 Citibank Facility
On January 23, 2023, as a result of the consummation of the OSI2
Merger, the Company became party to the senior secured revolving
credit facility of OSI 2 Senior Lending SPV, LLC (“OSI 2 SPV”), the
Company’s wholly-owned and consolidated subsidiary, with Citibank,
N.A., as lender and administrative agent, and Deutsche Bank Trust
Company Americas, as collateral agent, which provides for
borrowings of up to $250 million. The credit facility has a
reinvestment period through May 26, 2023, during which advances may
be made, and matures on January 26, 2025.
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 OCSI 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 OCSI
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 OCSI
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 OCSI 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 OCSI Merger. The
OCSI 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 OCSI Merger. Additionally, immediately
following the completion of the OCSI 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 OCSI 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 OCSI 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. As of and for the three months
ended December 31, 2022, there was no accrued Part II incentive fee
liability. 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. For the three months ended December 31, 2022,
no amounts were payable under the A&R Advisory Agreement.
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 |
|
|
December 31, 2022 (unaudited) |
|
September 30, 2022 (unaudited) |
|
December 31, 2021 (unaudited) |
($ in thousands, except per
share data) |
|
Amount |
|
Per Share |
|
Amount |
|
Per Share |
|
Amount |
|
Per Share |
GAAP total investment income |
|
$ |
79,179 |
|
|
$ |
1.30 |
|
|
$ |
70,144 |
|
|
$ |
1.15 |
|
|
$ |
64,941 |
|
|
$ |
1.08 |
|
Less: Interest income accretion related to merger accounting
adjustments |
|
|
(1,746 |
) |
|
|
(0.03 |
) |
|
|
(2,173 |
) |
|
|
(0.04 |
) |
|
|
(2,848 |
) |
|
|
(0.05 |
) |
Adjusted total investment income |
|
$ |
77,433 |
|
|
$ |
1.27 |
|
|
$ |
67,971 |
|
|
$ |
1.11 |
|
|
$ |
62,093 |
|
|
$ |
1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
December 31, 2022 (unaudited) |
|
September 30, 2022 (unaudited) |
|
December 31, 2021 (unaudited) |
($ in thousands, except per
share data) |
|
Amount |
|
Per Share |
|
Amount |
|
Per Share |
|
Amount |
|
Per Share |
GAAP net investment income |
|
$ |
38,808 |
|
|
$ |
0.63 |
|
|
$ |
35,858 |
|
|
$ |
0.59 |
|
|
$ |
32,295 |
|
|
$ |
0.54 |
|
Less: Interest income accretion related to merger accounting
adjustments |
|
|
(1,746 |
) |
|
|
(0.03 |
) |
|
|
(2,173 |
) |
|
|
(0.04 |
) |
|
|
(2,848 |
) |
|
|
(0.05 |
) |
Add: Part II incentive fee |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,751 |
|
|
|
0.03 |
|
Adjusted net investment income |
|
$ |
37,062 |
|
|
$ |
0.61 |
|
|
$ |
33,685 |
|
|
$ |
0.55 |
|
|
|
31,198 |
|
|
$ |
0.52 |
|
The following table provides a reconciliation of net realized
and unrealized gains (losses), net of taxes (the most comparable
U.S. GAAP measure) to adjusted net realized and unrealized gains
(losses), net of taxes for the periods presented:
|
|
For the three months ended |
|
|
December 31, 2022 (unaudited) |
|
September 30, 2022 (unaudited) |
|
December 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 |
|
$ |
(25,636 |
) |
|
$ |
(0.42 |
) |
|
$ |
(22,650 |
) |
|
$ |
(0.37 |
) |
|
$ |
7,113 |
|
|
$ |
0.12 |
|
Less: Net realized and unrealized losses (gains) related to merger
accounting adjustments |
|
|
1,746 |
|
|
|
0.03 |
|
|
|
2,173 |
|
|
|
0.04 |
|
|
|
2,846 |
|
|
|
0.05 |
|
Adjusted net realized and unrealized gains (losses), net of
taxes |
|
$ |
(23,890 |
) |
|
$ |
(0.39 |
) |
|
$ |
(20,477 |
) |
|
$ |
(0.34 |
) |
|
$ |
9,959 |
|
|
$ |
0.17 |
|
The following table provides a reconciliation of net increase
(decrease) in net assets resulting from operations (the most
comparable U.S. GAAP measure) to adjusted earnings (loss) for the
periods presented:
|
|
For the three months ended |
|
|
December 31, 2022(unaudited) |
|
September 30, 2022(unaudited) |
|
December 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 |
|
$ |
13,172 |
|
|
$ |
0.22 |
|
|
$ |
13,208 |
|
|
$ |
0.22 |
|
|
$ |
39,408 |
|
|
$ |
0.66 |
|
Less: Interest income accretion related to merger accounting
adjustments |
|
|
(1,746 |
) |
|
|
(0.03 |
) |
|
|
(2,173 |
) |
|
|
(0.04 |
) |
|
|
(2,848 |
) |
|
|
(0.05 |
) |
Less: Net realized and unrealized losses (gains) related to merger
accounting adjustments |
|
|
1,746 |
|
|
|
0.03 |
|
|
|
2,173 |
|
|
|
0.04 |
|
|
|
2,846 |
|
|
|
0.05 |
|
Adjusted earnings (loss) |
|
$ |
13,172 |
|
|
$ |
0.22 |
|
|
$ |
13,208 |
|
|
$ |
0.22 |
|
|
$ |
39,406 |
|
|
$ |
0.66 |
|
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss
its first fiscal quarter 2023 results at 11:00 a.m. Eastern Time /
8:00 a.m. Pacific Time on February 7, 2023. The conference call may
be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412)
317-5238 (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. During the
conference call, the Company intends to refer to an investor
presentation that will be available on the Investors section of 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
6846351, 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, including the impacts of inflation and
rising interest rates; (ii) risks associated with possible
disruption in the operations of the Company or the economy
generally due to terrorism, war or other geopolitical conflict
(including the current conflict between Russia and Ukraine),
natural disasters or pandemics; (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; and (v)
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:Oaktree Specialty Lending CorporationMichael
Mosticchio (212) 284-1900ocsl-ir@oaktreecapital.com
Media Relations:Financial Profiles, Inc.Moira Conlon (310)
478-2700mediainquiries@oaktreecapital.com
Oaktree Specialty Lending
CorporationConsolidated Statements of Assets and
Liabilities(in thousands, except per share
amounts)
|
December 31, 2022 (unaudited) |
|
September 30, 2022 |
ASSETS |
|
|
|
Investments at fair
value: |
|
|
|
Control investments (cost December 31, 2022: $281,911; cost
September 30, 2022: $260,305) |
$ |
232,462 |
|
|
$ |
214,165 |
|
Affiliate investments (cost
December 31, 2022: $24,327; cost September 30, 2022: $27,353) |
|
23,173 |
|
|
|
26,196 |
|
Non-control/Non-affiliate
investments (cost December 31, 2022: $2,471,776; cost September 30,
2022: $2,330,096) |
|
2,387,235 |
|
|
|
2,253,750 |
|
Total investments at
fair value (cost December 31, 2022: $2,778,014; cost September 30,
2022: $2,617,754) |
|
2,642,870 |
|
|
|
2,494,111 |
|
Cash and cash equivalents |
|
17,382 |
|
|
|
23,528 |
|
Restricted cash |
|
1,863 |
|
|
|
2,836 |
|
Interest, dividends and fees
receivable |
|
37,802 |
|
|
|
35,598 |
|
Due from portfolio
companies |
|
6,181 |
|
|
|
22,495 |
|
Receivables from unsettled
transactions |
|
8,657 |
|
|
|
4,692 |
|
Due from broker |
|
39,760 |
|
|
|
45,530 |
|
Deferred financing costs |
|
6,781 |
|
|
|
7,350 |
|
Deferred offering costs |
|
32 |
|
|
|
32 |
|
Deferred tax asset, net |
|
1,722 |
|
|
|
1,687 |
|
Derivative assets at fair
value |
|
— |
|
|
|
6,789 |
|
Other assets |
|
4,210 |
|
|
|
1,665 |
|
Total
assets |
$ |
2,767,260 |
|
|
$ |
2,646,313 |
|
|
|
|
|
LIABILITIES AND NET ASSETS |
|
|
|
Liabilities: |
|
|
|
Accounts payable, accrued expenses and other liabilities |
$ |
3,035 |
|
|
$ |
3,701 |
|
Base management fee and incentive fee payable |
|
16,871 |
|
|
|
15,940 |
|
Due to affiliate |
|
3,260 |
|
|
|
3,180 |
|
Interest payable |
|
13,368 |
|
|
|
7,936 |
|
Payables from unsettled transactions |
|
20,974 |
|
|
|
26,981 |
|
Derivative liability at fair value |
|
44,139 |
|
|
|
41,969 |
|
Credit facilities payable |
|
860,000 |
|
|
|
700,000 |
|
Unsecured notes payable (net of $4,650 and 5,020 of unamortized
financing costs as of December 31, 2022 and September 30, 2022,
respectively) |
|
603,624 |
|
|
|
601,043 |
|
Total
liabilities |
|
1,565,271 |
|
|
|
1,400,750 |
|
Commitments and
contingencies |
|
|
|
Net
assets: |
|
|
|
Common stock, $0.01 par value per share, 250,000 shares
authorized; 61,220 and 61,125 shares issued and outstanding as of
December 31, 2022 and September 30, 2022, respectively |
|
612 |
|
|
|
611 |
|
Additional paid-in-capital |
|
1,829,653 |
|
|
|
1,827,721 |
|
Accumulated overdistributed earnings |
|
(628,276 |
) |
|
|
(582,769 |
) |
Total net assets
(equivalent to $19.63 and $20.38 per common share as of December
31, 2022 and September 30, 2022, respectively) |
|
1,201,989 |
|
|
|
1,245,563 |
|
Total liabilities and
net assets |
$ |
2,767,260 |
|
|
$ |
2,646,313 |
|
Oaktree Specialty Lending
CorporationConsolidated Statements of
Operations(in thousands, except per share
amounts)
|
Three months endedDecember 31, 2022
(unaudited) |
|
Three months ended September 30, 2022
(unaudited) |
|
Three months endedDecember 31, 2021
(unaudited) |
Interest
income: |
|
|
|
|
|
Control investments |
$ |
4,567 |
|
|
$ |
3,829 |
|
|
$ |
3,480 |
|
Affiliate investments |
|
641 |
|
|
|
574 |
|
|
|
334 |
|
Non-control/Non-affiliate investments |
|
64,298 |
|
|
|
57,021 |
|
|
|
51,635 |
|
Interest on cash and cash equivalents |
|
472 |
|
|
|
295 |
|
|
|
1 |
|
Total interest income |
|
69,978 |
|
|
|
61,719 |
|
|
|
55,450 |
|
PIK interest
income: |
|
|
|
|
|
Non-control/Non-affiliate investments |
|
6,130 |
|
|
|
6,011 |
|
|
|
4,663 |
|
Total PIK interest income |
|
6,130 |
|
|
|
6,011 |
|
|
|
4,663 |
|
Fee income: |
|
|
|
|
|
Control investments |
|
13 |
|
|
|
12 |
|
|
|
13 |
|
Affiliate investments |
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Non-control/Non-affiliate investments |
|
2,003 |
|
|
|
1,522 |
|
|
|
894 |
|
Total fee income |
|
2,021 |
|
|
|
1,539 |
|
|
|
912 |
|
Dividend
income: |
|
|
|
|
|
Control investments |
|
1,050 |
|
|
|
875 |
|
|
|
3,916 |
|
Total dividend income |
|
1,050 |
|
|
|
875 |
|
|
|
3,916 |
|
Total investment
income |
|
79,179 |
|
|
|
70,144 |
|
|
|
64,941 |
|
Expenses: |
|
|
|
|
|
Base management fee |
|
9,917 |
|
|
|
9,703 |
|
|
|
9,952 |
|
Part I incentive fee |
|
7,703 |
|
|
|
6,986 |
|
|
|
6,457 |
|
Part II incentive fee |
|
— |
|
|
|
— |
|
|
|
1,751 |
|
Professional fees |
|
1,500 |
|
|
|
1,389 |
|
|
|
1,322 |
|
Directors fees |
|
160 |
|
|
|
160 |
|
|
|
123 |
|
Interest expense |
|
20,719 |
|
|
|
15,751 |
|
|
|
9,400 |
|
Administrator expense |
|
298 |
|
|
|
278 |
|
|
|
390 |
|
General and administrative expenses |
|
746 |
|
|
|
769 |
|
|
|
693 |
|
Total
expenses |
|
41,043 |
|
|
|
35,036 |
|
|
|
30,088 |
|
Fees waived |
|
(750 |
) |
|
|
(750 |
) |
|
|
(750 |
) |
Net expenses |
|
40,293 |
|
|
|
34,286 |
|
|
|
29,338 |
|
Net investment income
before taxes |
|
38,886 |
|
|
|
35,858 |
|
|
|
35,603 |
|
(Provision) benefit for taxes on net investment income |
|
— |
|
|
|
— |
|
|
|
(3,308 |
) |
Excise tax |
|
(78 |
) |
|
|
— |
|
|
|
— |
|
Net investment
income |
|
38,808 |
|
|
|
35,858 |
|
|
|
32,295 |
|
Unrealized appreciation
(depreciation): |
|
|
|
|
|
Control investments |
|
(3,309 |
) |
|
|
(6,754 |
) |
|
|
(667 |
) |
Affiliate investments |
|
3 |
|
|
|
33 |
|
|
|
(251 |
) |
Non-control/Non-affiliate investments |
|
(8,675 |
) |
|
|
(16,803 |
) |
|
|
(2,831 |
) |
Foreign currency forward contracts |
|
(11,001 |
) |
|
|
5,655 |
|
|
|
(837 |
) |
Net unrealized appreciation (depreciation) |
|
(22,982 |
) |
|
|
(17,869 |
) |
|
|
(4,586 |
) |
Realized gains
(losses): |
|
|
|
|
|
Control investments |
|
— |
|
|
|
— |
|
|
|
1,868 |
|
Non-control/Non-affiliate investments |
|
(7,651 |
) |
|
|
(4,303 |
) |
|
|
4,481 |
|
Foreign currency forward contracts |
|
4,448 |
|
|
|
1,547 |
|
|
|
2,972 |
|
Net realized gains (losses) |
|
(3,203 |
) |
|
|
(2,756 |
) |
|
|
9,321 |
|
(Provision) benefit for
taxes on realized and unrealized gains (losses) |
|
549 |
|
|
|
(2,025 |
) |
|
|
2,378 |
|
Net realized and
unrealized gains (losses), net of taxes |
|
(25,636 |
) |
|
|
(22,650 |
) |
|
|
7,113 |
|
Net increase (decrease)
in net assets resulting from operations |
$ |
13,172 |
|
|
$ |
13,208 |
|
|
$ |
39,408 |
|
Net investment income per
common share — basic and diluted |
$ |
0.63 |
|
|
$ |
0.59 |
|
|
$ |
0.54 |
|
Earnings (loss) per
common share — basic and diluted |
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.66 |
|
Weighted average common
shares outstanding — basic and diluted |
|
61,142 |
|
|
|
61,125 |
|
|
|
60,127 |
|
Oaktree Specialty Lending (NASDAQ:OCSL)
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Oaktree Specialty Lending (NASDAQ:OCSL)
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