OCSL - Earnings call transcript Q2 2021 | Oaktree Specialty Lending Corporation

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Operator

Welcome and thank you for joining Oaktree Specialty Lending Corporation Second Fiscal Quarter 2021 Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] 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, second 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 and Our President and Executive Officer Matt Operating Treasurer. Financial Officer Officer; and , and speakers Panossian Chief Investment Chief today Officer; Chief are Chief Pendo, Mel Carlisle,

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

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

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

Matt Pendo

welcome, and hope and and everyone everyone. listening appreciate We Thank in OCSL, well. your we support as of you, interest Mike,

the of liquid momentum continuing quarter price quality increase up appreciation certain origination both in debt The reflected on during $X.XX, generate and share X% market reported We with to and quarter. spread credit earnings, NAV the from quarter. investments second per continued prior We all strong. activity the tightening

with high the continues more to exceed As pre-COVID and NAV from of last end XXXX. its up is X% and calendar our quarter, than

strong and the the dividend We was asset to the to acquisition a produce our year income investment fourth also up Oaktree per performance in Based Corporation prior Income slightly the consistent steady per potential related quarterly continue $X.XX improve increase net XX% Board share marked increase. earnings, quarter. the to quarterly our X% from results. confidence share, further consecutive merger Strategic impact $X.XX, our to excludes by a which with of accounting increased This Adjusted on earlier. from

X.X% that this income the and million average spread new variety weighted were Originations as quarter exited. which commitments. compares X.X%, industries, the deals, to contributed prepayment included businesses. composed industrials debt and actively our We attractive lower-yielding investments. million new quarter. new acquired position second $XXX of and from We of yield merger, investments Oaktree's we estate, a excluding favorably debt earnings. OCSI continue yield exits exits nonsponsored quarter in the on average software, to the of our to and million was Airbnb, we originated liens unsecured the of during sourcing $X as in Of real these identify mostly Notably, These received demonstrated we generated investment and $XXX investments deals of which The in paydowns to that were on across quarter, loans. the lien platform breadth first part were assets the mix new of a of sponsor of XX%

uncertainty cautiously in a and despite we that given opportunities recovery. to attractive the full of deals interest low continue with some pandemic and the With new three We durability the identify exiting We about lingering about X% further timing approaching are exceptional. rate noted, environment. the only at represent both structure of quarter, our including or investments $XX noncore million yields remains investments value. of the mind, credit portfolio now from investments, in $XXX acquired noncore during OCSI positions. the quality Noncore reduced million fair holdings That

the merger I like to discussing on the turn I'd few call XX. which to a over OCSI, closing of with spend moments March Armen, Before occurred the

both including XX% As long-term two-year believe up increased over emphasized increase $X.X a liquidity. fair of the in from in prior at BDC we savings in accretive to from waiver. billion value near to more fee previously, to to $X.X the scaled And several larger, of OCSL, quarter. be has improvement trading transaction the portfolio portfolio cost that also And and we assets, through benefits have the in this merger first lien XX%, the the with we resulted NII loans including diversity, expect billion and

week, increasing years In facility, been addition, syndicated sources. part structure. our to was X $XXX and at rationale our access the XXXX. quarter funding by from we million million more have hard for merger credit we making lower-cost the end, amended this maturity of to to improved $XXX Since improvements capital to diverse, Earlier size our extending work

higher credit was retired a that also facility cost We OCSI. acquired from

of with are the our pleased done, actions of we believe debt be more still position some these And well merger. and and fund capital. completion are help our results the Overall, optimally us reduce there quarter. very While the overall will investments we to to year-to-date cost

the now have With the to Armen. shareholders. we confident I turn will now that, are help We benefits drive call further our over will scale for

Armen Panossian

inflated half in and continue good and have unemployment, markets The and for and the XXXX. developed Exceptional optimism. share in Thanks, States by The already believe corresponding ultimate expectations date strong overall improving supported forecast recovery We to downside and confidence, equity be investments United successful an and liquidity Mindful along helped and everyone. reflect valuations as continue still economic credit the to guarding securing approach remain credit. for uncertain. appropriate programs, for advance availability uncertainty, yet, the the we while compensation and vaccinations countries, to second rollout GDP country, equity has stimulus economy our other and cautious of declining of the is with against and growth GDP confidence to optimism. monetary new adding and of morning, in that Matt, expansion investor risk. defensively, vaccine fuel in investments therefore, may proven of strong the ours varied We success fiscal the growth

investing All that actively we of are shareholders. noted, returns for risk-adjusted generating our in strong

invest full upon across drawing breadth scale resources diversified We markets are of multiple and issuers. to group Oaktree's a with of the

pandemic with to application that including throughout notably We are life software. portfolio sectors investments further in relatively building those from low sciences performing present risk, proved and resilient the in the companies consistently that

landscape, to based We area we easily lending methodologies, that not we carefully the traditional appealing businesses continue via are are found have underwritten opportunities. rescue which also lending cash study and in an flow to

We negotiate also specific to continue by downside and provide pursue that of Oaktree's to risks mitigating ability customized where private unique risk the deals opportunities is limited, structure competition leveraging management issuer.

the XX million was as second diversified loans, companies. be $XXX from more Now the excellent. diversified fundings. of the fair to continues the well billion as the in at continue million acquired focus $X.X result The our Credit to investment was we portfolio assets to March end portfolio portfolio of XX% businesses. quality approximately the overall turning grew EBITDA secured at with to of At of larger, new value OCSI we and a median senior $XXX quarter, portfolio. across XXX invested on portfolio company net was lending

companies In to on modifications addition and no portfolio very amendments are having nonaccrual, low.

Turning now to investment activity.

quarter, in with found profiles. attractive risk-reward companies numerous During opportunities we the

of example. structured including alongside NN medical specially diversified The provided I'd its NN, requiring opportunities XXXX initiatives is number poised fund terms. designs, automotive, in $XXX company our a industrial, for and unique defense new as maturing term company a sells Oaktree It its expand is pay and to well of pricing X.XXX%. industries, Inc. markets. high-precision million components LIBOR off to general As loan electrical, plus growth. a of aerospace, in attractive growth total at saw investment and to an million with highlight to of credit the as industrial several underway ongoing variety has excellent that a debt $XXX and markets. like due a manufactures end Inc.

marketplace. the of construction, preferred that was all position. be to brands to was their commercial, preferred medical equity which roads, A million equity attractively inventus $XX would a consolidates and power, subordinated for our asphalt million priced, supplies sports field providing for As Amazon's loan, that specialty a included the OCSL loan raise and investment the borrower $XX $XX and the government contract loan million million quarter via battery and Other investments loan total. power Sunland markets, condition a required goods, allocated mainly which popular engineers to to packs during and manufactures $XX follow-on services sell [indiscernible] and which our compelling lots parking in artificial services. to provides

the Oaktree, investments. of with positions and coupled to very in liquidity, resources private strong us attractive identifying and public continue unique both opportunities Our well

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

Mel Carlisle

morning, Good everyone. Armen. you, Thank

treatment the the to GAAP of OCSI is into unique valuations. would discuss getting related because of accounting the asset its discussion to Before I statement, income that of our like with merger

former in cost. shares was trained based structured the fair assets at relative closing, OCSL asset OCSI the discount and stock value issued the This was to merger paid number to as of for by pro resulted price a assets. fair paid to OCSL's prior NAV purchase based method. framework, of the NAV fair purchase accounted of OCSI adjustment a merger a the to was final for their the OCSL Under value on close. net a or Because merger acquire capitalized the the discount OCSL rata Although consideration $XX.X the this million under With NAV small GAAP, value. was on using acquisition at immediately consideration was market discount exchange for allocated a OCSI merger to

less recognized merger, gain the their value As for of the the basis the equal merger, of close a to the unrealized million. discount. time total purchase at onetime a cost initial the result, of $XX.X the assets upon OCSL equaled discount fair Immediately purchase OCSL's

to remark back this was their fair asset event. gain value, the As a noncash onetime we

each if maturity. is acquired or over accounting and amortize the its from from remaining par accelerated treatment will to life forward, before cost established Going by exited debt back purchase be individual OCSI investment investment the will new basis as its

the have amended agreement revise solely income we on realized treatment the our will to arising or fees net any Importantly, ensure investment to accounting the of incentive fees from impact every In that of result a merger Oaktree. $XXX,XXX gains have no accretion the net again, calculation advisory the addition the noncash quarter. second of will also this we accounting. income onetime unrealized merger be Once quarter, as to recorded to gain, in accretion event a payable incentive discount

financials GAAP and results company's order our have supplement are intended results and more easier can to non-GAAP income to comparable gains well make earnings financial in our merger. arising the supplemental to the adjustments. These the be We the remove non-GAAP to any to release understand several introduced of measures to merger unrealized post-merger as measures our accretion impact the net presentation. in solely More as or from and information these about realized accounting found losses disclosures slide prior

results lower The our interest second our increase the borrowings decrease base the to and mainly due investment totaled down acquired. we This sequentially. expense Part $XX.X larger larger million total accretion, portfolio $X.X fees, for both million OCSI II the respectively. from financial and portfolio, prior offset resulting accrued quarter. from turning expenses and incentive by originations up stronger Now merger-related income partially in quarter. outstanding second the million mainly Net was million, by higher $XX.X quarter to was the increase that of fees. management investment due in was an driven the $XX.X million, was to portfolio After $X.X The removing

a Additionally, and professional were on fees modestly X Part higher fees both incentive basis. sequential

reported OCSL net $X.XX million, $XX.X quarter. quarter, $XX.X per quarters. Adjusted the December income the NII investment up million of share slightly adjusted For both was from in for

and realized the X of mostly a Part incentive $XX This gains During in portfolio to the OCSL accrued total million amount in $X.X second was unrealized million fees. quarter. due during the in net quarter,

unrealized due merger million onetime $XX.X the of the gain Excluding accounting. to

expense incentive to As X a fee will each GAAP incentive and pay exceed fiscal only into reminder, Part unrealized of date, realized gains to fees XX September has part take $XX.X gains losses fees X OCS realized while OCSL it that requires sales we annually at GAAP. quarter, and account incentive unrealized when accrued to us the accruing year-end. have million To that under to Part extent

been advisory XXXX, the if million. agreement, $X.X the investment would However, of fees were calculated under amount part payable incentive hypothetically have as March X XX, and

X Turning nonaccrual. points X no end, is quarter down be portfolio in which represented to of very credit quality, prior which This continues on quarter, strong. total investment the had from to at value. At investments the we fair basis

payments of portfolio all to the X quarter, pandemic. converted their companies pick made the of our and cash have During interest since the their scheduled only companies payments interest onset

the balance sheet. to Moving

During and in investments the $XXX received quarter, we $XXX of exits. funded payoffs million and million

X.XX at XX, is portfolio. the of Our net December to leverage reflecting from times. leverage end to Net ratio X.X increased still X.XX times of X.X the range larger low target our times times at

our liquidity At As of quarter weighted was average XX% total of March Unsecured $X.X million approximately eligible rate of million end. Unfunded XX, outstanding credit XX, debt million, a approximately at $XX be represented to X.X%. total including had billion interest $XXX debt total immediately. capacity had debt and amount we March this $XXX $XXX million, with of drawn of million and on of were commitments $XXX facilities. cash of undrawn

the remaining that to amount be subject met portfolio is must As milestones companies. certain by

to noted, end, $XXX Matt extended X amended maturity million and extended and size years by XXXX. the quarter As its syndicated facility. to Increasing to we subsequent credit our

rate removing favorable the maintaining while plus achieved turns X%. also LIBOR grid, at We pricing the

we Shifting retired cost ventures. higher a SPV that to joint OCSI. we the from facility addition, In inherited now

senior venture invested XX, March $XXX companies, of quarter. in XX to of compared Kemper in companies million assets secured invested last to had of assets As $XXX total joint the loans XX this million

purchases net and value mainly exceeded repayments. growth in increased market and to investments Assets sales increase its as quarter-over-quarter, portfolio due the the of

result of up JV the X% OCS X.X Leverage end, the quarter. up investment written the JV depreciation, quarter portfolio X.X a at slightly and by were in quarter. times from $X sales the million As from underlying or the prior December times at was

next that sheet to balance anticipate earnings the strong we quarter. and receive JV, at will quarterly power begin we the starting Given Kemper dividends

XX of Glic the it secured X.X at subordinated million times joint OCSL assets was JV March loans venture, $XXX companies. consisted the senior at XX. March to Regarding had of XX. These note $XX million basis current, rate repayments Leverage on interest going venture, run consisting Glic receive coupon totaling of payments, and ongoing and per the million forward. joint expect quarter principal in is a to we of $X.X at

Now back Matt. I call the will turn to

Matt Pendo

Thank you, Mel.

which Over Operating results strong. the in is we return paying quarters, on that compared an our efforts three year have evidence area equity improved this generated been last prior are off. to quarters, have

Following remain excellent. since and The and has credit be potential our that pipeline we origination carried repositioning to our quality activity robust have defensive continues transactions XXXX out solid. completed, largely been of

OCSL strong a As past of share well per grow the believe in have we we that further That from continue result increased ROE said, to here. the dividend from $X.XX this year. is positioned to to performance, $X.XXX

yield higher-yielding the of First, we portfolio improved by lower-yielding and remain positioning for into rotating investments on an loans. focused out proprietary

the We continue million here investments. second make of $XX in quarter types these progress of good to exiting

priced the or that loans in X.X% approximately including remained acquired $XXX loans OCSI of the portfolio of million secured we below at senior As end, of in million plus $XXX merger. quarter LIBOR

the new during X.X%. an investments yield average quarter of at in Our came

realized So is continued time. there upside be to

for ROE us is by level. more opportunity the increase deploying leverage Another at portfolio to

As of target X.XX operating below X.X are low our March we the end XX, times. just to long-term of of

returns leverage. And and to so investments continue we make as to incremental would deploy enhance higher expect we

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

of JVs judiciously into the ROE to to rotating our the by We disciplined higher-yielding We not that increasing this be out but have ones. JV of leverage ventures. lower-yielding can joint also by optimize accretive will both believe growth over investments opportunity also the further time. of We accomplish of only also

on are $X to while results. streamlining earlier, realize from structure mentioned to second we going our These flexibility. cost are capital in expect per our strong our expense OCSI, Further, we benefit with million reduce with we Finally, we recent very synergies funding of approximately capital the of of pleased In and forward. savings enhancing our fees our merger which for quarter I as waiver eight quarter annual working overall ROE will quarters. our conclusion, $XXX,XXX management anticipate include

completed achieved OCSI earnings have as We are have accretion. we diversity further happy the and to scale merger expected with portfolio seamless

future optimistic the OCSL. investment and lines. excited please identify continued risk-adjusted to We joining for attractive new interest Thank our we in that call we're opportunities, will shareholders. are about to will that, and today's questions. to remain us Operator, us allow open take returns improved on your With your for continue which happy to deliver our you

Operator

Please Ryan [Operator go question Devin ahead with Securities. come Instructions] And from JMP first the will

Devin Ryan

Maybe kind [indiscernible] heard and question. the the just maybe to are where I is. market outlook implied commentary on valuations here around optimist with start off of how

side And sponsored the on sponsor you I attractive And between seeing those to where kind more the some be kind in opportunities seeing so side, versus what of if possible, market. if what you're the you're given are just deration good to views just there your appreciate always just good that hearing on with. any? some -- of then And is started non today, backdrop of get

Armen Panossian

Armen. This Thanks question, Devin. the for is

in of with improved energy of lot three globally the look we rising calls, the I really the So when couple quarters most I've would the look when last opportunity performance quarters fundamentals, had prior sequentially, in we set, in look say, mentioned technicals have even at and at this performance in prices. the we on so oil valuation U.S. but companies businesses space of A and quarter-over-quarter. fundamentals, solid we've at had

complete a recovery fundamentals, not I reflective from trending right the in are say, would the the of pandemic. So yet but direction

issues. And skilled United -- in shortage, a still One fundamentals quarters. the States. the holding there chain especially supply over been the second then labor disruptions is labor of One few it's is issues two the is, a back have actually the last of

bit types see certain some to We a see global businesses. products it, We about shortage. getting a talk of so of especially a And been it a little been chip chips. challenge luxury There's lot products. in has of in

in certainly the heading to are fundamentals right the still So but direction, levels. not pandemic post

terms of really generally. into with stimulus that's tremendous been the valuations amount the have valuation, economy, gotten of In pumped high,

a the where give could XX-year multiple really of And today on a And some The expectation valuations economy be commensurate could we're rates. a high was of has rise interest in flying couple environment. conditions with rate that rise give inflation, little that little very to tech to interest seeing higher was stock to of companies a rate of our in ago therefore, that transitory pullback higher potential companies X.X% of that rising inflationary the there environment touched will we some would a downside heels so see on valuation exchange, if bit months the But times moment sign come, there a play potentially stocks to likely through have little bit backdrop. what's back do and rising at the down. above come least be treasury just a of and of the

are very about cautious we So valuations.

of folks if what lot kind side, on of equity for private some does are LBO a environment seeing wondering happens firms are with rate think think rising I valuations And kick about the also I in. flow but cautious the deal sure, we're valuations.

there terms as seeing are economic debt In that that, impact legal flow and large prior And legal pandemic. deal that have flexible public than there LBO of at the capital is would technicals, markets. loans the deals out of both that that the sponsor have terms last those from are funds well XXXX, it because say been a even in more they of in pre through large were and recent not the back flow a definitely couple of that's been market as terms the LBOs managers that that. perspective are there's solutions, raised market are And the and markets private of the out I lot recent over and by large for terms deal looking support tighter providing making of to the most speaking, kind way of in there, consistent deteriorated several very in generally we months sourcing capital has in of

it, flow on we And of are we cautious side the the on these but are quality say nonsponsor very seeing that opportunity about the are deal LBO we in participating the days. we're sponsor I finding side. So would better

prior to of and deals, our platform on flow very of as said the hard leveraging of fairway pipeline that I've it's predict Oaktree non-sponsor non-sponsor But center deal see the the of the our As largely the timing an we is off deal -- today of institution. some calls, activity. type composed really

trend we'll that We'll terms economic So forward. would will is opportunities try towards it in going terms we'll -- a attractive to has origination say find well. of less some good But to heading on LBO our of try that be -- side balanced or as legal I and the had position.

Devin Ryan

sold there? As I'd a follow-up, merger? want imagine $XXX following the noncore million were liquid point that's leading then primarily sure fair just kind assessment. Or off the whether transparency are for a those At or positions And rotation time I a any investments of the and into of in into make to portfolio. less there's remaining the line this liquid.

Armen Panossian

Yes.

on those less It's know that positions. your liquid. timing They are we focused an I is of the challenging are you determine exit, to very statement correct. should think but exiting

think good I in the since their the bottom. are the economy, improved those recovery news the with positions have is valuations

we forward-looking the be resolution on what could that some able but we guidance I see will wouldn't look hope like. expect So quarters, it's and would provide coming -- over that to

Matt Pendo

continue at sale relatively What of Matt. to noncore working situation day, noncore work which every with our exiting it's each we're -- done exiting job think we've the try price maximize the do than a to Armen's the and value, to Devin, point, To from that. investments. We're exiting I quarter, good and on every independently a was investments. we'll to a beginning large strategy kind And rather do of low Yes. portfolio

-- up the have as materially of of And the convert performance the so some The given last that's company. quarter, been good. investments been

So time we're line, it making we're every focused -- want quarter. tough on pick point, we to to but day, to a that something it progress Armen’s it's towards every is keep

Operator

The Joseph will Jefferies. with be next question ahead. from Please Kyle go

Kyle Joseph

getting you a quarter good the can given line. but on talked us just expectations merger a a finish your predict, give versus across hot Congrats last the for market just and maybe sense, difficult are Repayments you this obviously the about repayments year benchmark? as to and

Armen Panossian

good it's a Kyle, it bit of a little but requires ball. Yes, crystal a question,

We haven't -- we of haven't some candidates of of spec that been hit on with a just portfolio lot are of our refi repayments, the some given candidates, side. origination portfolio our but of LBO companies the we expect good nature that companies good our or some

if elevated to we So I of year last versus size surprised wouldn't be dimensionalize year. able unfortunately. the that, be wouldn't calendar But repayments I this see

Kyle Joseph

fourth it's the for in kind how been outlook And revenue your But the of we your the EBITDA of and what for difficult to the of just give a the or are and expectations and whether first that year? very looking us then, given that, for sense performance, the lapped compared of growth some have underlying kind strong, credit obviously, you can credit remainder quarter in more has your the NPAS. comps at here of as portfolio terms quarter

Armen Panossian

Sure.

I'm just as in saying I quarter the of range our companies economically. year, and down And say broad is XX%. would I'm most well. And that quarter calendar year, third fourth X% that in talking portfolio I last had to last think So revenues

with cost having of And managers strong lot in around them as businesses very not good generation restructurings. sort very cash frame out profile of run well. think that I time resulted during a that issues to However, any we're able of took a flow

half out low. cost are sequentially. picked up quarter, taken So that more the the they to certainly in taken seem haven't story costs think revenue has costs first the containment has -- don't year. I through they play that that back cost additional but still first of to it last and in not In pretty line a have They of story have in quarter, was the containment continued

to fourth that versus So when first in revenues higher you -- ballparking third it's range. X% year, first quarter calendar year, X% compare quarter and quarter by It's higher. to X% last probably this XX%,

you you're year-over-year growth if a growth containment, good frankly, businesses so type would pre quarter are calendar still were EBITDA XX as where most basis. but nice of well from first them, revenue flat, basis, quarter calendar And first pandemic. say on seeing I at to with combine cost sequential On down best of pretty or that most a they

So important companies, was because of valuation performance multiples distinction at Meanwhile, all of are where Is helpful? not quite new is types. it's businesses loans pre-pandemic. an pandemic that pre the it on terms

Operator

And the Rowe will Hubby next question be Group. ahead. go with Please from Bryce

Bryce Rowe

balance end, and around part target outlook. end that it ask I of you leverage towards to from about perspective on or outlook middle of higher how the optimism comments where given sheet the to wanted leverage think kind the of your cautious the sheet balance low the an about you want of target, be terms in

Armen Panossian

Thanks for the question, Bryce.

asset expect, period, target. were a that our feeling rescue space. as be. So probably like right nonsponsor would loans will of still But the credit that upside And of was not just to optimism, mispriced non-sponsor be the risk. classes. in terms of investments deal may that especially And closer in to different surprises in we find finding low year, I the running were private given or that flow us variety activities public end would attractive entering last markets of -- leverage trading to We're really going be markets now, able tone pretty our in because the them cautious to with we allowed market and in in really to get broadly private attractive the conditions in the as at target any investments range. credit terms were of we that of think sort March into below is our our Barring with opportunistic we pretty we that

to understand still So outside markets idiosyncratic areas themselves They life pretty the deal opportunities. and underwrite or we're could do strong harder harder the some sciences sponsor area types are are LBO when in of activity even businesses. that the those of present a lot We to looking flow our and see of for always other the of of some area.

range So some see the on on I if to think we the towards trending part nonsponsor did see that side, don't of middle us could origination our upside our range. the I be surprises though. It's beyond in hard on the today, our months. -- couple what next see in of the to in high our what -- we'll I end pipeline of predict the

Matt Pendo

Yes, it's Matt.

to benefit. Just everyone's sure

X.XX with that's is And that we're still very range. Our -- target X. to range comfortable

Bryce Rowe

Let's wanted been liability to the of obviously, emphasis last the a pending see, I with capital structure, with quarters over the about ask structure, of transaction couple the point it's OCSI.

done, having you're some some that in obviously, Now of the that's liability remixed already. progress structure making

Just thinking right advantage what SPV curious you're of take and we're how now there how try the about you take now. one seeing might remaining kind markets in to unsecured the advantage further debt of --

Matt Pendo

Bryce, question. Matt. it's Thanks, I appreciate the

our important as banks. on things our cetera. we existing pricing facility you And borrowing and et and banks extended amended reception as very the got referenced, do as So able from new credit very, very well We're referenced, balanced as we base, positive and and capital revolving attractive structure. some also, had the a and to like a both you

you facility, existing retired which have our So place, SD in attractively the versus than priced still we one was that expensive that's that facility, LIBOR very one the then XXX facility more of at in we it. plus facilities DB that labor we piece as is of our revolving plus SED much was -- repaid. And X.XX the referenced,

that to very our that. bond continue point, a year thoughtful deal. about like capital then did we ago, we to of be and plus keep -- successful And kind a to structure unsecured and we'll we So your plan

market we a So yes, that's like obviously forward. But an we'll a advantage ago made to option we've that date, I it in any we going and year consider think progress being opportunities take were of thoughtful invest and to in the to about keep attractively. be position good

Bryce Rowe

what around third more like? that paying Any Mel, look quarter. you dividend in dividend JV possibly the I And maybe the for one Mel. guess a your might Kemper -- guidance fiscal mentioned here

Mel Carlisle

over We're guidance this give the Can't dividend amount partner you quarter with consult at and there. to our going it next time. on of the monitor the

to that. more So come on

Operator

go question Lynch from next Please ahead. with is the KBW. Ryan And

Ryan Lynch

actually how talk sort repayments. of aren't That's you equity, increasing be lot is putting sponsored of strength return some Because your investments, that capital? I have kind I had it that has the environment, already refinancing going more BSL the certainly some in deploying outlook balance of just risks levels about could general some books? would guys of has on also a lower-yielding you your lending the the market. the one lot -- market to it you the cautious that some probably think, target the you a of out guys' super of just about of to kind the increasing your risk -- you are me, level goals of the to of just seems of portfolio wondered, provide, other in deals guys if leverage excited and on ricks, with there of components divesting noncore guys going do for And of cautious plus then guys have investments, the main

to that additional are tough add everything ROE, how increase like balancing be the sounds on you at least net-net I've over it wanting but to heard, there the may leverage sounds of add actually quarters? like it it could growth coming be So from to that

Armen Panossian

good is question, Ryan. Armen. Yes. It's a This

We of drive A have a ROE. is source. we are OCSI help merged our of portion into such and have was that of of a source So variety the OCSL are we traded cash. low-yielding portfolio that assets part a levers pull that to publicly do could portfolio

I the some for where lien, area rotate target and more market. that to drive lien deals, specifically of the traditional yielding, now or first pretty end middle to us our plus leverage the to levered. up XXX pricing XXX These is, LBOs first target accretive that ROE what seeing is just it from the we to those top if lower of are say one even There we're opportunity into of top at flow nature LBO average to lower-yielding the be to even are do our even LIBOR without non-sponsor low and the just increasing of in through would the end yielding, will that's LBO the So assets increase deal leverage, just leverage. leverage

spend potentially that are to increase optimal in we leverage. high company. higher-yielding being being to into originating changed in initially quarter, nonsponsor Oaktree, for solution special the attractive some requirement for X%, risk is And of of And of in that's a about a to us, with paper talked traditional managers company X%, we've and chasing of growth the through incorporated the rather good increasing a turns see opportunities. originate. or don't lot debt use actually preferred public as just a getting I the We but not of paid assess than that ROE go an return this that's us is that typically drive and situations three For mean, company. group that n this able We'd sponsor type was with situations. connection do example XX% raise discussing in try a us. part a came beneath time the where lower we deal an investment leverage equity area. through deal senior the And other And solution see don't the leverage equity incremental past, flow of in or less we our -- junior a we what It a for than did

sponsor leverage, fees. plus to sponsor especially paid LIBOR deal, plus return nice and OID XXX were we the -- if turns the LIBOR So with three a of in loans, paid a XXX that was XXX, close wide that would be was got to we if of and LBO under company

flow it were So even just terms We the particular was and creative it rescue broad a -- we on the in alpha disarray, on delivering basis that We're pockets. alpha on the area. in more are energy flow. of a underwrite, opportunities. it there. area, fair a that way a has to equity of economy potential in to of the managers though beta the that's we're opportunity these lending in in hard kind lending still fresh because result, And XXXX, nicely is really get other be fit legal economic But saying relying standards we're waned opportunities. credit have seeing to they or to could understand, side the in when could us of the that private are underwriting we space, bit of companies a don't And there In that there still able other industries, wide tight deal of very of able across terms for we deal And in and we're capital long get clean in than isn't sort the finding flow In areas be to rather market. looking coming isn't seeing market find hard were there some are debt-to-EBITDA as the terms. or deal a pretty nice situational lot market, origination story. the

a fairway, on than of time continue our of rather in of basis. lot to finding positive the the sides ability still a the originate and on spending net-net, fairway center to we're the So the we're

still first play saw contracting competitive of rather the expand this quarter. the portfolio. mentioned And had were you dynamics earlier, Even calendar quarter did lot the expanding. We year, than this we're I that the that. though portfolio, a So in still

advantage continue having leverage to Oaktree that to ROE higher utilize on us, simply higher competitive ROE. our is competitive really So deliver part being for to that to of rely without it's advantage and we'll drive the

be higher one proved a Just soapbox. my Last before as get point leverage because offensive active kind year, still were as last trading, that we be to when originations, higher between market leverage we -- or to economy now were go extremely BDC lot strike their tumbled, well. to et in of back, and to that I could in at a because a what off we unsure disadvantage think they pull we levered next we on of BDC, pull as happens have or back that balance they non we in extremely were equity with and issue cetera. sort did the to issues discounts and -- providers, And managers, whether didn't from still portfolio of active have And providers about NAV. did see saw the the their going folks to leverage dislocation

Matt Pendo

really us And very, share, very particularly nonsponsor. in and our things pandemic hard. presence comment, Oaktree happened It's that picking direct up active and And And and little helped on Ryan of it to. increase on last that one hit I but created this continue the I has the you market of to during comments. is tailwind hard originate, really that across just bit Matt, it's with that's agree okay. definitely going our were will in to that And pandemic, of did in get point, post think and And but the your and I we conversations, Armen I kind marketplace that think OCSL. the terms a Yes. pandemic think of a mind helped Yes. in both our last the share, our lending. just kind sponsor and we'd It

Armen Panossian

is to Armen just be And again. this clear,

Just to be clear.

the next will quarter. some deals LBO On the do we this LBO following side, quarter, year,

point wrong. hit to me I like What that get be rate would don't lower. what So our is will I though out

lower. side will on what will lot just able a do We we side. find that's look are be see the nonsponsor okay, and we're fill on deals going LBO the And what more our and book we to to with to don't

Ryan Lynch

think should also you That's on really generate asset alpha can that helpful. lenders commentary a space. to you guys approach. really -- direct be trying are And I are good generating to That's gatherers, certainly that's versus today. being all I looking think and and appreciate, really Color investors I that how just I all the are appreciate wise and about thinking had

morning. time the this So I appreciate

Operator

question is with Please go next Melissa Wedel from The JPMorgan. ahead.

Melissa Wedel

Today.

anything deploying comfort March One confidence deck to going in to of capital slide to new stood through of that that or indicative working your process particular companies? that during we can in a number a you see companies of drove return be in the that high diligence that the you due increased there's this already, teams sort out of increased to environment. of portfolio lot on XX of and allocation new if that capital your What quarter. seem is with hearing the about you existing curious new from that companies, out out for allocated And I'm in normal companies there's was jumped growing the the been is portfolio? things to companies that

Armen Panossian

structured, were There just, any structure oriented couple sort Melissa. that and deal wasn't the because very market a of well well were of macro variety in platform origination real quarter. areas some dislocation or some LBO from little We of sure, areas that appropriately. bit a in that little other in quarter quarter we deals quarters for some also funded priced, really quarter, tapping estate we we're Oaktree able lending for of were do the saw issue. went Yes. do sponsor Thanks frankly, markets. deals for real the of dislocation longer so We in the a that the that very have theme would the that did corporate got supported situations the deals, example, estate the our were still a nature, than to bit -- a suffering last we in very credit in traditional for the in We active on fourth still but were of dislocation different in first of the question, of -- influence did type that lot lot the in in flow ordinarily negotiating the that proprietary

well-structured businesses wasn't not cyclical origination to sort chase deals able really in macro either. tremendously of So to we really It was and recovery. well-priced it our were -- a with find wasn't view that

actively don't it's predict we drive a macro hey, really the and lose the taking. the and is certainly to we because view is as disaster. is. that we environment. So a to and have we our But a recipe on just don't shop. on generally let's take say, We risks. shining, is go this can't into as really assess us -- what feed Oaktree don't in sun and we anything That by money hay, but risk credit certainly as the what is credit feel acknowledge macro It really underwriting our originate certainly you fundamental make is really it and don't We environment macro, macro really can for good But about we do. bottoms-up broadly let's analytical

Operator

Wells And Fargo Latin from Securities. Please go the with question is Jordan ahead. next

Finian O’Shea

is leverage arenas function an even Jordan summarizing deals find topic, together, leverage those juxtaposes all that and just ability lower when higher little the quality strategies. to of and -- on bit more O’Shea for being target peers the deals leverage It's it I'm lower-yielding with extensive this to I a a afternoon. leverage Can a which that your just try squeeze raise of out most to you versus spread, will even space, as and putting bit of want higher-yielding and was the which your -- helpful. low comparatively

that non-sponsor say does attractive guess, specialty for the and a of part to question, a a sound different of bit function and does is first of approach. So I forth? you dearth in quite bit target fair it deals it Is that the -- your so your --

Armen Panossian

to business, they loosen turn regularity. they're And -- it's want more turn more terms their off underwriting it originating the deal a response an mean way -- say to for thinking opportunity, equate predictable would but underwriter flow the what I to a insurance and and want a on to little in I insurance find "I non-sponsor harder does. -- it's versus -- the have an Yes. it and with and in sponsored accept dearth says, of that's to they in consistent management the up on could When it's to able up, area certainly I we bit to to under more have deal I low, premium of -- pretty around find doesn't controllable turn dial have flow. company of and to all we we could you. sponsor could up work sponsor harder don't leverage have -- at see turn an leverage you to work of return leverage it the deals, But an just that additional we also prudent risk it's and just analogy creates flow when a business. lot it and dialing the for returns. leverage resort easily it up easily it's you hard think manufacture deal It's times and side, to and the mean the when making area under of

pipeline over the think think I our do the quarters. of our that lot of we will in the of our be have power target. target show we platform non-sponsor within a coming I Oaktree will leverage deals that

we've quarters. last of already Oaktree the the I the shown platform think power few over

higher-yielding focused manager think activity LBO was run a yes, leverage the attractive a leverage non-sponsor I higher area, only we was we deals, leverage in and buyout because I market mean, are which today. more that traditional accumulating if from share So than but would on yes, harder do as result lower. time we perspective leverage and we that run were It's more doing and that we run more to legal a maximizing

Finian O’Shea

Yes.

with know maturation and private do Ryan markets deals would more would more so of go and at more that I understood. difficult the one I things well with others. estate, you don't that working on. that's think more competed like and and all as forth. are regardless, suggested becoming and to create and that totally the be funnel. more growth becoming like your that, these -- And imagine But with So access more to think wider life should I grow institutionalization and or real more shape least and if I sciences it's -- think mentioned non-sponsor that and dialogue as you're

you an to So a to would improved would require see patients say, arenas find an it that into come are debt-to-equity sort you being Or would lot to it waiting grow to for that ROE, of normal, more active you plan to there plan to I book a million at so like patients game of $XXX the seems least a is grow say, deals? attractive ratio. to back those you of compel let's

Armen Panossian

game definitely to We're for the over flow. not to transom deal throw active plan an something us. Well, have somebody waiting to originate around we

getting ourselves coming people I hard takes saying, partner size. sponsor, need to because need an takes getting time I intermediary It hope around these It find competitive, us I originating. something someone strategies saying, of it it's time to all understand find from I ground but team of deal, isn't but hit this the that's in is deduction going we this to the firm here, it And how find non-sponsor takes receives fit office, area wouldn't be management might that on a deal don't across a it in. are you in that me fit what a anybody highly just time. take good literally competitive not to yes, understand actually, it's a to company. it that or on -- of "Hey, or period there, -- work this -- a I more but So and to that's will I my grow, from to works the at isn't in people the Oaktree takes and the -- structure time. saying, flow. who a that -- a need over Oaktree, market commentary. mean, company good my It another sheet that We the situations. any transitional say "Hey, term are harder mean to family help I strategic I

from on more than benefit us area. helping of many what the we nontraditional So people having page, this is kind originate in

not as activity It flow, well us. leveraging deal for see flow wait our is passive actually are lot and drive at of relationship to a advisers some finding it Brookfield that So not the deal what a and a also proprietary. way. We're we throw is is

focusing we above we're I will before or we we we lower-yielding run. think get have X.X walking But So assets possible. It's could mean our to sell. on that times range? I

looking assets that noncore have to exit. we're We

now lot before versus at going the about our turns talk one:one of room through get X.XX we leverage through between target. to right north of of have we're a leverage We

your it's have able I question don't every blocking in quarter. we deal of I'm not, in exercise And looking answering a So flow, tough but we're a to place, and for and tackling environments. constantly if folks originate know or lot

Matt Pendo

by think from out think of I deck, quarter the lay in X go quarter month. good to some terms and then originations, And X Pages do we to investor do if and leasing I our you in both data the

the quarter can competitive private for the XX, So before We it's right? XX. a see that, you the and year quarter, side, then originated XX, on very those XX. public second the side, the XX numbers environment, current X.X, And

share platform, So I prudent competitive in. we're a leveraging quarter-by-quarter, things year think to sense of gives and the going and that all things the to gains kind It's be the are over market that and market obviously you good thoughtful mind our recent to which of finding a do month, do month-by-month is invest the most -- attractive but that. that last Oaktree we are

Operator

conference Mosticchio concludes this like the remarks. back over would turn gentlemen, and closing to any to Ladies I Michael session. our for question-and-answer

Michael Mosticchio

after be Chad, days hour of Thanks, website OCSL's us callers conference call. dialing A by and joining for the beginning Great. XXX-XXXX X(XXX) callers code approximately thank section Investors for this (XXX) the broadcast. access XX replay earnings U.S. call on for non-U.S. today's in replay with X this all you for XXXXXXXX, available or will XXX-XXXX or on

Operator

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

may You now disconnect.

Oaktree Specialty Lending (OCSL) 6 May 212021 Q2 Earnings call transcript