OCSL - Earnings call transcript Q4 2024 | Oaktree Specialty Lending Corporation

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Operator

Welcome, and thank you for joining Oaktree Specialty Lending Corporation's Fourth Fiscal Quarter Conference Call. Today's conference call is being recorded. [Operator Instructions] Before I pass the call over to the Oaktree team, I want to remind you that comments on today's call may include forward-looking statements reflecting Oaktree's current views with respect to future operating results and financial performance. Actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to OCSL's SEC filings for a discussion of these factors in further detail. or to remind revise this interest you an to duty also forward-looking call in no an offer to of like that sell any undertakes Oaktree update purchase any or statements. I'd constitutes offer fund. Oaktree to solicitation any a nothing on

of call. I you Mr. Now Head may like will who begin. introduce to Relations, would Kevin, host Kleven, Dane Investor today's conference

Dane Kleven

all Lending Thank support for I'd and you, you listening your you Specialty thank much fiscal quarter welcome call of very to of Oaktree earnings XXXX. for Corporation. fourth in. We like appreciate our operator, to the

investors, Our presentation media review to information issued can earnings section and this that slide on the on our is accessed the encourage the Investors accompanying at we website. the release, be website of others morning which our shared and We oaktreespecialtylending.com.

today that, the Investment McKown, Panossian, Joining to Treasurer. With and Officer; call results. now over discuss the to our Pendo, Matt call Executive Co-Chief Chief President; Matt us are and Chris like to I Officer Officer and turn Armen on would Financial Chief

Mathew Pendo

everyone. welcome, and Dane, Thanks,

Our or adjusted from or by partially $XXX which to lower per fiscal certain into activity, year per fiscal NII XXXX. went modest Income or as fees the merger or nonaccrual larger for completion NII of offset increase Oaktree and OSIX was that consistent year following effect higher Strategic in base nonaccrual in exits. to September and our management investment quarter per generated primarily drivers from higher acceleration income investment $XXX fees compared a adjusted rate offset a successful our an to dollar placed results. with origination higher on was adjusted Full driven expense, This adjusted $X.XX and Inc. quarter combined was on decrease higher XXXX increase quarter average reflects status. our with an NII Xst moved due year's million share investment $X.XX $X.XX with of third decrease NII expense. interest share, share prepayment from expenses the The fiscal our the were the decline by a rates year-over-year July $XX of were was The driven investments was income and in reflected increase liabilities. for million total XX, by OID XXXX, interest repayment for status net These ended our common portfolio share per healthy investment the million fourth and in by issuance count share last impact floating investments shares. in

rotate continue loans. During fiscal into we XXXX, first to lien primarily

XX% were first X%. at end cost nonaccrual compared XX% lien investments to on fiscal X.X% year-end decreased XXXX. XX% fair at and Investments increased Our investments to lien X.X% at X% from to last second quarter. quarter at status value Concurrently, from and X.X%

removed During we investments the X nonaccrual. successfully and them quarter, from restructured

further on placed status additional we investments took nonaccrual However, write-downs on certain and investments. some X

quarter. last per value slightly decreased asset to $XX.XX from net Our share $XX.XX

successful We with our closely to are expertise and shareholders. and resources company achieve outcomes working each our using for

fees quarter last that and part fees is of earnings we January of of write-downs our value, impact OSIX merger waived addition waived and that nonaccruals discretionary additional additional This asset the million incentive million since X last $X.X the X to fees $X.X Part of $X.X we year. raised in an Given in these had net on incentive million the and for quarter.

our hope X, to actions As a assets these a the permanent in reduction reflect ongoing gross reminder, implemented July XXXX. X.X% fee base management from to our of we commitment X.X% We shareholders. effective

compared at of originated activity, environment. investment We a yields, level XX.X% to the reflective the quarter at commitments in this current investment albeit pleased We with of fourth of in X.X% were new to during the quarter. lower market prior yield million $XXX activity. weighted Turning average

continue publicly traded compelling Paydowns up while a third We well to speaks debt and as and market, credits, investment the exits attractive broader we paydowns. million believe overall portfolio more them our execute leverage positioning in maintaining We and levels in million generated their non-sponsored well the refinancing businesses. activity our diligence disciplined business in paydowns to of selective undervalued the portfolio higher identify investment an investment of ability approach sponsored of With companies the $XXX process. as demonstrate across their reduce $XXX and quarter competitive sell quarter. as opportunities or refinance environment. to from in proceeds, across at to successfully the These plans, our this have experienced due our companies strength as prices, increasing

undried on debt unrestricted Turning the payable will details to and on to and a XX, side our $XXX I balance fund our cash XXXX, capacity equivalents over with after XXXX. With in the environment. call opportunities. credit our Board liquidity to cash cash approved the and sheet. cash stockholders net respect of equity consistent to Total turn to to investment investment share, At the had liability XX, for substantial year-end, quarterly X.XXx of market equity quarterly debt that, and was cash the X.XXx was $XX This This included prior $X.XX of facilities our under per December provide of distributions. dividend, dividend fiscal we future and Armen million. and on our portfolio equivalents. dividend record and million With commitments to of is December more adjusting

Armen Panossian

and Matt, hello, you, everyone. Thank

growth Before quick investment and to as platform, Officer for looking I'm His our in of portfolio concluded to as as Khanna co-CIOs I founding market to that, member becoming Group the the I announce team. activity, where an a Raghav him member. update in provide excited in been committee like strategic manager credit quarter dedication observations for environment. Co-Chief of and and our driving strategy in I our have insights am the working leadership of before a Global co-portfolio portfolio activity a joined alongside Raghav current of he Investment our appointment a Oaktree I'd forward member will Opportunities on OCSL. XXXX, review our turn and now serves OCSL. With now strategic as to the of the instrumental XXXX

lend fourth across mentioned, line was XX% the mitigate middle the line ago. portfolio of fair a median as in lien This up invested leverage is In portfolio comps. well of At are companies market we roughly capital was for Our with our at was average of at in to the XX% billion quarter our in remained notably To companies. from our $X million, fourth first X objective current structure. year below EBITDA quarter, diverse a X.Xx. the diversified risk the XXX is of the group end, the of larger in prior $XXX Matt the over leverage ratio yet top environment, portfolio quarter, investing pursuing with and quarter. end which, companies market of with In the median for the to debt, industries and the value

X.Xx. perform portfolio coverage rates well using a base ratio continued Our interest to companies weighted at average with current

the and X portfolio fourth existing diverse set quarter, new $XXX XX into of companies. During million we a invested

acquisition $XX Hospitality, which parent, details sports was the and delivers theaters. provided experience and holistic million global provide convention few of million management draw will a a XXXX a provides million facility Global X Legends SOFR company premium OID. stadiums. venue over term loan the concessions XXX OCSL term a million Dallas term groups York to of billion $X.X loan, plus ownership founded new venues. of the participated X% solutions, a New I and to Legend's by delayed of a with manage stadiums, of the steel. and Cowboys Oaktree key August, revolver I Oaktree The of points support for Now portfolio of Yankees credit co-led coupon ASM of of centers services and the arenas, loan. to has in $XX X organizations and $XXX entertainment $X In Legends of that begin investments. in will new

the participated and million credit leading this credit senior is In has first million lien of term. the fiscal insurance million organization of management of and nonprofit software is solutions of Oaktree $X.X on million Oaktree Oaktree a Everbridge, invest million We that gives management a M&A incident in monitoring consists facility million coupon a million to terminal. global $XX quarter, advantage the pipeline and in company loan, institutions corporations, credit and preparedness, $XX focuses us $XXX capital. and well with September, compelling service provides OCSL new billion point X the of point to Oaktree delayed Marketing and billion transactions. coupon and OID. fund delayed key ability loan, the SOFR a fourth deal. $XXX X.X $X.XX help wealth delayed refinancing, SOFR of of draw plus loan a power platform, $X support a provided and has million of that future that as deal. draw products a $XX significant term and Everbridge. The to term a technology revolver of loan debt term investment working facility and demonstrate loan, which co-led Integrity's marketing facility billion investments new access Integrity million of market. The a term security larger as made draw $XX revolving OCSL investment revolver of to Next, $XX.X These life, In an acquisition the opportunities with of X% critical of OID. the X% the participated Oaktree company health in plus the this on competitive independent the The facility of a the to event in in participated reliability. $XXX omnichannel that million loan. emphasis $XXX $XXX government term provided of sponsor's risk term agencies and another solutions with global

look quality at let's portfolio. the of the credit Now a take closer

increase the quarter. nonaccrual the we As an Matt noted, during experienced number of in net fourth loans

X successfully on quarter. team and during we Astra nonaccrual that our of out and were nThrive to Holdings status status, tranches the restructured second nonaccrual Acquisition previously added Telestream the While investments Corp

Looking Corporation. I'll Acquisition with Astra at new begin additions, the

Astra Acquisition provider software is higher institutions. cloud-based a Corporation educational solutions of for

Loan loans negatively market. nonaccrual. which impacting at the into exchanged was have Term closed that Term lower, price in was Loan out loan are of us a Astra first B caused EBITDA and term the secondary put the these is a Recently, on B, Term trended in quoted investment original that restructuring XXXX. tranche in to through company's events and Our April A Loan which second lien bookings the a These a

our of debt the working revenue declining management We lender with with Astra's are the position. address value closely to of goal and group maximizing

company revenue will software I care and clients term flow, in loan first a cash and lien discuss which Now manage nThrive, both a their helps that position. second lien hold health we

lien term declining was of The as and a result lower placed on nonaccrual loan retention second rates. bookings

We to this closely continue monitor name.

is diversified customer Holdings and video on-demand, a digital video base. Telestream platform workflow a Next, that tools to software solutions provides

in Telestream and Our loan investment first lien revolver. a small includes a term

valuation and the company nonaccrual there both collecting at we on quarter placed liquidity interest. no due Although was change at coupon loans concerns to about end, proactively constraints

mentioned, as Finally, nonaccrual names our Pluralsight restructured Impel. previously Matt and list, X we on

and delayed in position, capital a take-back the company part a to our lenders, Oaktree draw revolving of in Pluralsight term along additional For August, the former debt providing and of company recapitalization other form loan credit with completed facility. some the of a receiving equitizing

receive are with the in company's party primary ability like working third and are situations to a case In will OCSL payment seeking through In right through reinvigorated the reorganization the product, the sales we by and the other be the and monetize confident the Trudhesa, future milestones. We other lenders if received of post work to achieves our with and a management certain acquirer to sales acquired payments Impel, acquisition, was these. effort. debtors a drug connection cash

our Now turning view of environment. market the to

increased businesses, interest companies. this have the income their cost levered are our backdrop, rate recently elevated Against short-term capital ability interest in of in of current lower portfolio fixed from rates, debt environment. has remain markets for with evaluate highly the environment, an materially rate especially which we to markets constant the end and communication interest navigate companies we benefited Although to

identify to as issues our work early them. resolve possible to collaboratively with any goal to Our borrowers and as is potential

an XXXX. active initiated in be cut issuers driven anticipating M&A earlier in optimistic During markets has its has This space. continues borrowers Base the another September point to and focus Fed point credit the cycle the to a Interest XX rally remain with cut fourth month. and repricing ratios generally continued borrowers. increase. Fed increase target activity revenues activity with a to interest average the more the higher new improving ratio funds private amounts in quarter to tighten. the fiscal also early Private rate prior spreads the trend continue quarter, for as combination stable to regarding declining, coverage industry tightening increased to market in XX capital many refinancing and credit volume, from this and demonstrating future for for and basis is in declined lenders the continue easing be rates market. silver large to growth. is EBITDA spreads healthy, continue aggressively And basis and expected coverage deal syndicated compete driving loan which opportunities, broadly terms with to The in rates is credit market of

from investments fair fundamental Additionally, solid due company the lending performance. of credit quarter and value increased overall to last tighter direct spreads

deals IPO is the likely surge U.S. He generally we of in production. to Trump's is lowering taxes, widely the M&A and of create measures as impact a reducing These uptick corporate restrictions XXXX. business dealmaking anticipate favorable President-elect are Trump corporate committed administration. easing has pro activity election. to a to profitability. This strong for Turning on energy in under regulation regarded Moreover, a pipeline and in leader.

remain As the I we on current said inherent earlier, risks of market. focused the

ultra emergency period, to of have back not low could extended hike is for Fed the cycle the the In challenging over debt take While rates levels levels. higher the elevated recently, an words, likely this and last rates we remain rate are companies do short-term to other decade. with will declined believe rates be inflation and for

high subsided, recently and appears has remain improving. companies a to inflation environment challenge consumers. While be costs for The

it we prudent cautious. is remain However, believe to

credit we market companies less watching refinance needs, conditions appetite refinancing with believe have cost-effective and maturing becomes We companies as difficulty available. closely obtaining lenders' they are to and debt capital

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

Christopher McKown

Thank you, Armen.

income quarter size As June we about investment Matt fourth income declined Adjusted or consistent our total fiscal of quarter, with noted which quarter prior for $XX.X nonaccrual net the the share, the prior These was increased smaller or by from $X.X factors ending in $X.XX quarter. connection per million income from OID average a with status, repayments. in resulting of offset partially This $X.X investments impact XX, the investment million interest for adjusted XXXX. was by decrease compression. driven certain portfolio acceleration reported on $X.XX placing million and spread were

lower $X.X Kemper $X.X incentive million borrowings was waived. fees We in income, was exit nonrecurring dividend waived. higher share from our of successful fee exits and a quarter. of with of by quarter sense fees, offset expense by than $X.X investment fees, prepayment income neighborhood by from quarter. connection $X.XX primarily management September $X.X decreases impact this net in driven whereas you the about $X.XX, declined $X.X quarter, driven give To results the interest lower million also did of nonrecurring in per a on $X.X Net professional magnitude, have a and of see million from our fees. million income generated larger to X in generally by expenses $X.XX fees decrease a neutral $X.X per in million million increase had These decline the about million partially lower JV. of the part offset of a net which average we income Nonrecurring were prior in income fees,

the our of of million quarter. $XXX at quarter our balance a million. the this end from funded outpaced This, newly resulted combination slight Repayments OCSL's in of $XXX down the the was investments of sales at sheet. third in net in with portfolio. Now to and our end moving X.XXx ratio leverage X.XXx, quarter markdown size decline

Our remained range net X.Xx our of X.XXx. within leverage to targeted

quarter rate of the debt weighted down swap As the is Unsecured from outstanding of last our of of which end effect slightly represented a up quarter. average was XX% interest X.X%, debt interest from total debt quarter. September XX, $X.XX prior marginally including billion at and rate agreements had total

million related commitments liquidity be Our excluding with strong, million approximately including certain remaining our credit must cash $XXX $XXX by of capacity undrawn can to million that met be drawn. immediately. those and of Unfunded million $XX companies The joint to eligible the ventures $XX $XXX million on be funds remains were facilities. is to subject drawn milestones before portfolio

currently portfolio hold million primarily joint across our ventures. of spread investments Now JVs Together, in X XX syndicated turning broadly companies. $XXX loans to

at in combined, underlying again approximately with due the JVs attractive flat Leverage that, to unrealized the quarter partially in the in when annualized for depreciation call were the ROEs, OCSL. offset X.Xx companies the end, participation from at generated in on quarter JV increase slight quarter. With For by and the XX.X%. received during quarter, was last aggregate appreciate your portfolio interest which a we portfolios the repayments today your

lines. now. Operator, to open happy take are your questions the We please

Operator

Instructions] first KBW. Johnson is from Our question [Operator today with Paul

Paul Johnson

the incentive on quarter. this Just fee waiver

understand Just is $X.XX below trends that something to be this the NII trying if committed adviser is extent dividend? on a the to go-forward the that to going to basis

Mathew Pendo

Pendo. Matt the it's Paul, for Thanks question.

announced we million. $X.X quarter, discretionary this waiver a -- a fee the it we of as -- describe So

waiver another mentioned that, you was prior was discretionary there permanent. view million. there discretionary, last not As of We quarter fee those to quarter, $X.X another as

starting we're X%, was that's kind is fee permanent. So -- looking at to X -- of management of quarter-to-quarter. the July This how it kind reduced July when the was that

And approach how the fee waiver. then incentive obviously, management X% that's permanent. fee is the So of kind we

Paul Johnson

it going higher I which obviously in And Thrasio just looks accrual on portfolio. an resolution soon? feel, sort a like of been it's in are either anytime a then had little of still quarter. Thrasio with on of on this there? just fairly are those guess, nThrive nonaccrual quarter-over-quarter. that we on at the in terms any nonaccrual it. has investment you you I point strong of like a credits was there longer, approaching are how mark incrementally but How do where mean also comfortable Is quarter, especially -- it loans Got the is bit looked The marked update few

Armen Panossian

to that value question. wouldn't I an term. for that's is story Thrasio near quarters. think take that maximizing This is this resolution it Armen. close the execution is we On few would say is Thanks in think, going to the another look, I a

For FinThrive think a nThrive, press there engagement it's is out well which sponsor. a its is public from has yesterday, we actually that as is or and known, we think some that, business that disclosed do, But of lot that execution it has its there And to stability. -- positioned. was information the positive company or and release certainly,

different We positions. are watching in are nThrive FinThrive but it and I very closely, think or Thrasio

Paul Johnson

the on Appreciate in wondering should on as helpful. on -- realize not being the borrower is is could interest That's And still mean I or of to revolver, an it's this after I is that. the the that this tell the loan the mean, then restructured pay if you say, us, loan? restructured, borrowing But Pluralsight, portfolio. within the restricts I delayed was the draw I large revolver I there unpick at point. point, anything there at from investment

Armen Panossian

to business isn't meant give the intention the need The covenants or have revolver not REIT. answer you to revolver it's on to detailed repositions strengthens But the the with interest. itself draw the that meant the to does coupon it support to would more restrictions. and position, its I as I mean pay a revolver is coupon. pay legal

Paul Johnson

you good a in if Got feel up If and activity Do we -- a on last going lenders up about holding term be of of it. good to erosion how kind mean terms market. line and for further in one in do the next and of going you're market. we ends year, stand be I have think XXXX the do covenant very of being direct hold terms kind the market? in you to how of And think able covenants me. documents wave year you get to are that and where we kind the

Armen Panossian

Sure.

being in market million $XX think market, middle of EBITDA. the middle lower I middle $XX million lower being middle the with between lower so core market core or of EBITDA million $XX companies market to and

should see good in I of reasonably away those from stripping good tested terms quarterly expect reasonably lenders. to think in we X categories, protections collateral covenants,

of those I which million, think will covenant large And And as think, markets, as are very to those And larger of EBITDA, I in the covenants as there to and million syndicated little core much that bit. end. would $XXX I leverage the large market on the therefore, you terms their available what strengthen been will covenants. you cap get or think middle businesses back be broadly to up, and deal continue weaker market. erosion on could get some on in comp end picks a though, loan borrowers, the middle market, come the $XXX that flow that million, those I think lower of has $XXX they

over the and think deals. so, -- been chasing the condition there capital many XX a there's has deals, amount those months a haven't of last substantial been I where there's that been or

will that XX XX will cap seen the what undo have -- generally think it to of some completely flow to don't a in market. a tightening spreads end in happened I and the it the compression of deal last more have loosening covenants in a terms I we market. counter we spread especially months, protections of won't or of So think And in But help of has legal seen bit of large that. little

Operator

from The next question JPMorgan. with is Wedel Melissa

Melissa Wedel

expecting early regarding quarter and investment Am see like your like typically that sort not a It right necessarily expecting now. interpreting 'XX. sounds on you're bit, we right? environment normally December up of a between basis, in seasonal a pick As comments lines I'm reading the I little you're on the activity that large to

Armen Panossian

forward-looking statements. that deals sort say And sometimes want quarter, because predict first is quarter fourth quarter very make the sometimes to hard to quarter. This fourth it's I that We Armen, first slotted Yes. in of into and happen are Melissa. to the would don't slip

Sometimes they're the over months decline fourth that the spreads which we've over that say period seen just over with into is next accelerated rare. the to lower XX in rates the extended of I an time more with XX last XX quarter, would having those then some the expectation we've of to certainly companies picked The up. conversations been XX to non-sponsored sponsors picked months, the of and conversations has It's and hard with with that next up. velocity though. has quarter and predict X

Melissa Wedel

compressed I wanted to go I'm you Fair slip enough. wondering, seen little back of I'm JVs. that allocation to your to in income, spread opportunity, more might JVs wondering optimize maybe Okay. see a that and thoughts. further an and in incremental sized? we've how also portfolio be bit particularly a terms if generate the those some year-over-year. appreciate sort I of environment

Armen Panossian

ways do that is could There are We're JVs. optimizing we looking again. think This we at Sure. the that. always Armen

get do a bit I return some that them. out think So more to there little are ways of

cost them, partnership. really We expansion those this of however, at -- [Audio But with the partners, and expanding are the have so quantum well constantly at but allocation as the versus portfolio, dialogue the JVs. and of portfolio we in public constant there, time are we about JVs we positions private nature Gap] the leverage. And is looking as JV a those of

to those look and for always the for will optimize OCSL. So JVs we

Melissa Wedel

there. A quick follow-up

leverage? now, you level through of you're each increase existing give us higher leverage right JVs just on there within opportunity In how the if that's terms an can about of capacity an in the thinking framework there's leverage the to of the current whether update and the

Armen Panossian

the And Sure. X the think -- leverage and I about combined on there in we between the it's mean basis Xx. a sorry, above are levels -- JVs, X.Xx.

leverage a it over increase, going looking publicly that given The to some can time. but management that JVs those OCSL We to bit get little JVs. leverage think do portfolios in do to increase you the or of constantly to looking that X.Xx positions sudden a we privates capacity names will much syndicated in there. to that have turn there's largely in And higher credit some beyond be the currently are of and It's for broadly into are we significant and make there look those to and the multiple those rotate in legacy out assumption of assets there not nature existed there portfolio portfolios. leverage we're it And a restructure performing of take the up is on. loan Oaktree's debt than consistently those performing a X.Xx prior traded we with increases of that largely

Operator

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

Dane Kleven

all you continued today's you call if joining for in additional Thank Please out OCSL. for your have questions. reach your any and interest We appreciate time today.

Operator

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

disconnect. You may now

Oaktree Specialty Lending (OCSL) 19 Nov 242024 Q4 Earnings call transcript