OCSL - Earnings call transcript Q1 2019 | Oaktree Specialty Lending Corporation

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Operator

Welcome and thank you for joining Oaktree Specialty Lending Corporation's First Fiscal Quarter 2019 Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode, but will be prompted for a question-and-answer session following the prepared remarks.

Now, I would like to introduce Michael Mosticchio of Investor Relations, who will host today's conference call. Mr. begin. may you Mosticchio,

Michael Mosticchio

and conference Oaktree call. operator, first Lending fiscal quarter welcome you, Specialty to Corporation's Thank

on of Our morning slide accessed and release the Investors earnings which accompanying presentation we can oaktreespecialtylending.com. website at our issued this the section be

Oaktree Financial Our Chief Matt Executive Officer Edgar and Pendo. Operating Officer, Treasurer, Mel Lending's and speakers Specialty Chief Investment Chief today Officer, Chief are Officer Lee; Carlisle; and

questions following will their remarks. We take be to your happy prepared

today's remind among Before forward-looking performance. call future we on want that views include to, to reflecting respect you operating begin, other current our financial statements comments I our results with and things,

factors Our actual undertake no further to in to nothing expressed Please to detail. update results or duty refer call forward-looking that any sell you or like differ on an these or could an our also SEC those this a statements. purchase constitutes offer Oaktree visit and the to that With in to company implied forward-looking its investor information. investors, solicitation and the call website to of remind for Lee. I'd the statements. from We the others uses filings revise materially of and offer I to that, Investors any website now section corporate over Investors Edgar Accordingly, fund. interest Specialty turn Lending would note announce the Oaktree encourages should our material materials. others corporate to media to discussion to any obtain of related like

Edgar Lee

our We your OCSL. appreciate everyone you, Thank call. Mike, interest welcome first quarter conference to earnings and in

the X.X% per report from quarter of NAV share or growth. $X.XX performance. fourth to financial quarter strong NAV another pleased are consecutive We previous quarter, marking increased of

of a market. share in broadly widespread including led syndicated loan selloff diversified the backdrop income investment bank and first We momentum equity X% in the even of and the decline investment quarter. to markets, net strong this maintain credit Our a $X.XX against the portfolio per in

detail risk positions. generating overall non-core $XX million on The we cautious, where and and XXXX. our loan are between This the during and in lag partially we've including non-income our investors But will corresponding markets. we the another X, reduce lending the equity commitments the investment broadly investments, January. non-core this decline a rebounded markets investments the cycle. Delving selective syndicated to due widening January equity we quarter, addition, lending, million the in underwriting, and The broadly further the a and equity in loans finally, in $XX markets Since direct we portfolio, the $XXX remain continued of originated backdrop, the including with more spread many a in given resulted less which loan middle market environment of investment Against on In late institutional market typical recovery risk deliberate in in significant remain origination to continue in And the loan million exited for of emphasis management. was yield with attractive talk values. highly exiting impacted in economic impact later. about million volatility in significant debt syndicated on and I yields. Maverick, $XX high spilled into into that direct

loans and sector our our structure new the top OCSL focus credit to XXX end demonstrates of of XX% the our quarter, of first in of venture, opportunities well positioned capital All senior any on joint that wanted continue in are - to noted, investment we excluding $X.X billion pipeline. also and I interesting at companies, ensures diversity the we OCSL's At secured with emphasize not that reliant on quality. total loans. that of are commitment economy the Kemper we the on invested that to also had capitalizing in the single

We portfolio. to risk non-cyclical, minimize with continue that diversified defensive a structurally as in or has lower mature companies growing the steadily year, to rising the EBITDA that of tend credit industries the the The end million target further to XX, portfolio that over be the median help December from $XX larger, of businesses, amounts operate climbed past at $XXX company impairments quarter. more first of leverage XXXX of million

sponsor, market company Maverick the value from management on million and worked with leverage to $X had investments. actually norms. paid private non-core $XXX these and sold as healthcare largest of highly to management primarily a by home an Dominion the million the division elevated early Healthcare write-ups Despite took more to relative same originated them those since reimbursement debt Group, and average nonaccrual down investments Healthcare which equity write-ups develop Maverick quarter, services totaled times million. due XXXX, holdings of of the declined of $XX portfolio, on still by our to non-core a in discussing Maverick adverse changes maximize company while moments investments levered. in and to provider at was our period this of the to progress, end, Medicare the equity its manager. from plan million investments rates The overall $XX challenges the Additionally, and previous like spend we has entity. products X.X outstanding the challenges, restructure and repositioning $XX value. I'd from million facing portfolio been had in X.X we one over We upon the to $XX been that our In the incentivizing historical resulting company including we has a million companies and during was Group increased Expanding quarter middle ongoing believed team during ongoing leverage the of the few times, detail. to Diagnostics, us. efforts, exited these remains Despite

entered sell giving stages, plan to us million. the its $XX entire - the company. We in continued ongoing the with final to management confidence work investment And XXXX, by write-up December closely to its process the on company

Last deliver full to over the as $X excellent expect balance plus an mentioned represents balance principal balance, was accrued value successful. earlier, of XX. received outstanding over I receive which of of the in how investment the premier our we shareholders. we distressed investments faced As resulting million expertise the following million next one example million rate sale investors interest. an reimbursement we the proactively marks manager term week, XX% and the $XX $XX And that headwinds remaining order Dominion we quarters. the or and process recover additional is utilize fair to March placing December of And previous several Diagnostics, the nonaccrual as is outcomes This subordinated for expect manage changes in XXXX, of Medicare on in debt XXXX. laboratory to our legacy recoveries specialty skills our loan toxicology large positive a maximize to underperforming world, in in a the

performance, a currently Following company is sale ongoing. XXXX on improved the late embarked process in that

initial buyer investment $XX.X writing are Given up million. comfortable the significant we to this interest, of indications

the in this are While core XX% can XX% could consisted there upside the further XX, be sale optimistic value we the of the that in be will non-core. of portfolio quarter with At remaining of December investment. cautiously no investments at end, there that assurances close,

of Dominion, non-core have Maverick quarter end. would XX% portfolio accounted Excluding and as holdings the for of

non-core to the maximize will And in forward our our an value diligent remaining with we we efforts you our to to continue ahead, investments. earnings call. the update progress Looking of be on on look providing next

infrequent crowded and from identify and transactions where our is One the risk enables unique lead to investment and our we competitive differentiating us can ability structure market for often require that The of financing. professionals, of that to assess less strong of the sponsor-backed sector sourcing source This features nontraditional of transactions returns to structure borrowers broad may the Oaktree highly financing. or adjusted structured away our private for equity market, shareholders. a is reach

of I'd give is which quarter conventional OCSL The than During company total to the priced because other couple at high hard $XXX we a million and of well company's equipment was the The fund the healthy quarter, on market producers. X.X%. $XX believe In two gas Oaktree operates X.X a of the equity of quality LIBOR expanding Oaktree both borrowers. as solutions a from highlight provided We allocated like company's examples instance, weighted a we of of average that loan, of provider $XXX million. cap. million electric is portfolio purchase. and the provide an $XXX as higher maturity. investment, million fracturing first senior yield which we capital approximately new that the to X.XX% meaningfully pressure Services, capital by plus of We XX% of value oil and originations, compelling fracing to yield million investments, to you loan a portion appealing originated asset funds new fleets. which high year sought debt was of U.S. an the the significant fleets and average value to of attractive one delivery attractively supported our a funded fracking capability services with financed and equipment buffer provided and achieved of to Oaktree sourcing co-invest public OCSL's by this ability $XX alongside Well secured our hydraulic to ability our demonstrate both loan originated

revolver senior position favorable loan to in loan. the the a capital structure addition, our In only a with has

example XXX. that and lien and valuable priced treatments of four to which manufacturing backed plus was the traded loan million inflammation loan, was $XX.X develops loan was The assets, intellectual portfolio. this first hard significant OCSL for property company was Another million at Therapeutics, Sorrento publically Oaktree's LIBOR diseases. company's €XXX allocated facilities which cancer, biotech a include infectious by

part could generate capital of equity transaction, also gains. upside which We and future as received warrants the provide

repositioning of the platform. the coupled highlighted Our and drove the clear solid strong progress advantages first results with originations ongoing quarter portfolio in Oaktree's

With discuss Mel in to proven are track discipline to the relationships, record more investing. call our detail. that, results like and I'd investment financial We scale, Oaktree's philosophy on over in and turn to adhering a to capitalizing

Mel Carlisle

income million This income per another $X.XX $X.XX Dominion to of compares OCSL XX% share term our Edgar. quarter consistent quarter. $XX Contributing loan per diluted you, XXXX. the Net was solid quarter, earnings. third million Diagnostics. OID to income last fourth with or $XX.X was and lien up Thank the investment basic share. investment reported first quarter or was from of million investment Total accretion related $XX.X and to with

and we first OID recognizing the began quarter. the income company's Following in performance improved write-up, subsequent

we Total and for short our as last Given was from lower last carried basis, in XXXX, the million. this down driven offsetting April were when this waivers payoff from you of quarter, net income from a $X.X the interest Partially low benefitted we fee loans contract decrease leverage recall by cost in time relatively until in generated to may expense $XXX,XXX due early mostly expenses, quarter. Allan the of reduced Media. quarter, maturity

the we $X.X fee Part of offsetting incentive and accrued II expense During quarter, an waiver million.

Part gains. beginning incentive XXXX, takes all including and in required a capital II we fiscal reminder, As to into depreciation year fees, account during period, the accrued appreciation which unrealized

these contractual the fee do II fees to not paying to therefore Part any And Part fiscal subject we XXXX. fees are two-year year anticipate Importantly, in incentive waiver. II

fees the details Additional our our in Note incentive waivers and related are XX-Q. regarding of of XX mechanics included management fees,

to credit Moving quality.

two mainly value partially December addition developments. This the status of increase Maverick $X debt our of Dominion. write-ups due was of on the was The X.X% in to compared prior offset investments million, for to quarter. write-downs by were As to X% on recent fair at and investments non-accrual XX, due

our fair Excluding value. portfolio would Maverick non-accruals of been debt Dominion X.X% have and at

Dominion. to to XX, due mainly write-ups asset value. September NAV on the to increased $X.XX share Turning per on $X.XX and also net Maverick from

exited were to mark-to-market tied The a we've gains NAV December. the $X.X we these net the selloff on seen write-downs by of the on during adjustments quarter million. on broadly increase muted majority syndicated in January's market realized down. Additionally, lower rebound Based The on our written investments performance, in totaled was market loans. directly amount

onto Moving leverage.

quarter end times XX, other exits of Funded [$XXX respect million decision month capital to the reflecting prepayments, were facility. bonds, to With conservatively from million] and on the are we credit portfolio. which decreased [ph] of XXXX paydowns. OCSL's from at in position times our by structure, are planning $XXX repay September the the with exceeded proceeds our originations leverage the to of Our X.XX to X.XX due ratio

term financing evaluating diversify to order capital our we're structure. longer ahead, further options Looking in

Shifting and now at our million, down to of in secured facility capacity $XXX of As total XX interest weighted facility. of loans $XXX on undrawn credit was in JV of and a portfolio X.X%. capacity XX, senior venture, of December debt undrawn average Cash investments $XXX and companies exits to XX, we from joint $XXX million at outstanding cash quarter investments of was $XX were to and loans last at million had last secured as equivalents we $XX the million the had end, This million companies. XX $XXX JV December some to to rate due million the quarter. slightly of compared quarter had senior Leverage end. quarter credit million Kemper

will Now the over Matt. call turn to I

Matt Pendo

Thank you, Mel.

of progress are strategic our improved position and returns. We executing proud OCSL plan in our for to performance

we While of date initiatives on enhance remain long further have equity. to number OCSL's return improvements focused a experienced to term on

assets. in grow non-income rotate of First, we base order to generating will investments continue of out to earning our

partnership of in assets. proceeds receiving have quarter investments. power to we the illustrate earnings proceeds we that impact received on that six the now and of proceeds million can reinvest exited quarter, in our investment $XX income can our like of I'd of from limited $XX these producing we end, portfolio. redeploying Maverick the the Since million During equity

existing invest annually. $XX yield debt and by on OCSL's increase equity at Assuming able approximately portfolio X.X%. basis return to that our XX million of conditions points are we will current

believe by broadly we yield yielding to continue loans. overall can out lower portfolio we of the improve the Second, on syndicated rotating

loan our manage stated broadly market we the syndicated have a we to previous tool As our used calls, liquidity. as

replace are temporarily investments loans investments defensive we in and the with time, increased proprietary investments. our our given Oaktree highly quarter, These to plan higher originated liquid. to During first these yielding large holdings companies Over we they are posture. these

making Finally, we meaningful the JV, were in I they capacity to and progress want Kemper additional there. investment emphasize optimizing have

to to over position investments we portfolio times, conservative the incremental recall, XX are the As a the Leverage time joint costs the you to steps of future a may we expect for and success. at X.X have JV reduce taken was number added grow December as and venture.

dividend. Now turning to the

a our which last $X.XXX the our release, board stable four approved has in press noted for As been quarters. dividend today,

performance. Our consistent portfolio sustainable and goal to remains pay by supported dividends

turn the Q&A, call on I our an to structure. Before capital update over I'll provide

including our are partners with the We discussion refinance currently credit our maturity. certain and extending to amending terms banking in facility,

asset operating market the we now leverage favorable. provide capital deviate time. have coverage go initial process, and positive. new decided Board do our this we credit our not to this of pursued X.XX anticipate investment from to into our year deploy increasing part actual at since ultimately leverage As intend beyond approval times coverage to requirements do us have from week, our current limits with our to change X, on providers conversations also currently been to nor will modify matter, We do not additional asset flexibility We've shareholder approved more asset seek target of with plan if And this this becomes February the effect we Last our the one on XXXX. X.XX modification. coverage approach

financed leverage fee to are base our reduce to limits times X.X new X% intend using effect. equity, management debt on above to we once addition, leverage In in all assets

questions. Going Operator, With forward risk to the are investment expertise OCSL. and your about opportunity our XXXX, for continue to Oaktree's identify to your and the fiscal call please excited Thank for happy resources leverage us that interest take opportunities lines. today's in up that, joining in on you to we're attractive adjusted open value deliver to shareholders. continued we

Operator

question-and-answer JMP session. Instructions] Chris [Operator come question We from will now begin the first York the Securities. And will of

Christopher York

thanks guys, taking morning, my Good for questions. and

would it XXXX? are topic the of or balance XXXX leverage asset any in expansion this under you leverage, in on take So, scenario? that return in to or coverage Edgar, how you the target have Matt question then, continuing do total February the up balance after sheet And your sheet about preliminary February or just last you reduction increase potential thinking

Matt Pendo

thanks Chris, the for question. So,

nor how As strategy goes in we nor changing remarks, changing a this target the our we ratio we - investment said our when for not in now, effect, prepared our portfolio. is from year now are

went it to the did since started - the effect did been color, what we and how thing we constituencies, banks modify the appears with appropriate of were our that, within doing, credit to ending rating - this, and also seems years period. it it of give it'd like It's and you two put it So last this change we into with but obviously, and responding market all credit when were but how altogether, our amend our the watching or some again, is reaction facility seen thought we investment extend revolving with et year, supportive. it the year, the give And first market started accepted. amending Board. we facility, not asset - leverage cetera, flexibility. has discussed because the target banks also within revolving the us thinking about invest Earlier agencies, the nor extending we we that more The this something watching their coverage, part

So plan our it's invest from longwinded when or effect. a leverage how answer into to now we change say, once really goes we don't a to year it

Christopher York

this And and year have flat stay discussions it target now. seems about not might would applicable, But considering it preliminary that program would quarters? So the be value because from traded a did have as book balance has implementing also potentially Okay. potential. you for shares be sheet you capacity, accretion expanded book with a know leverage been nice last may value like below empirically, leverage the been share have and repurchase up it then four your

that So may on any how thoughts have changed.

Edgar Lee

I morning. add have to just share here question address Hey, then I'll and something what If and said Matt Matt repurchases. Edgar can Chris. It's around good your

at point guess, it. that, target depend We on at wouldn't of is sure leave I'm for leverage to as - they the does is a I'd that's expansion of looks what intent the hard now from market sheet. us at balance see environment point opportunity same for level time, to we that in not the crystal year this dimensionalize has the determine today today. leverage we ball set and be characterization terms share... I about fair the the the utilize a mentioned aversion based into a back it that. utilize. the levels now. look how opportunity are of driven say using really capacity had talk which our target on is Matt set it in that from and to predict incremental how really we to like You to irresponsible would or time. of would what But reckless I to approved at I And an that is Board the be wouldn't that have give year in don't us

Matt Pendo

Sure, share Board. that's to discuss on so, with our and repurchase topic, we continue at Chris, the something look

done haven't We two the liquidity for date the reasons. on is it One we're focused probably underlying in to stock.

the So view obviously that something That's comments the increases leverage. lot a is will second increases We this And rating on the negative. hear that debt. reduce that. - share of repurchase agencies

One S&P. our from and both with objectives an rating of BB+ Moody's and credit opportunities. Fitch, is S&P grade credit We've and our or to investor get discussed

So at Board. reasons haven't we continue our for look those But quarter done to with it yet. every it we'll

Christopher York

again Clarification was helpful gears, strength direct buybacks. the it. the so on Switching platform investments of Got is on the your lending are very and color from Edgar highlighting side. the strong, new

did from previously you that sponsor/non-sponsor have taking maybe So the where a a meaning, borrower the you - sponsor or are then, of relationship? mix And are what perspective? seeing was where the share,

Edgar Lee

relationship I'm where a the on Oaktree or…? previous borrower And that sorry last had part, with

Christopher York

No, lender. from their

Edgar Lee

sorry. I'm Oh,

color, you trying talked or in companies go place the originations just little in new on areas of into marketplace. We - about of think to that's companies. we've non-sponsored in as past. commitments you financing now, non-acquisition marketplace. know, I'll an terms the do our less we competitive new right just non-sponsor, to just XX% area in were So new of of originations, the a the terms around versus of this emphasis And sponsored And of bit give our

a us in decent look spend the to think the we amount resources our and new a that financing at commitments commitments, And So materially competitive that's our marketplace. is of about sponsor and to reflection that a on XX%. we what so it's sponsor market. new achieve and than we we'll can compared can higher numbers. an gives yield And that less space. that's you area acquisition our the advantage the liens If see focused on when on time continue of first in think And financing, we really, just

Fifth and In originations also, commitments are terms existing Fifth mean stop But them doesn't sponsors. doesn't of That of broadly, not that lending Street few of if limited more we in - related our new to - equity very us from originations, more same we're with to to in and very exposure - terms those borrowers. that working borrowers. any fact have private Street

Christopher York

then a maturity Got a U.S. or was years, not meaningful? with you that origination so that Well's - could about OID - it. X.X talked of the the maybe but clarification associated loan upfront clarification, And fees with any there be

Edgar Lee

There OID with it. associated fees were

Christopher York

trying points, to kind just of Was it X a X basis? get points,

Edgar Lee

I if disclosed, been don't Chris. that's publicly know

very this period refinance in that on capital the to time, sure but are to think a our outlays. we is. out, a of actually for past, do don't in generate too And U.S. how will just the a making Wells receive we refinance economics listed sure So make this if Services. beyond focused made have would I to of the ahead myself, what But bridge about U.S. loan we shareholders characterize But that from to they talked out. coupon this not here. dollars additional material do coupon that Well it We short I think far I certain loan a since is, was I them features to is encourage get equity we've any rather collect publicly want as

Christopher York

Yeah. Very thoughtful answer.

back the Lastly, in jump and then queue. I'll

of your if about the is to talk indications it interest? mark you where of related initial Dominion, range can on So

Edgar Lee

active is there's it, a So that I valuation - amount What let process. sale process me can think about great I for it's - we very comment Oaktree going could it characterize limited a an sale you how guess question, sure that say because around are companies through especially today. I'm that can but

valuations Our an think the valuations that trade outcome could process are assets. about in these of maybe, public market where types exceeds, for depending think that on be If to public what in markets. we the we M&A

to the accordingly in that valuation. reflect try will We

has be However, discount that of level take process to always and with we process. around we to certain the don't an consider embedding but such will uncertainty to mean process we uncertainty think appropriate every valuation-process uncertainty the it's valuations associated a to M&A level is that valuation That potentially successful, will rather with on associate some doesn't try in our just taking certain feel a reflect that approach balanced of processes. a appropriate

Christopher York

Great.

do I And think, time. for the investors that thanks appropriateness. appreciate

Edgar Lee

the Thanks Perfect. for questions.

Operator

next question of Johnson from KBW. The Paul come will

Paul Johnson

the something be Thanks sell Is you until quarter, my morning, taking to you for continue essentially mentioned can current I Dominion wanted the guys ask OID to that into business? for guys. you essentially expect recurring? that questions. we Good you to diagnostics. Do expect that

Mel Carlisle

Hi, given Paul. answer we of quarter. this this I'll $XX.X about similar to of discount. And accrete Mel. expect had This is a XX, April amount in At September the we maturity million year, unamortized to that.

Paul Johnson

then make color. this just And I'm Great. my Great. sure second want That's thinking I question, great about to right.

$XX fiscal quarter had you first about Fitness exited post you million. looking value and we're fourth marks for fair know, or your presentation that about your mentioned Maverick U.S. million about gain And quarter quarter mentioned million end. I you in at - on Maverick. $XX $XX You the

implies million probably the $XX thinking So like $X so you that had? realized I But about Fitness. fair the gain Is million on loss basically a mark over think million previously or value right? I those am the that numbers $XX U.S.

Edgar Lee

No.

Mel I'll alone. let how just add So but comments, Maverick take it is characterize - I'd

of So cash the the XX% transaction closed pay actually time, for January this equivalent Maverick, this At a - received our debt of that down company. we in to cash the investment year. sale past about

QX. receiving or other the or $X.XX QX so, The end either we sometime of at anticipate

on escrow is And an gain there with typically take get to investment on any point associated As see releases that a process, other if associated and that sale you'll account, into it loan. you us par that some there's that then back at there. the would the

So Mel, anything else? if there's

Mel Carlisle

No. to That's way it. That's correct. look at the

Paul Johnson

Okay.

- not the a basically in not those exits? two $XX gain we're like on expecting quarter million we're first this So year

Edgar Lee

will We approximately additional an in million $XX Maverick of receive QX. gain on

Mel Carlisle

QX. Calendar

Edgar Lee

Sorry. Thank you.

Sorry. quarter Calendar two. QX, fiscal

Paul Johnson

Sure.

then the providers your last to covenants And on and understand. Do looking any question, facility have just currently? restructuring your I in you facility credit wanted confirm - one-to-one with discussion I guys potentially at that Okay. facility.

Matt Pendo

the in yes. do We revolver,

Paul Johnson

Okay.

Matt Pendo

And as as provisions. other to and of of we a that the as would number well other amend look extend provision part this maturity We some things.

Paul Johnson

And bonds for on there are one-on-one as covenants those? well, the

Matt Pendo

There one in bonds. is of the baby

Paul Johnson

my Those Thanks. right. All Okay. questions. are all

Edgar Lee

you. Thank

Operator

Rick Shane Next, will a J.P. question we Morgan. from of have

Richard Shane

year would trying it here that guys. talked my credit the using Hey, look potentially but you bonds maturing Thanks issuing market about taking into moving not I probably you've revitalize little idea there. significantly additional the that does to out, continuing make at of you're at and now, logic my where When and need back or from XXXX don't on of going off so the kind XXX, a when towards to for And baby pay facility, the basically notes in figure terms of look be larger, grade, you flattening especially opportunity we curious ahead capacity investment you credit the you the the credit portfolio for look bonds are a above why grade XXX questions. I'm bit, you're I'm - to to do going issuing environment? those for and a need additional the I'm going notes you going trading now given the got points basis the facility. on to sense, at probably facility. follow to

Edgar Lee

had until I said you now. do - me don't Sorry, right when you

Richard Shane

you go the look carry why next XX for into Sorry. Yeah. as your market to would to the on fixed why opposed into credit go I'm facility the notes would you months? to curious - just the borrowings

Edgar Lee

financing markets at diverse of think we much want capital various think, - I structure. the into options, on all reading comments have We too you're kind I us. to look balanced always to Mel's a available Yeah, look at we

we'll something where is, that's needs, at look So at the continue cetera. et our capital to market look

that So like market. we're going to interpret go you unsecured should into the borrowing

a at We thoughtful where get given capacity leverage those we have opportunities, want we mentioned have we'll And - diverse see our your have we're amending. revolver, I be running I point, under where think things. point, we to of structure. which But to look we're, and plenty Mel's into well-structured as now, all capital

Richard Shane

it. Got

Thank appreciate you, I that answer. guys. Okay.

Operator

question Finian Securities. O'Shea comes next from our of And Fargo Wells

Finian O'Shea

guys, Thanks taking for good afternoon. question. Hi, my

the about Just Dominion. Can names you or perhaps and that work a off versus turn more thought that going a when expect the big write-downs. thought of and congratulations or you for book, you on then book? reflecting course, work around breakdown us of could and you actually forward would as we quarters surprise Kind you versus have of from back what few distressed with rest book, thinking how of you moving of as were, the can was of turnaround? Maverick big gains just it through looking - what kind first And this this non-accrual quarter these over at of success this took you you there on

Matt Pendo

Let - Matt. me this answer is

and have How and the confidence do - BDC don't until out, well, we works as you work So know format, to skill timing - done. think that. we it's the the the assets I through actually abilities a everything it's to expertise manage and our to how to have in manager

good everything. confidence have what's more work our where out. I work to do. ability, of feel But come about, can't But at kind There's So but a we ton think, going we've how you happen to predict to with we It's in I'd to look it. There's probably Edgar, pretty the something names to not more can that's limited see. it? do. you'd say we

Edgar Lee

benefit class, par I hopefully, world, investment appreciate can outcomes take quite is Pausing expertise an some we best marketplace. from back best today interesting the in outcomes. question. a on investing, basically, as the in matter part it's the influence that as of can a investment ways do whatever we distressed and in Luck the What whether because to Look, the lending, can. does an luck in say and can skills do we it's asset step our bit whatever based question. position I'd here, we and to

that tremendous amount extensive energy we downward ways of or many from and tremendous spent which been that evolving for investment by time little use cannot certain investments or work troubled. And bit amount and of of I'd really underwrote these And Maverick us are two in the a that be that part investments. knew may in there influence from is go. two investment what to constructive and of Dominion, engage less think resources the investment that assets on be both based our on say, that the with from events on intensive how we the to negotiations of In businesses. don't that we there of work nature stories - these operations more a investments. fair is teams their on Part professionals a We what pretty think more borrowers, the of congratulations an some we constructive occur and quarter-to-quarter to and spent We view Oaktree's there stop was lead in a can Sometimes because sometimes accomplish. certain investments. they needed tremendous are benefited was of improvements trends we point, our did legacy these to in - accomplish And there's of negotiations the I and especially amount done. management to

about a we to generally just where we then portfolio what's benefited generally to them sale processes. corporations we a initially and generally constructive if we've in for folks deals which and assets, to portfolio be in were equity to strong that cycle has was economic by benefitted able firms part robust these us. our in types on appetite private beliefs to talked we this equity owners robust pursue in the induce the notwithstanding equity equity as we market capitalize market with And addition investment negotiating happened of fit borrowers and strategic our of before portfolio the equity would were We the reason about help private turning from quickly. the that and pushed given that over valuations belief December. part encourage around of the When underwrote more In

there it's quickly, really this that - portfolio. generally accelerate the to have lying is quickly legacy over So additional didn't there portfolio left these turnover engaging we And on portfolios don't sense, additional would over. was assuming the in here really luck the of really does help now that our it's some reflection investments. intensive bit more we I'd got I be investment are very the to many some effort over this Maverick little portfolio. the also tremendous I cases turn opportunities, say, of We portion a effort portfolio to don't to some we think with of but in specifically - a the in these leave lucky, - there legacy if turned intensive in a and of team But turn once borrowers have have side. has investments a definitely have just Dominion deliberate because and of limited, the such the portfolio. We negotiations

that Now like the always the no to opportunities do in warrants materialize, Again, caution we're future, more because new upside received if find loans. the have folks, shareholders Sorrento is equity as where with gains. capital here we to benefit able we've engaging are generate we there will potential but in that will or guarantee Therapeutics, loans

opportunities equity potential which meaningful generate more do like to [Alvatech] We upside. we that have is invested investment where are able [ph], and a the to convertible find we instrument

the with generate populating in types the gains future. those We capital continue opportunities portfolio are to of potential to

Finian O'Shea

and you your color there. Thank for candor

matter, that extension Just this workout told I sort me other think for of in group on past some your you've group. the has an that not and in been Edgar, effort workout

I'm up the assuming on freeing capital resources you're side. human of approaching So

but Any out change sound you'll this sort a bit like sort a appreciated. flow quarter's be of or might at drive deals deal of, of color of, expect more farther Should kind disagree, we think there perhaps, I terms in of So and there, will what more and this on the fundraise curve. complexity being? would be - there? will time a this broader the elsewhere Or get

Edgar Lee

types month know, It's can general and bias set say the from to investors here, to that uniqueness week, other what tend to because to have month. might get shareholders opportunity complexity. is is not always them. some and that hard want level say to our the access to not would they investments I they of I invest because get change would access those BDCs, traditional of It's to week with us, to investments with

Sometimes path unique just and through haven't a lending firm they're calling the for to or of equity up BDCs private different some situations found gone traditional some direct they have loan funds competitively bid XX that broker we opportunity. where

of We here, which not transactions origination are really doing incremental a own our get us yield. allows self to others fair us generate as allows are seeing, which such to to amount

adjusted directly - allow they we we we outsized the over will can you they upside, achieve but for very downside originations the core we returns see to find them, in Now, We prior upside. risk think time numbers, our do the intensive rather in even put just I downside think look a more labor risk impairment, there's math sponsor our of X%. think really risk of because better money the you us, where back is more are still the in low our find. quarter to that truly business. to yield our will will returns find not attractive when caution tend that hard nature, in that a or had if attractive can something you And even to limited They more But for opportunities. and are and

as free from really to benefiting investments they're to the - out showing trying you've that as up noted out is and here. legacy And up being slowly start to those to numbers we've work resources your able and approaching more, XX%. shareholders going in really This managing quarter and hunting

Finian O'Shea

for my all taking for you Sure. That's questions. me. And thank

Edgar Lee

Thank you.

Operator

And question of Securities next, we'll Corp. Testa Christopher a National from have

Christopher Testa

good guys. morning, Thank for my Hi, questions you today. taking

notes then with may. Obviously, on follow-ups potentially the somewhat on do balance given of in of I as evaluating up where you priced, XXXX the sort that and Fed then schizophrenic but know already rates. the been taking few couple at are bonds be what other this things some just they a with revolver I that and first especially just might landscape due, with baby might the if had looking ones, you this, another coming Just about asked caller a discussed, has

way a it? at So is good to that look

Matt Pendo

maturity. Yeah, I that have I slightly see would, XXXXs, differently they it

to take callable. the we - then, our to going if to our post have of bonds, continue the just see look And we'll we're priced funding with We with that comfortable we don't, our they're fund revolve And it. of thoughtful. We'll attractively - we for in And we'll capacity to baby maturity. good we're be look the a opportunities markets advantage sources. and If opportunity, again, capital comfortable diversify capital at, structure, at needs. very

is a action there felt source we if So better we take there. of capital, can

the And we it. waiting. thoughtful don't, good if just to we access the and we're being really see it's opportunity, we have if markets. at looking So And ability comfortable

Christopher Testa

by had York okay. I the And it, helpful. asked Chris got know That's Got repurchases. also you on

volatility grade actors very do been or this up, big tier the top repurchases the the a of repurchases that, X actions from the cost place. if rating that also obviously, the well that cost the of a there your as weigh because and that's in space potential given investment do of lot have what's of the instance on rating agencies, to you are on any obvious from been even component, accretive, reducing that are is multiple which also at, go rating from a the How negative where at the an one debt kind And were negative considered theoretically of negative of the have guys could've Looking rating XXbX-X part you agencies? the against agencies. fact actually recent, commentary the equity, least have plenty

I'm So, all look it that. at wondering how of just holistically you the in of context

Matt Pendo

question at we that. a It's Chris. all Sure, good look and

that and on goal accordingly. been those the investigator not we to we've closer, that said, We're slightly fact. is that yet. grade think If got and all different focused there, to is - our we there act get different rating. quite date things weigh then being I But

we're kind of that's how at looking it. So

Christopher Testa

somewhat technical I that. you knew market? material, to we broadly factors which that down spread broadly bid obviously we was degree the widening Should syndicated were was much prepared or But syndicated And the insulated the all the the loans at from Okay. in widening had loans the just that average spread middle saw, relative the X.X% middle as of from somewhat during written are higher take think that not mentioned quarter. the market over remarks I very down in market it muted was

Edgar Lee

do mark-to-market portfolio, our of terms we loans a market In on basis. all of mark our private middle

do take the market, we in the market. broader loan including is into So broadly what account happening syndicated

However, loans have generally higher to spreads our materially broadly private market. relative the syndicated

more our in statements. just private valuations on broadly of syndicated syndicated be dislocation more what portfolio. it just And by built company mute movement of a which pronounced syndicated you So bit more the severe the the depends relative loans market, see a seen we general a facts. If you loans, specific really in market, might of had might making little cushion a to in might the sets company little in helps broadly very see those there's I'm bit a the it. into market,

So private loans are down because of our that marking that. I not wouldn't say

little muted, nature of a bit the Just it's more because of those investments.

Christopher Testa

And sort touching asset a looking into profile to understand. as obviously, I said investment indeed coverage. you're into had you test? go lien of or be at would fair. being where in if the multi-year at currently. one bit X.X don't widening you're one, times? your future, above remarks intend the evaluate But any that should merely out you environment is of asset tripping coverage only least And to and the last rating, we cushion, seeking one so the just That's more a grade know leverage spreads change may Okay. you're I you on just looking environment not as to more going this get year able first the or Or the the times loans, we

Matt Pendo

potentially then question. do right. do. the we that. year, have how for want we right market don't up, targets, thing starts leverage investment I year, right? the I to as where it If we to take mean first mean, and year, the don't go change should time, invest, don't opportunity want environment, and we look right we it now at the - past the prudent doing to action. strategy, think clock changes to we And change the I shareholder our the change, a think view within particularly come leverage get have we'll if know can that's it's or it's take we follow and next Between now this good always that if happens the deem next don't flexibility, the to think year an there's - the we want I Board as a we're to and But vote, our exactly we revolver

now, to are above the we'll X sense at, or if you're our X, that leverage environment that. closer think where targets look given what at to X makes increase changes, obviously So to even we to Sorry. it Was X getting Chris?

Christopher Testa

votes with kind the said is. like just - that because shareholder and yeah, the on of cats. simply Yeah, just vote And Board doing shareholder you approval is touching guys is herding that getting - BDCs

Matt Pendo

an it, expense wouldn't herding involved I as cats and… in say there's

Christopher Testa

it, more of got okay. the expense, it's So

Matt Pendo

it seemed… seemed, just just It

Christopher Testa

spreads. And guys Kemper, wisely obviously, investments there, within on back lot of looked did just you a

leverage have lot you out, of the frown peers. especially remaining at as to X.XX? or that don't looking potentially on-balance with capacity going times the agencies view to want The sheet JV run to But, still again, some capacity if is seem leverage rating the of there. this given keep You economic the is certainly further your X SBIC at capped on above you room something exhausted, way upsizing after a

Edgar Lee

And past. say, we've one, Yeah. Thanks Chris. for I the I to the think said want this would in I question, emphasize.

here. right, different been of If of is the do ways incredibly we supportive and they've the There that. has have can Kemper would But to size we expand partners the definitely good we those, with partnership Our opportunity is definitely the terrific. efforts been our think are JV. if And environment been know consider appropriate. I

Christopher Testa

questions. time Those great. appreciate are and continued the assets legacy I on out today my congratulations and Okay, of all rotation your non-accruals.

Edgar Lee

Thank you.

Operator

remarks. And question-and-answer like session. closing over this turn conference any would for Mr. the our to to concludes Mosticchio I back

Michael Mosticchio

on approximately quarter for XXXXXXXX, us for will replay dialing Thank or days non-U.S. again callers, fiscal after hour U.S. broadcast. A this be with OCSL's first replay for available section website you or callers for conference for for the XX X-XXX-XXX-XXXX call. in this call by earnings one beginning conference Investors access XXX-XXX-XXXX joining code

Operator

now concluded. is today's for presentation. conference The attending Thank you

You may now disconnect.

Oaktree Specialty Lending (OCSL) 7 Feb 192019 Q1 Earnings call transcript