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Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2018 Financial Results

LOS ANGELES, CA, May 08, 2018 (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, 2018.

Second Fiscal Quarter 2018 Highlights

  • Total investment income of $34.8 million, or $0.25 per share;

  • Net investment income of $15.3 million, or $0.11 per share;

  • Net asset value per share as of March 31, 2018 of $5.87; and

  • Originated $223.2 million of new investment commitments and received $151.8 million in connection with five full repayments and exits of investments.

Management Commentary

“We have made measurable progress in executing on our plan to reposition the portfolio and enhance its return on equity,” said Edgar Lee, Chief Executive Officer and Chief Investment Officer of Oaktree Specialty Lending. “In the second quarter, we continued to reduce non-core investments, while redeploying capital into $223 million of new investments better aligned with Oaktree’s investment approach. The significant advantages of Oaktree’s platform, including scale, relationships and a disciplined approach to credit investing have begun to show tangible results for OCSL.”

Portfolio and Investment Activity

As of March 31, 2018, the fair value of the investment portfolio was $1.4 billion and was comprised of investments in 115 companies. These included loans to 72 companies, 8 public bond issuances, the investment in Senior Loan Fund JV I, LLC (“SLF JV I”) and equity investments in 59 companies, including in SLF JV I and 16 private equity funds. 25 of these equity investments were in companies in which Oaktree Specialty Lending also had a debt investment.

At fair value, 92.4% of the Company's portfolio as of March 31, 2018 consisted of debt investments, including 52.8% of first lien loans, 23.8% of second lien loans and 15.8% of unsecured debt investments, including the debt investments in SLF JV I.

As of March 31, 2018, SLF JV I had $322.9 million in assets, including senior secured loans to 40 portfolio companies.  The joint venture generated income of $4.2 million for Oaktree Specialty Lending during the second quarter.

The weighted average yield on the Company's debt investments as of March 31, 2018, including the return on our mezzanine note investments in SLF JV I, was 9.3%.

As of March 31, 2018, $1.1 billion of the Company's debt investments, or 84.6% of the total debt portfolio, at fair value, had floating interest rates.

During the quarter ended March 31, 2018, the Company originated $223.2 million of investment commitments, including investments in nine new and one existing portfolio company, and funded $227.8 million of investments across new and existing portfolio companies. 

During the quarter, the Company received $151.8 million from the full repayments and exits of five investments, and $90.1 million from other paydowns and sales of investments.

Results of Operations

Total investment income for the quarter ended March 31, 2018 was $34.8 million, including $26.6 million of cash interest income from portfolio investments.  Payment-in-kind ("PIK") interest income, net of PIK collected in cash, represented 5.3% of total investment income for the quarter ended March 31, 2018.

Net expenses for the quarter were $19.5 million, a decrease of $1.0 million from the quarter ended December 31, 2017. The decrease in net expenses was due primarily to a decrease in professional fees, interest expense and general and administrative expenses, partially offset by an increase in Part I incentive fees.

Net unrealized depreciation on the investment portfolio for the quarter was $0.4 million and net realized gains on investments and secured borrowings for the quarter were $4.9 million.

Liquidity and Capital Resources

As of March 31, 2018, the Company had $8.2 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $586.0 million and $417.0 million of undrawn capacity on its credit facility, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 4.9% as of March 31, 2018.

As of March 31, 2018, the Company’s total leverage ratio was 0.71x debt-to-equity.

Dividend Declaration

The Board of Directors declared a quarterly dividend of $0.095 per share, payable on June 29, 2018 to stockholders of record on June 15, 2018.

Dividends are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of dividend distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.

Portfolio Asset Quality

As of March 31, 2018, there were eight investments on which the Company had stopped accruing cash and/or PIK interest or original issue discount ("OID") income that, in the aggregate, represented 12.8% of the debt portfolio at cost and 2.4% at fair value.

($ in thousands)
Non-Accrual - Debt Investments As of March 31, 2018 As of September 30, 2017
Non-Accrual Investments at Fair Value $ 30,886   $ 67,015  
Non-Accrual Investments/Total Investments at Fair Value 2.4 % 4.7 %


Oaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)
 
  March 31, 2018 (unaudited)   December 31, 2017 (unaudited)   September 30,
 2017
  ASSETS          
Investments at fair value:          
Control investments (cost March 31, 2018: $431,809; cost December 31, 2017: $438,415; cost September 30, 2017: $444,826) $ 285,079     $ 297,534     $ 305,271  
Affiliate investments (cost March 31, 2018: $10,881; cost December 31, 2017: 33,397; cost September 30, 2017: $33,743) 11,890     36,469     36,983  
Non-control/Non-affiliate investments (cost March 31, 2018: $1,219,816; cost December 31, 2017: 1,204,629; cost September 30, 2017: $1,279,096) 1,103,715     1,081,401     1,199,501  
Total investments at fair value (cost March 31, 2018: $1,662,506; cost December 31, 2017: 1,676,441; cost September 30, 2017: $1,757,665) 1,400,684     1,415,404     1,541,755  
Cash and cash equivalents 7,951     45,435     53,018  
Restricted cash 204     319     6,895  
Interest, dividends and fees receivable 7,771     9,082     6,892  
Due from portfolio companies 5,676     5,368     5,670  
Receivables from unsettled transactions 12,852     8,869      
Deferred financing costs 6,031     6,443     1,304  
Other assets 3,346     3,260     514  
Total assets $ 1,444,515     $ 1,494,180     $ 1,616,048  
           
  LIABILITIES AND NET ASSETS          
Liabilities:          
Accounts payable, accrued expenses and other liabilities $ 2,986     $ 3,490     $ 2,417  
Base management fee and Part I incentive fee payable 8,594     6,286     6,750  
Due to affiliate 1,709     1,534     1,815  
Interest payable 3,278     6,547     3,167  
Amounts payable to syndication partners 1         1  
Director fees payable 176     176     184  
Payables from unsettled transactions 21,107     33,465     58,691  
Credit facilities payable 183,000     205,000     255,995  
Unsecured notes payable (net of $4,058, $4,432 and $4,737 of unamortized financing costs as of March 31, 2018, December 31, 2017  and September 30, 2017, respectively) 385,778     406,486     406,115  
Secured borrowings at fair value (proceeds March 31, 2018: $12,948; proceeds December 31, 2017: $13,489; proceeds September 30, 2017: $13,489) 10,652     11,601     13,256  
Total liabilities 617,281     674,585     748,391  
Commitments and contingencies          
Net assets:          
Common stock, $0.01 par value, 250,000 shares authorized; 140,961 shares issued and outstanding as of March 31, 2018, December 31, 2017 and September 30, 2017 1,409     1,409     1,409  
Additional paid-in-capital 1,579,278     1,579,278     1,579,278  
Net unrealized depreciation on investments and secured borrowings (259,526 )   (259,149 )   (215,677 )
Net realized loss on investments, secured borrowings and unsecured notes payable (473,567 )   (478,301 )   (478,010 )
Accumulated overdistributed net investment income (20,360 )   (23,642 )   (19,343 )
Total net assets (equivalent to $5.87, $5.81 and $6.16 per common share at March 31, 2018, December 31, 2017 and September 30, 2017, respectively) 827,234     819,595     867,657  
Total liabilities and net assets $ 1,444,515     $ 1,494,180     $ 1,616,048  


Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
    Three months ended
March 31, 2018
  Three months ended
December 31, 2017
  Three months ended
March 31, 2017
  Six months ended
March 31, 2018
  Six months ended
March 31, 2017
Interest income:                    
Control investments   $ 3,071     $ 3,203     $ 2,949     $ 6,274     $ 7,394  
Affiliate investments   917     949     976     1,866     1,984  
Non-control/Non-affiliate investments   22,533     25,565     34,216     48,098     72,517  
Interest on cash and cash equivalents   112     221     164     333     283  
Total interest income   26,633     29,938     38,305     56,571     82,178  
PIK interest income:                    
Control investments   1,210     1,191     2,362     2,401     3,922  
Affiliate investments   188     176     196     364     397  
Non-control/Non-affiliate investments   548     500     997     1,048     2,073  
Total PIK interest income   1,946     1,867     3,555     3,813     6,392  
Fee income:                    
Control investments   128     120     313     248     622  
Affiliate investments   44     4     247     48     729  
Non-control/Non-affiliate investments   3,770     907     2,293     4,677     5,070  
Total fee income   3,942     1,031     2,853     4,973     6,421  
Dividend and other income:                    
Control investments   2,258     1,040     842     3,298     2,304  
Non-control/Non-affiliate investments                   20  
Total dividend and other income   2,258     1,040     842     3,298     2,324  
Total investment income   34,779     33,876     45,555     68,655     97,315  
Expenses:                    
Base management fee   5,386     5,590     8,035     10,976     16,649  
Part I incentive fee   3,247     830     3,168     4,077     7,231  
Professional fees   1,015     2,898     1,723     3,913     2,787  
Board of Directors fees   177     176     193     353     390  
Interest expense   8,530     9,584     12,712     18,114     25,901  
Administrator expense   391     494     619     885     1,150  
General and administrative expenses   722     1,116     1,319     1,838     2,787  
Loss on legal settlements                   3  
Total expenses   19,468     20,688     27,769     40,156     56,898  
Fees waived   48     (134 )   (61 )   (86 )   (122 )
Insurance recoveries           (657 )       (1,259 )
Net expenses   19,516     20,554     27,051     40,070     55,517  
Net investment income   15,263     13,322     18,504     28,585     41,798  
Unrealized appreciation (depreciation) on investments:                    
Control investments   (5,849 )   (1,326 )   13,172     (7,175 )   14,509  
Affiliate investments   (2,063 )   (168 )   (687 )   (2,231 )   (662 )
Non-control/Non-affiliate investments   7,127     (43,633 )   94,039     (36,506 )   18,321  
Net unrealized appreciation (depreciation) on investments   (785 )   (45,127 )   106,524     (45,912 )   32,168  
Net unrealized (appreciation) depreciation on secured borrowings   408     1,655     (334 )   2,063     (418 )
Realized gain (loss) on investments and secured borrowings:                    
Control investments           (22,312 )       (45,936 )
Affiliate investments   2,048             2,048      
Non-control/Non-affiliate investments   2,806     (291 )   (93,581 )   2,515     (93,053 )
Net realized gain (loss) on investments and secured borrowings   4,854     (291 )   (115,893 )   4,563     (138,989 )
Redemption premium on unsecured notes payable   (120 )           (120 )    
Net increase (decrease) in net assets resulting from operations   $ 19,620     $ (30,441 )   $ 8,801     $ (10,821 )   $ (65,441 )
Net investment income per common share — basic   $ 0.11     $ 0.09     $ 0.13     $ 0.20     $ 0.29  
Earnings (loss) per common share — basic   $ 0.14     $ (0.22 )   $ 0.06     $ (0.08 )   $ (0.46 )
Weighted average common shares outstanding — basic   140,961     140,961     140,961     140,961     141,917  
Net investment income per common share — diluted   $ 0.11     $ 0.09     $ 0.13     $ 0.20     $ 0.29  
Earnings (loss) per common share — diluted   $ 0.14     $ (0.22 )   $ 0.06     $ (0.08 )   $ (0.46 )
Weighted average common shares outstanding — diluted   140,961     140,961     140,961     140,961     141,917  
Distributions per common share   $ 0.085     $ 0.125     $ 0.14     $ 0.21     $ 0.32  
                                         

Conference Call Information

Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2018 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 8, 2018. The conference call may be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412) 317-5238 (non-U.S. callers), participant password “Oaktree Specialty Lending.” During the earnings conference call, Oaktree Specialty Lending intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Specialty Lending website, www.oaktreespecialtylending.com. Alternatively, a live webcast of the conference call can be accessed on Oaktree Specialty Lending’s website.

For those individuals unable to listen to the live broadcast of the conference call, a replay will be available for 30 days 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 10118718, beginning approximately one hour after the broadcast.

About Oaktree Specialty Lending Corporation

Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is a specialty finance company dedicated to providing customized one-stop credit solutions to companies with limited access to public or syndicated capital markets. The firm seeks to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions including first and second lien loans, unsecured and mezzanine loans, and preferred equity. The company is regulated as a business development company under the Investment Company Act of 1940, as amended. Oaktree Specialty Lending is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Specialty Lending's website at www.oaktreespecialtylending.com.

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. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Contacts

Investor Relations:
Oaktree Specialty Lending Corporation
Michael Mosticchio
(212) 284-1900
ocsl-ir@oaktreecapital.com

Media Relations:
Financial Profiles, Inc.
Moira Conlon
(310) 478-2700
mediainquiries@oaktreecapital.com

 

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