OCSL - Earnings call transcript Q3 2021 | Oaktree Specialty Lending Corporation

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Operator

Welcome, and thank you for joining Oaktree Specialty Lending Corporation's third Fiscal Quarter 2021 Conference Call. Today's conference call is being recorded. [Operator Instructions] Now I would like to introduce Michael Mosticchio of Investor Relations, who will host today's conference call. Mr. Mosticchio, you may begin.

Michael Mosticchio

welcome Call. Specialty and Fiscal Corporation's operator, Conference Quarter you, to Lending Oaktree Third Thank

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

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

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

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

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

during record momentum price $X.XX, debt on quarter, excellent per X% up market and certain spread quarter. origination and continued investments The of throughout NAV a share earnings the build and produced well few realizations as the reflected increased again We successful generating quarter to equity maintaining tightening appreciation strong grew of prior dividend. positions. from our reported third NAV, as liquid continue We increase noncore We credit quality. activity the

to increase dividend its Based share. up more from $X.XX, on share prepayment for its $X.XXX quarterly OID strengthening calendar up net is growth Importantly, of XXXX. investment earnings than up pre-COVID driven exceed our ongoing run from high to rate a year per and income earlier. the Adjusted a NAV of higher end The from by and our $X.XXX. was quarterly that our income the continues increase profile, quarter, and the prior by included adjusted This our per higher $X.XX increased acceleration. XX% XX% earnings XX% fees X% marked consecutive pre-COVID from Board investment fifth now dividend is and

on We $X start earnings. position our This to will more few William quarter. million income a great in received Endeavor, in the discuss us into which Morris moments. quarter. contributed of included July, and investment current paydown detail, a more loans in new lien issue of portfolio $XXX the origination market made activity continued at Of Looking $XXX included transactions, and Notably, in secondary private these, were million $X new purchases. we in commitments. nearly $XX XX% million the robust and market primary in giving the in from generated that prepayment million first Armen our exits $XXX this million million

to and an at exited. fair yield monetizing further on X attractive commitments noncore we the investments the weighted that debt on progress favorably million compares We X% represented investments average investments, The on $XX investments at positions. equity end. of value exiting some also average investment portfolio new just and made exited quarter yield low-yielding of X.X% across Noncore was X.X% our

quarter exceptional. want OCSI that end. There invest, made with closing As credit to merger settle selectively to the funding our the further nonaccrual highlight remains our capital. of the structure at quality I of capital no also since on bolstered we our flexibility debt were cost improvements reduced investments and

investment it we rate X.X% to a $XXX low-cost at order ability of portfolio. advantage markets coupon, capital. investment-grade million May, the notes LIBOR subsequently better X.XX% flexible with floating competitive nature of our swapped to we long-term a the a underlying First, senior access which and The us debt at debt plus to is match as issued floating in in unsecured rate provides

years our facility, Second, increasing from the amended $XXX May by to syndicated million million to credit $XXX maturity size X we XXXX. extending and

plus credit higher-cost at a LIBOR was with acquired pricing retired that we Third, X.XX% facility from OCSI.

with July, amended of our reduced improved borrowings quarter position rate than debt Citi actions to over are profile the pleased doubling liquidity outstanding and lower-yielding early $XXX to some well these our future loans. to unsecured of made in cost our improvements we believe reduce funding and capital investment X.X% by our interest total, on average results we X.X%, more In weighted our our that very boosted facility outstanding for the from million. Overall, funding structure Finally, us of our by opportunities.

of at Chris over we and Before expect the of Directors, November that resignation. to another will we management within Managing McKown, OCSL approval assume Mel's become Subject at as want position management call to effective to he will let to want the his work OCSL's on has OCSL our years announced serves with course, the contributions will important seamless thank you team, currently Treasurer, In new we, role Oaktree. step Director of an he Assistant a to Treasurer upon down Mel Mel CFO turning his meantime, in him at OCSL's has as Mel Board Oaktree, a role senior and to years. transition. of played of Christopher the and over I for X He ensure Oaktree. Armen, has know CFO closely worked ago. the many over to that OCSL's leadership Mel well Treasurer and wish as nearly took end

like to would call the over to I turn Armen. Now

Armen Panossian

and equity Thanks, further Matt, compression all-time rates in everyone. markets to declining June good markets. and pushed the the economy spread by morning, advanced highs led and a supported to default in quarter, further that Markets credit rebounding

in heats through As XX we the X.X% in the are the fastest by pace after overly most second the The X basis June, appear concerned. don't months previous roughly points in The by the price inflation XX over watching decade, jumping rose consumer yield XX-year declined treasury closely. investors the up, on XX index economy yet almost points months. in a quarter basis by

a pent-up optimistic drive economic services global cautiously range the remain given of demand the goods and should wide into of next we for forward, year. recovery, success spending that about vaccines Moving and

However, credit persistence to particularly with to downside. we poses Yet regard inflation risk much as also pricing to the to believe inflation view in the transitory seem a be do risk markets markets. rising not and to investor complacency, appear of

scale can particular, minor of overall the investing value Delta with in where and multiple while unknown, less spread businesses. continue backdrop, and In risk-adjusted identifying remains the to a are lending issuers. this market on we diversified to returns, remain markets nonsponsor-owned best across cognizant traffic we and resources find of of of focus opportunities group upon full areas drawing relative economic in variant risk. Its a encouraging, Europe by variant progress to invest curb we appear United the Oaktree's ultimate addition, and the is the breadth to believe coronavirus Against it In is investors impact of slowing is parts of momentum major recent even the the that a on delta demand only of the though States. Asia reopening in global

private that risks and We are leveraging provide the pertaining deals the mitigating Oaktree's customized protection issuer. to ability by transaction risk downside structure negotiate and to specific

life also opportunities the We solutions commerce that increased or health that capitalizing of the identify an technology pandemic enduring amplified. continue delivering care companies only and are to level among trend digital compelling sciences on

investments evaluate with In on think addition, industries. market, firms have private advantage sponsored operational lending focusing select in we partnering in certain we the continue that equity an to

third approximately diversified the quality, to was secured to XX% loans, Median overall first XX% across to XX $X.X EBITDA portfolio Credit was of portfolio portfolio. is in continue in as million our billion Matt noted, At more well we at lend at diversified was companies. portfolio end XXX $XXX the invested of value the the quarter, turning senior fair June Now excellent. including larger, businesses. lien. company as with

drawn market company. a in company be the million upon Marinus to on company's Despite competitive Oaktree the to OCSL is platform to Moving the $XXX million with environment, more innovative to partnered Marinus fixed leverage therapeutics Pharma the certain our strong attractively at the one dedicated across a met to we $XX million million pharmaceutical originate with existing company. activities. an that development seizure was highlight and Marinus investment must balance investment new of disorders. X new commitment the as clinical commitments to investment by commercialization rate. I'd $XX milestones like pharma upcoming to support a XX.X% subject Oaktree activity. $XXX priced to of closing example. treat and was allocated provide portfolio

commitments June was remained and us $XXX quarter As of continuing course both in together July. originations, first X.X%. public strong the deals have about with momentum to In pace All investment resources lien deals strong We positions the million XXXX. were of coupled told, and XX in opportunities unique yield and commitments attractively these investment well continue the compelling weighted were Matt with July, a yield liquidity, XX% X.X%, to of investments. with noted, of priced taken we steady of built new originated average Oaktree, of loans. originations the month the the calendar over private total, in find our on in our When

OCSL Lastly, new and and important echo Mel at in his I Oaktree. role for his comments all thank him to contributions Matt's want wish the best to

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

Mel Carlisle

everyone. you, morning, Good Thank Armen.

have getting of ever the at just Oaktree Armen and with Before team took kind Matt been like here a I of into thank discussion their for I over would to to such great the worked words. OCSL have the since company. financials, fortunate the management

to organization, and help transition. staying is is to it the ensure November my the a an this end in through leading seamless career. OCSL plan on I Oaktree be stage it While moving within life ideal on of at bitter opportunity suite and

and call. on So you me fourth hearing will quarter be again from year-end our

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

The prepayment Net financial $X expense million acceleration full The fees quarter to borrowings investment increase the up due Now to the were portfolio. totaled from the investment a total million, sequentially. results, million in for $XX.X fees, income increase outstanding an OID higher merger-related portfolio from million interest to was million accretion, management and and again strong. $X.X once investment was in third approximately in larger which payoff. expenses due prior to $XX.X quarter. our and related base and up mainly $XX.X WME $XX.X by the driven quite a After million, earnings removing increase mainly of quarter OCSI's was

investment due incentive incentive to were a basis, offset fees. mainly These addition, increases accrued income. Part I were Part lower In in II higher fees the partially increase on by sequential

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

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

payable fees II of been as amount However, hypothetically the incentive were have the the would as advisory investment -- XX, million. and Part June XXXX, calculated $X.X under under investment agreement,

to which Turning quality, excellent. to credit be continues

and on our scheduled quarter payments. all interest As Matt at end, investments no of had made companies we mentioned, their portfolio nonaccrual

XX, X.Xx. Now X.XXx reflecting OCSL's net to range to from early balance sheet. we fund ratio still new leverage March X.XXx our decreased leverage moving July. investments balance cash to in Net drawn of to slightly at the X.XXx below the is target had

$XX and liquidity from billion XX, had outstanding XX, As March including total offering. weighted June was XX% a of up of debt total average XXXX had commitments, $XXX debt quarter note of amount million approximately our of were credit following $XXX million, of is total end, excluding of XX% as this debt must $XXX facilities. to approximately rate our commitments cash Unsecured at undrawn eligible XX, unfunded as capacity companies. and X.X%. be June portfolio of with subject $X.X drawn interest milestones amount we of million, on that remaining to At represented million be million certain $XXX the ventures, met joint by to immediately Unfunded

during made our I improvements but to further flexibility do want meaningfully repeat them, several cost. capital that to improved funding noted, quarter, our structure. we Matt I actions As the and these interest reiterate reduced our won't

senior had This to million $XXX last of million Kemper in The ventures. secured XX joint to assets of invested compared company's X loans in quarter. our to turning total companies. invested JV XX Now $XXX assets

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

result appreciation, was a of March to Leverage As JV quarter the $XXX the up JV at or the X.Xx prior X.Xx in up the end, by were million the slightly from million. $X underlying from quarter OCSL's X% investments written at quarter. in portfolio

Given We to received quarter of Glick OCSL a at JV joint senior million this OCSL anticipate power the $XXX,XXX subordinated assets and quarter. in loans JV, XX a the The amount receive end. June the dividend going at continues note had dividend sheet at this will XX. forward. strong JV in we venture balance at million $XXX current. $XX These Glick be totaling of Kemper X.Xx Leverage to was the companies. consisted secured earnings

quarter are and ongoing approximately receive us financial run interest our repayments $X.X we to principal our with rate flexible results very In diverse future. the per of well summary, forward. a believe pleased expect balance for and going this We basis quarter million positions and coupon sheet on

back Now I call the will Matt. to turn

Matt Pendo

Thank you, Mel.

moments peers. build position and from continue wanted brings We that believe to to highlight investment and demonstrates for us I value that some our to differentiates to few the what Oaktree a momentum OCSL returns. stronger OCSL performance metrics we take

the ability course our pandemic been First, grow NAV to has since over the and exceptional. of management over dividends taking and

pre-pandemic high earlier, mentioned in from NAV X% is I December As XXXX. our up over its

XX% our by it run increased dividend consecutive We X quarters, pre-pandemic also have and grown for rate. has from its

return OCSL Taken XXXX. on has generated December an XX% equity since XX, annualized together, attractive

during strong to is our due Our and market performance in to part dislocations times. ability invest and add value challenging

were volatility liquidity financings summer actively opportunities, you or a in of range financing of As we the and the and customized company's private market including recall, investing public to during spring need investing in expanding rescue markets, solution. XXXX, may a the of

quarter, Morris William Endeavor, was was Our repaid loan example. one this to which such

cost XXXX, investments and paid March that during million still has willingness on funded and valuations Our originations fully to Over in IRR on to and COVID half generated a at XX% we date XX based respond on $XXX really been ability of uncertain X, from of period and off. step XXXX, realizations that volatile these positions through using September June realized. hold. have XX, We

took since a investments. we gross billion IRR of over Oaktree-originated Finally, management, generated we XX.X% invested unlevered in on have $X.X

said, in in both We and actively of it continue a of types quarter, by into our number of made million investments. remain We are increase and we and improved the on That returns good opportunities power this of as further exiting proprietary positioning demonstrates accomplishment distress. the higher-yielding progress see yield $XX portfolio periods the invest third the investments platform overtime. Oaktree ability strength focused these market proud of for to rotating of out to this to on lower-yielding of We being an loans.

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

at over quarter portion on attractive the improvement realized that during is that which investments time. portfolio there in can of the yield means in new Our came significant yields be

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

XX, we to to target higher leverage below would As June our X. We continue leverage. end enhance net returns of incremental investments make expect the of long-term X.XX as deploy and of low our to was

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

well We in $XX further lower-yielding on increasing of also made optimize good the can into joint by progress million. have by as rotating selectively higher-yielding accomplish JV front opportunity to at both ones our this the this portfolios JVs. the out the of leverage ventures. quarter, We as growing investments We

was In we nearly anticipate JV addition, paid dividend the going X continue that years, this as a Kemper to mentioned, in OCSL forward. first quarter will Mel which

believe Finally, we benefit synergies merger are the ROE going which already we forward. from with OCSI, realizing will

we're are on deliver In and conclusion, open our attractive today's enabling optimistic for addition us June the our capital remain be continue quarter new excited happy returns to your very results. and joining made to our structure to our waiver we OCSL. the future our questions. are risk-adjusted that call continued cost please prospects In flexibility. opportunities, for of interest we fee we enhancing while in funding our quarter shareholders. identify the on will Thank us able in to savings, with to pleased your overall to lines. capital you about reduce We improved to third expense and With take streamlining good investment that, Operator, strong progress

Operator

Securities. Finian comes Our Wells with O'Shea first from Fargo [Operator Instructions] question

Finian O'Shea

the as Pluralsight you loans comments, typical on for willingness for more Congrats fairway Armen. one have some introductory or to in generally to not of down if very you've up Matt shareholders. to deals compelling market, was well-marketed And the wanted for of very a to just with a does question certainly something of this opportunity? I into go called tied you one sponsor into I proposition the did lending of the and those wanted follow, just you about quarter. sort recent helped that traffic jumping it the Was middle you this or high-quality the this on selective. sponsor? lower deals, your where or and contrast past pursue fit private larger guess into good and shareholders you Matt, Or large into your very the a was large-cap that follow. deal deal, done typically or as create be was lean more quarter in something direct opportunistic market pursued, with, more you the long-winded, of say, deals, nonsponsor a the this been really you where Apologies if would obviously bit ask sponsor these transaction

Armen Panossian

It's I Armen. follow the appreciate do question. I up.

say deal, the would of between. I in particular, So Pluralsight sort is in

handful We felt do close early reversed not you other that us It a relationship verticals. "Hey, should Vista whether we is look." said, and have a others up them close asked to well Vista of pursuit a as of Vista Pluralsight. matter subject in Pluralsight, that a that ought this very would deal a go in repeat that deep relationship company, us in a And called lot public that participating. be case as business more coming expertise was interested with. that, buy particular it, It in We was like a and It's pretty you of sponsors we deal we into really take as of the through. with feel and industry we have Vista was

XXX for the a fortune the follow if however, a of a compare way. historical LIBOR we a plus floor in deal. to doing Vista's at known sort the deal. Fairway-sponsored the around of was with And so is unitranche. what on but revenue several people depending last you It happening market center the pretty hoop public kind months, plus first over step XXX we XXX, or the with And that hip LIBOR of first the of And more I that lien. fairway of center were sponsor some are knowing X% software this This of time. more every was deal at bidding a is that, long lien were know it's is a recurring whether I not,

lower of As revenue a typically that traditional is investors than debt cash what deals meaningfully more the are wide EBITDA flow-oriented just recurring are at. And lenders. universe pricing to software of with comfortable or sponsor deals meaningfully

most not of So where also kind is shows but taking it's it Oaktree highly of through. and the sponsor or not situation nonsponsor traffic, bespoke. driving loan, a is the highly deal process, It market down pricing middle competitive this the all it's

is value. The a of it equity of roughly through recognition for other thing the the has. and more and XX%, the in the bit prospects showed result, loan growth as pack that Vista paid than price maybe has that total business pretty a hefty And little value Pluralsight that XX% enterprise a was that

You in that really typical see don't middle-market sponsored deals.

that us, vertical decided those willing check well money sponsor all. For are take that in industry things as size they're a mouth the look their of underwriting up. see pretty to investment we dispositive expertise deep line put and hard when making is, a to process. well-heeled at as where the decision their the has a do of But of part sponser we They're sponsor the when not the

one. us. we a of will. good very in in And they'll often relationship history for Vista, compelled and They to work And invest with they sometimes, the in don't, sometimes deals and this their but investing felt have case

Finian O'Shea

guess, helpful. there. of I very And It's sort a follow on as

forth? of these? going are your of quarter so sort I typical to back think Oaktree in and activity a deals pretty observation. out post in Matt such good right to science now also Or more Are more there There at healthy a of a our is on mentioned least pipeline lot life you a handful similar July.

Armen Panossian

specifically Are looking kind forward? July for of you talking or

Finian O'Shea

more -- I right now? guess yes, just pipeline broadly

Armen Panossian

have capital our portfolio. a be look are structured recurring that covenant it, take revenue a I from Look, standpoint, We're from at a deals under meaningfully whole deals are the forward. we but there bunch add out mean us a deals be bottoms-up topped to or deals XX% this come appropriately not chasing through will be appropriately I we to But doing overlay that We're our revenue, is shop, structured don't that a saying expect Yes. we'll either. might software that for macro of be sciences longer wouldn't be to these that will structure we -- also deals might standpoint. credit and no of looking it's otherwise. recurring investment going these life

and couple of have origination a pipeline take for at are or all names, but July and the life force our not of too July we'll pipeline, in look forward. do not So of -- deal Jay. it. flow. much sciences With in respect really software the driving deals of a there some this isn't type our it's to There going We of in us, did

calendar so of first reason and say tends the But a wider characteristic finding the the deals have deal that we're quiet that's flow hard or of and sponsor sit that that few our XXX lot would deals diversified space. in bit have or we'll up a robust as do. looking of close July, a of But forward. few to pretty or across half for that we sponsor been life We or nonsponsor. that the much pretty the determine that looking in hard but year in we how quarter it's out sciences that as I quarter in given the at a plus the is of certainly a quarter not It we industries, would closes a solid September a different to the firm. of weeks the well XXX the of a good flow pretty now, first working fiscal say pipeline, in variety will origination. is lien just first be be amount heated we to at calendar here of and well, third in really pipeline It's second deals that's I close pretty round relationship It's nonsponsor, little but probability on the deal are least right sponsor the determine LIBOR some much a -- expect sponsor a we're solid August But another to have they're I fairly traditional after August fourth of whatever never. and pipeline wouldn't will high of deals.

Finian O'Shea

to and the well. Great. Mel Congrats as on quarter,

Armen Panossian

Thank you.

Mel Carlisle

Thank you.

Operator

JMP comes next Ryan with Devin Our Securities. question from

Devin Ryan

over I would not First we believe $XXX million just merger, the come year, if quarters. million the that's to EBITDA look result to just past debt more I down but the million And past portfolio $XXX least OCSI a question, of back over company recently, of the median of couple now from $XXX north entirely. has range probably think at partially

to little that So give that? if a more what's related curious color can scale I'm just on you else driving change in borrowers anything or

Armen Panossian

the of over opportunities area. borrowers are traded months, we Armen. Sure, of yields. true a into found is the but loans, have out are lower bit the rotated And that in out last bigger example, XX that are syndicated a answer businesses like yielding, have we, lot positions smaller Devin. broadly in The interesting true private true that This publicly privates those as privates, is for to lower-yielding cycled but situations higher little we've of

So that's has and average into the syndicated what's kept lower. yield driven It's rotation a predominantly why broadly average the of partially the of situations. of That's kind out higher. higher-yielding really loans portfolio

Devin Ryan

Yes.

Great Okay. a And here. as just color. follow-up then

maintaining low leverage. while been grow nicely, you've investment also income able clearly, to So relatively

[indiscernible], end you leverage, at that get current stay target the net range expect to of Xx under your X.XXx just lower Just the right I to do environment, now. in to of the think X.XXx

next well? as the appetite the grow opportunity want over leverage current So I we be the about should to given where how set you have guess do range that reward you in an risk quarters? few and Or to think

Armen Panossian

and end within conditions, mean, to the lending we range. end given as though, market feel Yes, and below least pretty leverage right, those are, We higher that intuition to be modestly will will tight your and and It's for especially on we'll nonsponsor higher. that But that with will they stable being be in end expectation leverage I that hard would and our conditions I pipeline -- at few blowing or tick I to competitive comfortable from of types would increase high next range, our looks be we we're and currently present. I is operating the that With strong, I not sponsor-oriented modestly predict just levels probably with the a don't that expect a forward going the range, heavy in visibility through low as the leverage. know flow be our here, that like range. what of we the the -- lender expect have, with loans is but is as the market sponsor to though, going hot be higher. that lower think within our said do deal but the be driving leverage probably of months. modest originating Oaktree would of operating driving

Operator

with comes Kyle from question Joseph Jefferies. next The

Kyle Joseph

that through in year. trended last credit strong. the Congrats And quarter. brain on competitive markets? environment for very I by us pipeline the Armen, good your being environment. how of want the guess competitive just is balanced terms on sense your over the just the really, But pick a walk remains in to demand Obviously,

Armen Panossian

mean I loaded a Kyle. question. Thanks, it's

XXX that would LIBOR direct was last first of the Obviously, I a to after first of we've plus yields numbers around the for as part that XX leverage low as the XXX a as lien, part Xx of this as to priced plus and leverage pre-pandemic of as lien, and blew pre-pandemic lien have pre-pandemic. much being a market, the lending turns of X.X point, of over X LIBOR launched in would good high through And the dynamic to second But is risky by There And we've the to AUM growth or seeing of the back XXX, lot and growth it market. deteriorating quarter, think months. calendar to by say that lending came the of day XXX really AUM at XXX of had unitranche. the strong. story sort with was There the direct impact I driven have especially turns And the growth creative A show we're XXX So plus been all even Xx something more good have managers would landscape. And like pretty market, more in area. investment that seen XXX plus We're XXX plus that that tights legal calendar the leverage then maybe the traditional and first third is investment vehicles. of meaningful XXX, that that pre-pandemic. March LIBOR But put sponsor or market. in pre-pandemic lending the seeing to X.X XXXX. the competitive in quarter. indication if it, XXX, to with pandemic out we Unitranche inside seen today, then Similar traditional fourth situations. economic terms managers, wasn't tights long. LIBOR back LIBOR activity through walk market X in in within rarely sponsor anything around terms especially. some

You're now bring LIBOR seeing XXX plus even pressure to that even unitranche. and in lower

So XXX seeing XXX is plus or unitranche. we're XXX to LIBOR where maybe

would it's sponsor this in pre-pandemic I even to the So more or tighter say at tights point area. traditional back

the rates reason rise, market into floating ETFs, year, of that April. CLO to syndicated is that of with rate for accounts, that belief through funds. earlier inflows in or lot We did was were other going The market convention loan this a February sort broadly as such expectation dynamic the the see accounts competitive

And a broadly CLO adjacent loan of as equity broadly syndicated it loan. the consider sponsors. broadly -- in direct that for And well. syndicated versus deals, They as we the of was, area as finance pricing asset issuance direct drove the which is they formation was saw alternatives loan going of for class, was larger a lot private so in syndicated tighter there AUM in with in a loans, increase turn CLO which down yields lending abundant as

and we're -- deal play there would and right But there's a managers in seeing And significantly. investment for pretty is out sponsor flow. loans with more of supply, from than there lot on is the I that so a pressure demand lot market the direct say area probably of now,

Kyle Joseph

high-level of for very in sense the anticipate kind trending growth? longer EBITDA and of and throughout credit rev year-over-year for kind follow-up me. for is one in you of seeing COVID then And if give And of helpful. could Obviously, lap implications very us credit that some That's trends how you a what Yes. we term? portfolio terms your But you're strong. kind year as of comps the

Armen Panossian

Kyle. a that’s good Yes, question,

with And stable happen are So pandemic industries were the the our XX not our really and our growth this helped largest experiencing lot improving the a lower portfolio the to be volatility and through in our with industries predicted, the us be secondary IT, existing leverage opportunistic most in largest That software sciences. the driving were along created – and in pandemic. more market especially BDCs life those and through is in that last to opportunity, over but months. NAV – lower or industries

XX%, through say actually names, would impacted directly performed think I completely of were down. pandemic. most went trampoline small challenged of definitely the our parks, to the had portfolio – they’re business by shut point, indoor at say And well handful So that they I reopened I We these remarkably this being would handful And roughly the XX% CircusTrix. now. a pandemic. a would names very that where

performance. names, And improvement our in pandemic-impacted even – in we’re names, So the stable. been has seen really significant performance non-pandemic-impacted we’ve in

well. doing are companies sciences life Our

than well. Our IT are doing just businesses and software more

knock speaking, portfolio I XX given, over generally so months. were in the we’re businesses pretty expect on would last And in the thankful just our performance wood, the the market. of of

loans, a obviously to credit necessarily senior at tradable business, doesn’t this bonds, but have So credit, portfolio, below et we Oaktree very credit investment-grade apply large high-yield business in our cetera.

And wide so see I performing a than are by speaking, they better how in XXXX broadly. would say, companies were generally we margin. doing pretty companies what are – And

would were muted on defaulted, the XXXX, extend the defaults XXXX what revenue of But EBITDA track that little again, and bit side. I compared XXXX names, down costs took most-levered in line energy had come growth growth market in expect I the or seen revenue credit investment-grade below market, fully that’s for profile indices the they the with XXXX, because I the fully really we don’t reopened. markets, and most in exited issuer tougher EBITDA that in of in most lot situations a expect case, mainly modest liquidity out credits their when is In side previously. think in even in or maturities challenged then still in which speaking, more back companies meaningful theme space would than also that they’re we a of generally lot generally, some a years. As a to pretty I and actually what And true would for is experience or say the tradable and they especially. cruise bolster those benchmark space, because losses And able the to park survived, like many the economy a

the even those so And businesses in term. default to near unlikely are

I would costs from I up percentage flow benign you’ll say, low revenue a indicate out. versus would have of term increase going then probably it’s in defaults, speaking, speaking, generally environment least credit what meaningful given than more where losses come see XXXX XXXX cash would stable in for line that markets think, the sorry, – generally and revenue, XXXX. And a low the near a I couple think pretty points to some So be at the

Operator

Ryan next with Our Instructions] from Lynch question KBW. [Operator comes

Ryan Lynch

rate. you one it just trying talk to you your it out swap are rate interest just to can you notes part with or rate that driving decision of your think decision? are the was into has that better to about of do overall what you is a swap guys XXXX Can short-term an Or interest any out of rate also was rates And then call as an guys a just swap your unsecured assets? the from to the rate? do? on First guys' the -- desire to match -- there going what new Was Was floating notes? attractive second question, on on composition

Matt Pendo

question. Ryan, it's your Matt. for Thanks

assets but most, just really LIBOR-based. in floating main was swapping of are Most impetus the to and and match our assets, liabilities. not rate So all, our

benefit. to goal the So was the But be decision swap rate also market and assets was main just just was in and a match It the to liabilities. happened on attractive both swapping But to match it market out. assets was a liabilities. the time swap and to very interest really just that obviously

liabilities, the just to some we swap 'XX assets. relates we did fixed it those asset again, the As notes, have not primarily rate

to a swapped the technical our to the just rate rate technical for swap of facility. also swap fixed floating made the then mean market, them. to the notes the kind at versus XXXX fixed liabilities, able that we of just assets sense. some notes level, And Also, of when we're just keeping attractive So swap rate bank credit kind of the time, less inside the is

where interest was looked market. rates just came that So at swap very attractive with were we also that were feature the a and in forwards

liability net-net, of all by driven asset kind this it -- was but -- really matching. So is

Ryan Lynch

Okay.

that the be in XXXX notes not the So swapped fair? will future. Is probably

Matt Pendo

At swapped. this time, being I would not anticipate them

Ryan Lynch

kind active a portfolio. very in kind market a your then Okay. Obviously, a And There's overall the on, increase activity of which of just the repayments lot question Nice. going it's could of on level activity. market. of

that decent have the With well said million X the as as areas, do approach portfolio growing about selective I you I'm dynamics kind have, market have just investment of traffic loans. those those guys you nonsponsored wondering $XXX of deals, pipeline, think pretty you but less know lower-priced given in how a you you

out have a that's you conflicting that a the get cost those And of so come another would going to at growth. guys desire that's of factor loans, but to portfolio

a trying maintain So leverage also how of level factors, to do all targeted those your range? you within while manage

Armen Panossian

great question. a It's Armen. is This

following: unexpected situations. I time. the quarter, a the say in couple So time to And do we some even received of repayments yes, receive we in would repayments from

the that loan year, about For example, our repaid a originated we at Morris last did discount were X-point William quarter. it X.XX% at and we in

loans structured our time highly expect participation given from would that the of we that of when in nature just par happen. get we So and does to happens excess time, it some would to

redeploy. So a opportunity and it's both to an challenge

say, with really or where it during unexpected and saddled have been publicly our haven't we lot quarters new into originated were have have we far that at as so a the and at would year this has higher rallied large, sold repayments. this rallied private wider experience I during year exits had pandemic by year, activity our of our we lower our been or option, However, were repayment calendar bought that or this loans, that -- we spread been We had redeploying yields traded we securities loans. and

speaking, leverage. situation change, level asset to be repayments change. we mass or we way now, for could been the get hasn't guess, I of non-call to problem, we're flow that hazard game, we'd if the and until haven't we of Up I are what the want private call name we as nonsponsor how of guess That to lot first wouldn't volume it I our of our elevated it that the pipeline, hurt a collection, but protection a given modestly would when multiple what deal really should being then high. years. cash nature as And looking portfolio generally that understand our protection and where would repayments operating to and is, with But our that's to a significant say. fund or increase know looking you a we seen that, either is or on loan keeping us a have lower-yielding So had source these

us. get We repayments, our repaid in clip. of more don't rapid unfettered a portfolio completely very have generally a ability on around moat kind have from a but speaking, we not bit to little We're immune of,

hasn't can. So make managing It can't yet, really been issue future. an we as the we're as about we but it best predictions

Ryan Lynch

yielding positions those of Or levels? mostly for loans as million have you time those for as just like waiting -- of exited price of basically? you a a the of the liquidity guys of a those how kind at exit sort Okay. standpoint. I'm much any JVs, the or do long on can mostly the wondering sheet loans are do of guys just $XXX all of lower control the loans yielding on your guys those and And syndicated are balance million Of exit from lower have on in $XX are you type follow-up loans you just those that. that you

Armen Panossian

Yes. liquid Generally, they're are pretty syndicated loans broadly market. that tradable with

Operator

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

Michael Mosticchio

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

Operator

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

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Oaktree Specialty Lending (OCSL) 5 Aug 212021 Q3 Earnings call transcript