OCSL - Earnings call transcript Q1 2020 | Oaktree Specialty Lending Corporation

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Operator

Welcome, and thank you for joining Oaktree Specialty Lending Corporation's the First Fiscal Quarter 2020 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

Armen Chief Our and Treasurer. Officer and Pendo, Officer; Officer and and Mel Chief Chief speakers Panossian, Executive Officer; Investment today Matt Financial are Operating President Carlisle, Chief

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

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

Our the differ forward-looking materially could actual those results implied in statements. or expressed from

for refer or to these discussion update of further any no Please filings factors statements. forward-looking duty our revise to a detail. SEC in We undertake

remind the uses note the I'd an information its encourages solicitation its and or that any review to Oaktree Lending information. and also corporate others to investors, it this fund. the Specialty shares company material any in nothing of announce Investors corporate offer that an call on interest The that Oaktree to Investors you to media website of website. section should like constitutes sell offer purchase to on others

With Matt that, call now turn over to Pendo. the I would like to

Matt Pendo

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

solid investments. strong to to year a fiscal a off start and reducing activity investment appreciation, We continued our NAV, are portfolio XXXX, with progress stable non-core

increase again that performance. up marked eighth previous This our first quarter our and $X.XX of NAV demonstrated of from quarter reported per the of $X.XX We share consistency consecutive quarter. NAV

past the per was $X.XX cumulative share or growth XX%. Our quarters NAV eight over

number uncertain was and for as the U.S. non-recurring higher accretion, quarter, Services, $X.XX investments. from Wealth OID of income modestly a events, other when quarters, the investment well investments, from first we strong including fees share experienced net prepayment Adjusted prior two down per as

to due the income declines quarter. in LIBOR was In lowered addition, interest during

we investments generated million originations $XXX Oaktree we in first The of private quarter the transactions, were other noted, where quarter. our alongside That placement funds. majority of co-invested

continued detail a great quarter. more few giving Importantly, start in moments. robust in Armen January, on current a discuss will this origination activity the us into

these our ended but the quarter X.XX up target As from of of times of times was quarter, a that investments, range X.XX result still leverage we X.XX of short with toX.XX last it times. was

we have runway of So, of plenty us. ahead

the names XX We exiting performance, also stronger portfolio in across three long-term continue further to for quarter. million reduce by across the monetize it We investments. risk a position and non-core

for September of Following non-core overall XXXX. these accounted from exits, investments portfolio at XX, XX% XX% down quarter, at end of our the the

Non-core $XXX managing million investments began ago. have more from years we $XXX two million than OCSL to declined since

non-core over of the continue remaining on work values time We specific diligently maximizing are which to occur dependent and on each will investments, situation.

peers. our assigned quality recently our investments, we’ve successful structure, and to news, With grade to-date non-core received positive respect of to capital the our citing low leverage OCSL Moody's investment progress exiting strengthening and ratings, Oaktree relative in both Fitch

our ways and an we us provides credit change. unanimous our a one and amended we to evaluate two structure. from flexibility with support allow optimize full to greater banking to this milestone capital This to leverage, we Additionally, and facility make partners to the continue as is for our enhance received important

call will to over With Armen. the turn that, now I

Armen Panossian

helped portfolio GDP the like investor good in of by markets quarter, sharing rallied growth on increase I'd some to drive and job and as positive including ongoing in appreciation The improving morning, the expansion. NAV. our overall everyone. Matt, Thanks, macroeconomic view our environment. buoyed market the by sentiment, and conditions loan This support start endured,

raised funds the direct abundance be demand vehicles. and private to over the lending to from private continues institutional years lending given CLOs including competitive, highly investors other capital several BDCs, said, past That credit of meet that

be multiples at and investing overall price mindful value that terms backdrop, relative continued are adjusted we favor spreads purchase produce best where Equity conditions all-time borrowers. Private we find competition historically highs Against and remain that to the risk continues and returns. of tight. to our can Intense

wide know investment As well This many including of as and to and opportunities. bonds. Oaktree, syndicated unique source able market you lending, origination provides here with we at a multiple broadly as sponsor middle loans channels, array are and of from us non-sponsor

financial concert their help stable the to ability economy. are and borrowers in repay both Overall, US with growing

loans by off of create lending opportunities in direct instances attractive the funds. of number more that We deterioration We in believe could investment held for one continue a future. to OCSL certain see this

our and capitalize million we on XX Despite platform $XXX to the investment to commitments able Oaktree posture, conservative across challenges competitive new of were issuers. originate

was investment existing One an growth of portfolio of support these the transactions add on to company.

first the investments million, quarter originations primary $XX market our remaining placed. portfolio privately were or While the new were XX%, of made company across

and generates energy power at LIBOR customers was to the prominent start, XXX. loan to like that I'd investment finance, To lien lender a and a million OCSL from was sole in the us. the $XX quarter. allocated $XX of plant with northeastern first loan million you the few examples of first to made the plus provide is distributes Midwest, the operation power and a Oaktree deal priced achieve

And of allocated ticketing, an a the of analytics another and TEG, operations were based to Australian of $XX data million finance a help million Oaktree commitment firms industry. venue entertainment promotions, equity provider $XX.X growing live we acquisition deal, private to

LIBOR Oaktree plus lastly, of real-world lien loan on million attractively $XX of first this was $XX The Corona, to second provider million And a for a to support data diseases pharma strategy with priced loan. plus allocated industry. lien XXX autoimmune loan at LIBOR deal was another was a XXX. co-invested the observational OCSL used we at club and priced

noted, Matt originations pace the As of strong. remained

were yield were these a million first closed average total, attractively $XXX date in with XX% have loans. deals priced We In weighted deals to lien and X.X% in six January. of

in $XX CIG which a sector. to was loan lien services to and million deal, originations priced lender sole was this energy $XXX plus these a first million well LIBOR XXX. of Logistics, the provider logistics at Among structured Oaktree was the

Another that plus a million product in proprietary investment global in deal hair and was committed strengthens formula leading at funded a priced loan, care in XXX. total patented this hair. lien repairs that first was company which $XXX OLAPLEX, specialty with million $XX January damaged Oaktree LIBOR to

deals The I the to demonstrate across identify CIG and our and industries first investments, multiple attractive coupled quarter OLAPLEX channels. unique shared, and origination capabilities opportunities with

that year, Early can to accretive our exits process interest profitable equity identify example, and us we helped for this position completed the we selling for in we YETI. allowed investments exit continue earning calendar Importantly, into This to that us position of timely convert redeploy overtime. continued also growth. to cash highly

of our objectives improving ROE. One ongoing towards our

in believe of opportunities. Looking a investment that ahead, advantage risk liquidity to of we possibilities an opportunistically our are ample pipeline we we range interesting reward. with attractive take evaluating attractive We believe present patiently yet are well-positioned

the Now turning overall portfolio, to

businesses We leverage to borrowers, more portfolio secured diversity larger by remain positioning lower The OCSL's defensively lending and on focused diversified and maintaining focusing and senior across with opportunities levels. on issuers investments investments of of stable which relatively were of lien. $X.X prior were our first XX% portfolios quarter, XXX senior billion from characteristics across companies, portfolio secured, the held we were XX%

The debt of quarter first in lien equity previous from a increase and JV. interest of the X% to Kemper investments and unsecured graduate X% remainder more continued the migration positions. investments slight This our consisted LP X% XX%,

overall company below close portfolio And market middle medium of quarter which elevated. leverage $XXX levels at The at times EBITDA the flat remain first the was million. was five leverage

Turning to the non-core portfolio.

to portfolio exposure million of investments meaningful We XX% in non-core that or to reducing $XXX in $XX continue first to non-core the of quarter. the make brought The the the quarter down portfolio. we first non-core progress monetized positions million

are portfolio that and in the reducing pleased attractive ongoing progress we are we summary, throughout our deliver to the confident of risk shareholders and adjusted In well-positioned to non-core we with the returns risk XXXX. size are

I over financial call in detail. our Now to turn will discuss more to results Mel the

Mel Carlisle

Armen. you, Thank

$X.X quarter, and share $X.XX For income or income investment per the of OCSL respectively. million $X.XX reported adjusted net first net $XX.X investment of million,

fees. a reminder, adjusted NII, incentive defined Part we or As capital X as excluding gains incentive NII fees,

the non-recurring the net to which accrued $X.X million Part million XXth amount waiver fee during accrued was from OCSL And reversal expiration. related in October during a Part Including composed waiver This X.X the of quarter. of expiration, million of stemming the a waivers October first impact previously on of fees the two-year total $X.X XXth, portfolio first of ended quarter. fees incentive accrued X a fee incentive appreciation X contractual in

extent gap Ultimately, portfolio. requires quarter driven take And recognized in to accrual note and gains unrealized unrealized that expense fee million fee each incentive us incentive unrealized accruing that realized only it is important that when Part it gains has the annually losses. to Part OCSL account incentive was Part the X and while realized fees pay the gains primarily into $X.X X quarter, will to by exceed X this

partially quarter, due the interest was million, to million fee income lower quarter. in $XX the higher investment During by from $XX.X income. X.X decline down was dividend offset total the previous and million income,

from downward by down on was income to our due interest the floating investments. decrease income LIBOR building in rate Interest million pressure a $X.X quarter-over-quarter mainly

income relative We received to fees quarter. million to prepayment mostly quarter fee recorded quarter-over-quarter, this in loan due last we that $X.X lower higher

fees, up driven increase $X.X by accrued for two-year the The $XX.X X expenses incentive impact fee Net higher primarily including the expiration. non-recurring totaled million, waiver Part first a of contractual quarter million was sequentially.

to expense the mainly Part by investment This LIBOR lower interest partially in due in decrease fees decrease X was due the offset incentive income. to lower and

by end, per appreciation of Turning September in X this fees level offset quarter that incentive on increase quarter. $X.XX share I was first mentioned. to the previously up asset in investments value. number net a was benefited the NAV This NAV Part slightly XXth. portfolio at Market accrued at from

quality. credit to Moving

total run As of X% investments of than represents which only non-accrual one-tenth debt December of value of the status, fair XXst, portfolio. at less $XXX,XXX

balance the sheet. to Turning

September greater Our and in XXth, than the from X.XX times increased leverage as million X.XX on payoffs was $XX $XXX funded which during portfolio the times million modestly grew We investments the quarter. ratio exits. in

was total undrawn had of XXst, revolving and million interest down and on quarter. X.X%, $XXX capacity December equivalents of cash $XX.X Cash credit the from there $XXX a average slightly As rate was September weighted facility. million million, debt the were outstanding

Last we we in redeem will week, Xnd. notes March the full that XXXX on X.XXX% announced

our accretive focused end, our on always and to repaying improving these that funding. notes know, will As shareholders. we believe reducing capital of that we're structure cost you To be

Shifting now joint to venture. Kemper the

of quarter-end, JV XXst, million $XXX facility invested invested companies. had credit million assets This total compared times its of of quarter. quarter quarter. at up last capacity And from X.X the was end. $XX Leverage companies at X.X at JV times million last in December undrawn $XXX of of As loans number in the the senior same secured had assets XX to to

Matt. Now to turn the I'll call over

Matt Pendo

Thank you, Mel.

We are improved Since we proud performance and management took of made have progress of returns. late we OCSL in in delivering the over XXXX.

front to have while continue conservative managing ROE additional further We the we that our in of enhance to approach us runway portfolio. to maintaining believe our

progress these discussed them. have initiatives we have We the made and all of past in and important

drive more be is level. we will the that at by way able One portfolio leverage to higher deploying returns

made to we believe selectively have we've We this some the given portfolio investments as grow during we quarter what the we economic conservative on be are our cycle. in attractive, where progress with

we X.XX times. X.X still target to long-term are That operating our times said, below of

So, we continue to investments higher as and ability make enhance deploy leverage. we returns do have the to

offer approach, grow opportunities and However, investment as we risk we the adjusted attractive that portfolio will returns. believe our find consistent are that we only with

capital to which core we exit recently assets. approximately In the continue addition, had deploy with At noninterest million we generating just of million of the our investments into we reduced noninterest generating and we YETI quarter-end, stock. earning exit $XX investments, by $XXX

Kemper the JV And Finally, the the to lien investments JV weighted yield X.X%. during positively across results. optimize million efforts our contributing nine in to on average our added $XX portfolio the was companies are first The quarter.

the Mel mentioned Well the X.X longer-term JVs of was end leverage target times. quarter times. at below X.X

increase it expect adds attractive leverage as incrementally investments. overtime, that will the We JV

continue distributions. seven the consistent we morning, announced supported dividend. intend performance. is to to $X.XXX now that paying by with dividends that are their sustainable Turning a consistent and We prior This portfolio dividend

In leverage our returns performance risk for conclusion, pleased our quarter. we that identify significant to We the attractive strategically deliver first platform investment remain are to opportunities confident we adjusted will shareholders. with Oaktree improved overall that

open for interest With joining we're the take on continued that, happy please your questions. for today's and your you call Thank in Operator, to OCSL. us lines.

Operator

will And the from ahead. question-and-answer first begin session. our JP Morgan. We Shane question Rick comes now [Operator Please of Instructions] go

Rick Shane

to footnote like will Hi reversal events there's balance going guys. taking release to up timeline million that sort delve this for Thanks the waivers. the sort liability of triggering Implies or about curious into related and on waived is fees of press what questions of morning. reversal $X.X of not for X the fee shows the my subject I'd anywhere? in remain whether a that to forward. I'm that that this the sheet be the

Mel Carlisle

a million, $X.X It's good Rick. it's question. Thanks is permanently The waived. This Mel.

As it occurred period. gains the to during related that waiver

forward, to million losses, and gains, will realized So, at against we'll it that look unrealized put context in losses $X.X going cumulative be that. realized and netted the

So, there’s calculate account, there. liability fees. a future into not incentive future we Part already taken X It's when

Rick Shane

that. misunderstood I

So, net was of X.X then thought I X.X. the the

X.X now weighed, remaining. against permanently was X.X X.X there this drew was quarter. You allocated basically, I understand X.X this it X.X quarter expense and so the

Mel Carlisle

that October waiver expired to That's X.X Yes. the of related correct. on XX. the reversal

Rick Shane

for it me. you. sense. That's that Okay, Thank makes

Operator

Jefferies. question next go from Please of Our ahead. Joseph Kyle comes

Matt Pendo

might you on be mute. Now,

Kyle Joseph

for to from the of of that say sheet your how about grade get just perspective. any Apologies. investment was rating on sort investment the the I would congratulations impact Thanks on rating. guys. wanted going the and initial balance questions, right grade I taking side of to outlook my your sense

did guys of some going that the know are how XXXX balance notes the you now redo grade? I perspective to side guys investment longer-term but the from mention sheet you right you're you of a envision

Matt Pendo

It's, Matt. Kyle. Thanks,

to ratings So, good things, Fitch, good investment extremely very receive a and we you both us did is and milestone. That couple Moody's was as very, mentioned, a grade important news. which from

that announced are redemption notes. redemption Xnd. mentioned, is That and announced We five redeem March also eight we seven you date

continue notice a have that redeemable pieces redemption. announced have, shelf in have are opportunities on we'll we market there. to opportunities are that the file, evaluate We evaluate the and at of days’ not other we look we those But or par markets continue notes and the XX at and to kind

Kyle Joseph

in then That's way quarter. for the and us of timing the the it. originations Got Could sense to of yield XXst And the helpful. get in better back of follow them terms give up any a quarter? dynamics for you in just sense one just me just December the were in a to

Armen Panossian

is this Kyle, Yes, Armen.

in good correct the of your instinct part. part think originations than amount a I the second is the of the rather first more quarter was

loaded. And front some of repayments our were bit a little end

that into some got timing originations we there a found into bit of the frankly, in was the quarter. little and we've intra quarter on there So, quarter our and been that of pushed fourth working later January,

Kyle Joseph

for it question. That's it. my Got answering for me. Thanks very much

Operator

Fargo. Our next Wells question Please comes [ph] from go ahead. Finn O'Shea of

Unidentified Analyst

having Hi, Thanks guys. on. morning. Good for me

the to would reversed you sounds Just accrued. you fee what question It that first partially expand you like the waiver. have waive on

gains given of of it a counting waiver and sounds just bit But surprise a you capital part the was that it weren't like fee waiver. incentive a

a would So, of of way, from signed accrual this entitled have over this the is asked are of or so been you this period? to out sort what three gains capital points it the I why are fee nine

Mel Carlisle

is this Mel. Sure,

think to account The of investment through Under driving unrealized getting that the basis thing and Let on the unrealized and unrealized me unrealized gains. into we an realized the I gains agreement. is that difference caught management way take annual on losses over inclusion that under the that's that's you gains than we're different gap take calculate required but it.

we losses, over realized or taken to that so are are agreement, gains management Under related million investment gains losses the unrealized are and realized X.X unrealized the gains. into the reversal account that

the end, So, investment to the be that incentive we X fees management fees, incentive due fiscal calculated the would year at XXX Oaktree. the agreement, under Part for

was X.X math there. that period part of that, during that permanently occurred you And gets that million gains realize hopefully waived. And the as waiver

Unidentified Analyst

helpful. weren't you you And so because is that park, that reversed unrealized but that correct is the those really And ever say reverse… being waged to

Mel Carlisle

being You’re during [Indiscernible]. waived

waiver would But period. we have the the X fees. incentive gap currently Part So, were otherwise during higher under we accrued for waiver,

Unidentified Analyst

that it's past I demand you is you the the that. credit? few And this remaining parts fall. think name. is I maturity. thank sub more written That still pretty appreciate looks Okay, one explain that to a the The this it what's happening can, moved for legacy like Can or quarter, major the was down lien extent that still you rate in your first sub color. you diagnostics, was on that moving

Armen Panossian

Sure, this is Armen.

We are in of transaction midst the closing there. a restructuring

signed have an the other We agreement and company with stakeholders.

call, more So, to report the but quarterly second. little it could a is have our on that now, beyond we'll isn't right fluid there right, much next a I say of more situation that as bit

Unidentified Analyst

Okay, my thank you taking for questions.

Operator

go Ryan ahead. Lynch comes KBS. of from next Please question Our

Ryan Lynch

Good morning, guys.

fourth question origination were XXXX made strong guys was in First or origination has maybe you sign that close really guys increase guys of view off quarter seen mentioned investment have hoping due activity you simply some the in to that to a that over to a calendar that you quarter-to-date, year? spilled had calendar should with deal you we far the do you to start that growing so that are as pipeline a

Mel Carlisle

the for question, Thanks Ryan.

I think the sourcing we've byproduct bit platform. deals in But We've expanding our at and seeing thought two the funnel, the is further or we the opportunity talked we had mine deeper could trend and quarter little slipped. looking close more of an of later at past of as I origination say we one and the maybe fourth year that and this of opportunities, done that. speaking, the think about entirety the a a and they a year kind lot leveraging Oaktree that Oaktree we're generally this into that would in could in

interesting trading able other the in as some market. with in concert the markets, there secondary because is things strategies to at desk, in working leveraging know, volatility frankly, we're you our so, potentially do And Oaktree,

broadly, thinking of don't want to to to any pleased I of are continue sort expand progress some made more and we've to-date kind give but there. forward-looking guidance of with hope about origination, just efforts So, we the our

Ryan Lynch

And your funds. Okay, quarter I investments think then by this XX% of held other also Oaktree you were that's guys new originated helpful. about mentioned investments

AUM Can participate guys lending middle invest in kind size OCSL that and that you can and sort of can have what just reminder of at that give platform platform OCSL funds the direct capacity what guys a the you of and invest market with could of in? across us can hold different your Oaktree kind across its Oaktree the you

Matt Pendo

sense by invest you the Oaktree extent can several our are capital credits, they strategies these that Sure, market in more large other as are available for what in I opportunities to we funds, a different to give those strategies what parts middle invest are. middle at the well. of market would consider But able have and to storage

there that our special the that activities their a group But invests have We are situations And as be well. style. may market middle interfere through they may benefit situations versa. earth sometimes vice an a or on control-oriented in participate more that to

direct find and team finance middle most that that have the center firm. And middle the risk probably market high have show That's are we also sponsor at middle-market to frankly, a Opportunities that that backed. we are too mezzanine loans market and it the probably that direct them. also activities we of in sponsored we lending fairway both invests

speaking. And portfolio manager which the strategy then our Armen strategic I is the finally, that this credit of am is strategy,

non-sponsor loans market We direct deals. are highly in looking middle are specialized and structured frankly for more

strength from or a and deep funds, our the I background structure of team matter team opportunities analytics matters part that lot in competitive lot. large where distressed - given debt where is being our think That's

that are that we competitive and deals we frankly meet description. a when we there most excited so, that And think have advantage see

amount the below know, AUM that to about for grade total is to and strategies credit-oriented the details, we you are direct and predominantly but what oriented Oaktree would our $XXX you are website a of applicable most AUM And do billion. with shop in market. middle I ones a those as significant credit investment

I'm that and of opportunity So, the it's, for expanding. could there on very focused that OCSL a lot are information of something of shareholders. benefit pockets we And tap

Ryan Lynch

JV. more. of growing distressed that's of entity has Oaktree done the Okay, reducing of a good really manager good job some your since job over a non-core taking And stabilizing helpful NAV, investments, investments one done color. then improving some the accomplishments, as in this you've

looking And slide you a on guys to accomplishments that said to guys BDC even operating having I far quarter, average. over all adjusted since know But BDC which those have the some adjusted below you taking guys improve. your XX, was your ROE, done continue this is areas you are X.X% NII the

do accomplished guys think for you a generate do is a ROE ROE? those plan improving how you've And that on OCSL you reasonable should what strategies. expectation So, once that

Armen Panossian

take I'll a Armen. is crack that. at This

to improving us that we very can focused on it are and quickly So, lever a get ROE, isn't predictably. but there single pull we

of levers very the which of to that on of Matt adhere to bringing the and benefit debt, our our long ROE. rating was One focus shareholders higher primary cost a down the grade should that's through medium investment discussed, term been the over

don't mentioned, about good that. we've non-core assets, done turning that We our are that. assets want are, non-yielding into cash as instruments. That done Matt down $XXX yielding of could so into time. we job those - rush at mentioned, to we But quarter doing - a takes you redeploy as end of million Working

We to maximize consecutive situations had We of we quarters been them a a because mean, other to NAV those optimal And the cash recoveries And tough working patients and level. out, have what lower few still go. we tough than because about into out are a think don't And we some want that's want hasty rush. I to we've in tough converting be we've situations is improve growth. our situations. of NAV. been and several that's

fashion. leverage that to We're want investing. prudent leverage to ROE increase drive and in in do and addition not be dividends we In sake our prudent to is up just to for looking

ROE as of universe Our the lot is leverage the the levels rest are market. lower explains rest quite relative well. low a BDC why than That of to of the

to the our have leverage and are portfolio bit find and below that targeted increase investments any meaningfully levels, way we leverage, hopefully structured portfolio we little the will And add we size as of overall our to get closer estimation meaningful ROE And do will are thereby intentions our issues and range. we increasing well. target that good cyclical have to and massively not but increase don't a businesses well as them we

So, I that shareholder can't for give timing forward increasing ROEs. estimate you or But we sense various our by should an are know a all tools the have at you just of we on pushing etcetera. increase ROE value disposal now to

Ryan Lynch

time Okay, all helpful are Those the commentary. my questions. that's appreciate I today.

Matt Pendo

Thank you.

Operator

comes of York question Securities. ahead. next JMP Our go Chris from Please

Chris York

Good morning, for questions. guys. Thanks taking my

is a Mel, kicking X just guys one on fee in YETI one quarter? will you of a exit housekeeping incentive be First this for Part kind

Mel Carlisle

and as X to, required the also would be incentive year although included and the in pay we realized unrealized that So, fees, I required gains. to time. we include stated gap we're before, losses fiscal that YETI at accrue of would unrealized under both we any Part realized end at will are again calculation, But only or

Chris York

waivers? discretionary at end And would Understood. you making year consider any then for adjustments

Mel Carlisle

that, We permanently wave don't during fiscal for Part X.X the fees which waiver million incentive of have X we any plans XXXX. have we to do period, two-year

Chris York

for Okay, Armin. some questions

here months. been in for think you've So, six I for your role CEO

and business have being you brought the Edgar's where time departure? the you run? So, since your into could track explain most planning, The run of amount the spent

Armen Panossian

the I, would working on with in as amount the that loans. some most working originating Yes, team is spending remain much almost OCSL. spending Chris. Thanks of I've time been I understanding of I where the for and I'm think assets through tougher say and time question, analyzing

for that's and years, the so do that. what's very in in we of great get two things a way to benefit not plus want corporate last shareholders to, doing strong on But the situations. for team going I'm looking our think understand our have been I some the I of

wide and funnel our think that as to can I most ramp where portfolio highest Oaktree expanding best as as with looking other what to originators, selective the just with at so that vis-a-vis use that spending and time seeing possible, But deals many I've we is our we're as at team, the make that's OCSL with into possible put be able we do my be and my very credit. still of been analyst are and strategies sure

Frankly, OCSL, and may opportunities there know, benefit Those those focus. close as different that's Brookfield, there's relationship where all with are be you my of and work that as it very a there areas effort sets my time of an lot could takes area. of a understanding just to Oaktree well potential has opportunity there and

Chris York

understood. it Got

of investors. enlightened that kind worries Just obviously change

investors So, what relationships expectations should focusing change a the have And about talked little or the your funnel. proprietary you about expertise in leadership? then on maybe bit

into translate portfolio So, maybe change that does for how outcomes better shareholders?

Mel Carlisle

a Yes, it's great question.

group. weeks of So, in and by way of our couple each other debt a distressed both background, Edgar Lee I joined within Oaktree

We background. trajectory at an has identical. From and been very Oaktree standpoint, our investment have similar a career

credit our loan group our build left start also I senior he structured out strategy left our to distressed When to strategies. strategy. our distressed credit group strategic and

distressed we many least departed if our And so, we as group. on not interacted weekly daily both at situations

distressed lot. situations our of amounts and restructured invested in notes a capital a learned we compared During and meaningful meaningful days, lot

Oaktree perspective, that group a from same think the don't the were I any downside-oriented of a perspective background So, and of DNA the within build I Edgar and within cloth Oaktree. and couple Oaktree, investing specifically of different. within and are We same

of liquid which of a Where Oaktree, the all to I illiquid means of managers we report also variety portfolio me. point, may the closely different that this our credited at contexts. and with work those in head very strategies differ I'm performing is of all

a we is high convertibles, markets, position of those But strategies lot sure that structured that terms of delivered making focused that credit, yield and very of and shareholders, see lot different of, that in, bonds, am are available for OCSL from we what there's of developed at the that information at there's information. analytics Oaktree I leveraging most is all be the emerging that on benefit the in through interested a example, I'm make can to Oaktree, for sure are benefiting

really under that all There's interest it everyone's the could to did we share other our doing under also that deal a it strategies we're with very clear flow opportunities. leadership, didn't sort And prior analytics see, probably now as that flow. that in of of with of to lot we not work leveraging combination to umbrella, each in deal and in those of best one strategies regard. information, I've made much terms is And other those have some we of and as do for

In for our now. origination up until focused are efforts, Oaktree on and our strategies sure all origination that very been are of - working folks making have across now we individual sourcing sourcing strategies at and our that

that, somebody was meaningful Such we right see we returns, CSL, more opportunistic like emphasized the to that did in they is looking interesting that credit, yielding that extent emphasized past, equity who that opportunity. now for do see that when And something wasn't it's that ways. for was being in higher something have a the and

significantly. has dialogue increased the so, And

we and in think across engagement fourth what difference. meaningful firm. I on the guidance But or the January. that and the seeing significant I'm and can't said appreciable into have And creation. in will give on when I'm opportunity our been seeing And that we're terms by of way, probably that's the encouraged I biggest quarter materialize in value

Chris York

focusing To visibility great Again, some very time. color. us. where of helpful understanding and have your That's for you're

in sourcing that that sure, then an direct I'm was if in for sourcing, instrumental example. deals to maybe Edgar Oaktree could responsible you up be like and end deals, be as up the so of would maybe at that unique Sorrento investors kind expect But portfolio OCSL? should entirely unique will for A not follow sourcing on

Mel Carlisle

team I credit strategic the direct first, say very, strong man Oaktree. other one in never would a middle lending In strategies we in So, has been market very as at strategy. have a show It team, team, any as Oaktree. Oaktree at our well at the

Board and and does. great he created lot Edgar Sorrento amazing to is on still a Frankly the talent continues had an value smart, very relationships serve Sorrento, representing Oaktree. of on of

with there Edgar. So, be there continues relationship is to a

you've variety that origination by a lot say But of across seen the a really driven and been in that individuals. different I frankly, Oaktree, OCSL would of it's

own individuals talented with of lot perspectives. relationships a there, each and have We their

of so, loss was not per about not concerned an originator And I'm se. Edgar origination.

been me, and a see. like the as an that markets are analyst, I've opportunities as result There He's relationships as you just in of and well. being

And losing way. Edgar so, don't see an be I going to is that impediment that

that by and delivered has just very manner. say tough see, been. institution a I we that works a Andrew see delivered would to a be also as for the It that individual. it reputation today an be cannot not market see has that's institution by one And what lot of we're in a what as it Oaktree the to has ever structure or I an situations, time efficient understanding because a resolution in getting is - strong

Chris York

investors very think that that. is strong I with know Yes, a is Oaktree capital. institution. question significant Last Appreciate available

leverage. incurring obviously a below Investors redeployment, they've for been while cost. have pure an been opportunity patient operating You're on and

market are and the to could need you you provide opportunistic? for to specifically what looks when the expansion you a potential conditions in be see capital, opportunistic with maybe return what like more frame So,

Armen Panossian

say three Yes, would go could big there's participate think picture opportunity so sets I I in. OCSL that

The and cetera, in see we we protections, today. market space. some Frankly, sponsor those lending about et that quality, that bit done of of broadly middle deals. concerned first, are the practices and some finance We've credit little a our legal deterioration

able more all or be not to bunch middle get of in sponsor finance sudden going are we in of investor put gas to this hit the more deals, to a structure. So, levered a market and just

market we few then compensation those and to add given we the we'll are deals appropriate and take over of if close the However, those see the some well-structured that did very risk, a and offer portfolio last months. deals non-cyclical, sponsor do look middle

So, that's That's as going I kind deals would not higher of and well, some we're but maybe that's the to going that area. get first going the first not predominantly, broad risk be and levels area say, second deeply lien on and tranche unit deals. tranche to but be stretch unit cyclical firstly, invested, going in take in say I that considering lien to we're to the higher leverage especially for creeping businesses to space, would

have is or either or businesses The financings harder the middle by tends to lower enterprise debt much that oddly the cash been situations the area. to industries that are market These enough, the non-sponsor bespoke are flow in by in value even total the lenders, second be those are and traditional understand to area shunned markets than area. sponsor

And out are from their of solution. There that the lot structured a a story have a use seeing. they a bridge they cash challenges they're highly through cyclical issue situation there maybe credits could a flow issue, maybe current that need

well. few We of a have as done those

we very I We yields a returns, situations than protection. downside were of of the are there those We mentioned better closely a with G-Power, took where of very Logistics. credit. Both with to on structure, that think lot view there tight average, deliver and able worked were borrower CIV are

quickly, know sense And like pretty deals And we when timing, predict, pretty so, them, where of those are around get terms sheet what of term we a whether in is that them. and types to harder of see that considerations. structural we protections terms about very to other quite legal in we good there's but an is we opportunity there because is turn quick its are quite we a deep

moving as a to being of in find able flow. possible. that in puts to strong you might the and I most we're a the us doesn't that deal be fine to differentiated We're on. it. And market, to need BDCs looking the for extent vis-a-vis, think very then will Oaktree think it, I want But And be as much that opportunities an we're are doesn't us, type with the those other of that are, do of see lot borrower position

a middle market. have near trading our take at It's, rich area, do and and is at look loans syndicated third or that market and loans that that right the been par. market trading other That The would by are large that now. very interesting we find we

isn't there there. much to So, do

loans, we a problems in the markets rating and are find technical do from sensitive fundamental longer we had interesting were problems. creates months there buy participate loan owners few periods syndicated of technical of dislocation that rather term what could last think time-to-time for the But off traded we did flow broadly we issues where have some area, secondary that or time, markets or than the loans more momentary tradable some and that in technical that in

primary having in well treated benefit therefore in is and a credit our we tradable in and trading that trading get high billions and so here we very, from connectivity the servicing desk a secondary are our other very, And the opportunistic our operation very and markets well. very of market funds markets and capital in strategies, as

than the are all we tapping different greatest opportunities time, those there that we're where at large, attractive or So, in the may excited one of three of when in shut are trouble, able terms a of bespoke amount the by in those both financings, or is get those opportunities advantage secondary are of these be terms third. But most capital markets of and trading has where opportunities. the of our more and is take points in markets patient we and and patient - down are capital been to two we're

we Logistics guidance opportunities know, opportunistic on you see like I a what more Sorento comes upside Those well. are that can't at that you returns types XXX. some in or highly with loan give plus situation. But our It from out as did there as look a are dimensionalize LIBOR deals some investment, a equity structured of should of CIG like. could forward

here and that done we that process. clinical understand stage developed sciences, that through how was because has value life that process that understand talented to And technology have development individuals

particular And just will the and a Sorento and able can't a on our returns take or it, of we better of I unlevered meaningfully advantage we can't when loans. so, terms others, predict the asset structuring of predict expertise, like in do we depth I yields it. in timing But of are types terms of industries, both get outcome CIG, to of see it like those like and

Chris York

and Armen, traded lending you That's a approach one maybe think two very insights. publicly publicly helpful are great us below benefit appreciate traded that. would BDCs BDC? from consolidating so color. portfolio Thanks your that flavor management investors Very, question into these of is, for direct leverage Last do operating to giving then

Armen Panossian

of them. to we Armen they that's we're two disparate distinct. in in that strategies and is - not this from don't improve and always like having them And enhance value perspective, again, that But that both do OCSI We would value those we doing looking and both a Yeah, shareholder there's liquidity. have believe shareholder value think But of are OCSL, right different public something a and are format. now enhancing we our in I positioning. at considering

to really And merge right now is so there two. plan no those

Chris York

Great. Armen. me. Thanks, it for That's

Armen Panossian

Thank you.

Operator

[Operator Martin go Capital ahead. Instructions] Still Bruce from And Lake our next question of Please comes [ph].

Unidentified Analyst

of Couple quick Thanks. questions.

a just When the I first Just talks as upsides from January. loans to on level. the all you put how playing you slide quarter that ROE levers a the in increase equity. high all is leverage answered the expect about at you to know in and you out, those quarter do you have look the first

high this leverage, a level got at you looked year, not just increased the yeti cadence for and the you of thing have the ROE those if sure. so, if I'm And levers terms you've for year in may of

this versus How net is now income would if quarter how were how you the run that fourth we are equal, looking assuming else year sort all interest for looking of changes, last be versus lay rate of the point the sort where would out no and at year? other we

Armen Panossian

Armen. Sure. This is

we in of In end X.XX the XX, higher year, of the terms leverage leverage into January. we level our month are little December has about since at about and a bit at where times year, crafted were the we're a

happen cannot are trending months in originations of higher, year. just for going month we I repayments what's XX terms to the one the remaining but So, out predict of and that's

channels, of teams a lot Oaktree would say seeing of resources. of other facing We're from our in origination through a both deals. lot seeing external I from terms the we're certainly our cadence deployment, at coming and

think But a I rejecting lot. we're

a what believe in we're I want are going lot like. in give frequently would than do in on We any we're is that's guidance wouldn't we give like, seeing seeing that we're we the NII year. set - forward more don't I And again, don't stone. myself to you guidance I that can't or not really not only a I - whole month

I question. we answering decline to So, was have unfortunately

Unidentified Analyst

to How a up question one a and LIBOR to added XX-basis have quick on assuming point YETI. How then is that? [ph] Quick, follow cut similarly. the I NII sensitive about fall sensitive

Mel Carlisle

of most down most goes of floating obviously five and LIBOR the seven redemption It the if the will eight is go obviously, nodes. the redeeming one down of liabilities one are rate. announce our we're of So, portfolio our

obviously our we We rate one rate other which on then revolver nodes and floating have have LIBOR. fixed is

- it But, LIBOR will down. goes go little net a our bit. if income in So, interest general, offsets our down that

Unidentified Analyst

by the the assume portfolio down. basically unlevered portion goes of that So,

Mel Carlisle

just it our There in and LIBOR? noise is and it and that point the kind all that there's it's other three-month - So, at month assets - simple. what Yeah, it also when not are reset. one-month, of around liabilities versus some Was it. all

And what LIBOR ties happens spreads spreads to with issues spreads on new and widen. down

line. straight a So, it's not

Sorry.

Armen Panossian

that portfolio X%. a is the floor. have approximately is of Yeah, the would other point and only library no, does I add about half at It

about floor broadly So, market, levered a or in before But in. basis, we speaking, middle pretty could on lending significant BDCs you that kicks otherwise. direct it's just as in sustain whether think drop LIBOR certainly a

that I think floors you probably think should you about as model well. out LIBOR as

Unidentified Analyst

at price of sold and kind of above you you of where the meaningfully. meaningfully as below indication a color held that the quarter give kind of Can for it you the had the quarter it end and then know the Okay, on stock it or fourth I then dropped quick whether it? YETI. on grows any the at to end was,

Armen Panossian

our sold we below So, slightly mark. XXXX it

Unidentified Analyst

you. Thank Okay.

Operator

questions Mosticchio. no We Mr. further have

Michael Mosticchio

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

Operator

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

disconnect. may You now

Oaktree Specialty Lending (OCSL) 6 Feb 202020 Q1 Earnings call transcript