• Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2019 Financial Results and Declares Distribution of $0.095 Per Share

    Source: Nasdaq GlobeNewswire / 08 May 2019 06:01:03   America/New_York

    LOS ANGELES, CA, May 08, 2019 (GLOBE NEWSWIRE) -- Oaktree Specialty Lending Corporation (NASDAQ: OCSL) (“Oaktree Specialty Lending” or the “Company”), a specialty finance company, today announced its unaudited financial results for the fiscal quarter ended March 31, 2019.

    Financial Highlights for the Quarter Ended March 31, 2019

    • Total investment income of $38.2 million ($0.27 per share), relatively flat from $38.3 million ($0.27 per share) for the first fiscal quarter of 2019.
       
    • Net investment income of $17.7 million ($0.13 per share), up from $17.3 million ($0.12 per share) for the first fiscal quarter of 2019, primarily reflecting lower operating expenses.
       
    • Net asset value ("NAV") per share of $6.55, up from $6.19 for the first fiscal quarter of 2019, primarily driven by realized gains in two investments and unrealized appreciation in certain debt and equity investments.
       
    • Originated $100.0 million of new investment commitments and received $120.7 million of proceeds from prepayments, exits, other paydowns and sales.
       
    • A quarterly distribution was declared of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.

    Edgar Lee, Chief Executive Officer and Chief Investment Officer, said, “OCSL delivered another quarter of strong earnings and portfolio performance, as shown by the fifth consecutive quarter of NAV appreciation. Our continued efforts to reduce the risk in the portfolio were successful, as we realized a par recovery from one of our largest non-core investments, and core investments now represent approximately 80 percent of the portfolio. While general credit market conditions have improved year to date, we remain committed to defensively positioning the portfolio by investing in a disciplined, risk-controlled manner, consistent with our view that it is late in the cycle.”

    Distribution Declaration

    The Board of Directors declared a quarterly distribution of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.

    Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.

    Results of Operations

      For the three months ended
    ($ in thousands, except per share data) March 31, 2019 December 31,
    2018
     March 31, 2018
    Operating results:      
    Interest income $34,309  $35,789  $26,633 
    PIK interest income 2,280  832  1,946 
    Fee income 1,132  1,202  3,942 
    Dividend and other income 523  453  2,258 
    Total investment income 38,244  38,276  34,779 
    Net expenses 20,535  20,959  19,516 
    Net investment income 17,709  17,317  15,263 
    Net realized and unrealized gains (losses), net of taxes 46,776  10,401  4,357 
    Net increase (decrease) in net assets resulting from operations $64,485  $27,718  $19,620 
    Net investment income per common share $0.13  $0.12  $0.11 
    Net realized and unrealized gains (losses), net of taxes per common share $0.33  $0.08  $0.03 
    Earnings (loss) per common share — basic and diluted $0.46  $0.20  $0.14 


      As of
    ($ in thousands, except per share data and ratios) March 31, 2019 December 31,
    2018
     September 30,
    2018
    Select balance sheet and other data:      
    Investment portfolio at fair value $1,504,888  $1,464,885  $1,491,201 
    Total debt outstanding 592,178  607,141  637,213 
    Net assets 923,456  872,362  858,035 
    Net asset value per share 6.55  6.19  6.09 
    Total leverage 0.64x  0.70x  0.75x 

    Total investment income for the quarter ended March 31, 2019 was $38.2 million and included $34.3 million of cash interest income from portfolio investments, $2.3 million of payment-in-kind ("PIK") interest income, $1.1 million of fee income and $0.5 million of dividend income. Total investment income was relatively flat as compared to the quarter ended December 31, 2018, primarily due to lower original issue discount ("OID") accretion, offset by higher interest income due to the larger average size of the investment portfolio. PIK interest income represented 6.0% of total investment income for the quarter ended March 31, 2019.

    Net expenses for the quarter totaled $20.5 million, down slightly from the quarter ended December 31, 2018. The decrease in net expenses was primarily driven by lower professional fees and administrator expense.

    Net realized and unrealized gains, net of taxes, were $46.8 million, reflecting realized gains in two investments and unrealized appreciation in certain debt and equity investments.

    Portfolio and Investment Activity

      As of
    ($ in thousands) March 31, 2019 December 31, 2018 March 31, 2018
    Investments at fair value $1,504,888  $1,464,885  $1,400,684 
    Number of portfolio companies 110  110  115 
    Average portfolio company debt size $15,000  $15,000  $14,600 
           
    Asset class:      
    Senior secured debt 78.9% 80.0% 76.6%
    Unsecured debt 8.0% 7.8% 6.6%
    Equity 4.2% 3.3% 5.5%
    SLF JV I 8.4% 8.4% 9.5%
    Limited partnership interests 0.5% 0.5% 1.8%
           
    Non-accrual debt investments:      
    Non-accrual investments at fair value $85,854  $132,355  $30,886 
    Non-accrual investments as a percentage of debt investments 6.1% 9.6% 2.4%
    Number of investments on non-accrual 6  7  8 
           
    Interest rate type:      
    Percentage floating-rate 86.3% 86.6% 84.6%
    Percentage fixed-rate 13.7% 13.4% 15.4%
           
    Yields:      
    Weighted average yield on debt investments (1) 9.0% 8.7% 9.3%
    Cash component of weighted average yield on debt investments 8.3% 8.0% 8.7%
    Weighted average yield on total portfolio investments (2) 8.3% 8.1% 8.6%
           
    Investment activity:      
    New investment commitments $100,000  $231,100  $223,200 
    New funded investment activity (3) $111,100  $162,400  $227,800 
    Proceeds from prepayments, exits, other paydowns and sales $120,700  $208,300  $151,800 
    Net new investments (4) $(9,600) $(45,900) $76,000 
    Number of new investment commitments in new portfolio companies 5  14  9 
    Number of new investment commitments in existing portfolio companies 1  3  1 
    Number of portfolio company exits 4  14  5 

     __________

    (1Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including the Company's share of the return on debt investments in the SLF JV I.
    (2)Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including the Company's share of the return on debt investments in the SLF JV I.
    (3)New funded investment activity is reflected net of drawdowns on existing revolver commitments.
    (4)Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.

    As of March 31, 2019, the fair value of the investment portfolio was $1.5 billion and was comprised of investments in 110 companies. These included debt investments in 87 companies, the investment in Senior Loan Fund JV I, LLC (“SLF JV I”) and equity investments in 35 companies, including in SLF JV I and two private equity funds. Thirteen of these equity investments were in companies in which Oaktree Specialty Lending also had a debt investment.

    At fair value, 93.3% of the Company's portfolio as of March 31, 2019 consisted of debt investments, including 51.8% of first liens, 27.1% of second liens and 14.4% of unsecured debt investments, including the debt investments in SLF JV I.

    As of March 31, 2019, there were six investments on which the Company had stopped accruing cash and/or PIK interest or OID income that, in the aggregate, represented 11.5% of the Company's debt portfolio at cost and 6.1% at fair value. During the three months ended March 31, 2019, the Company exited one investment which was on non-accrual status.

    As of March 31, 2019, SLF JV I had $346.6 million in assets, including senior secured loans to 49 portfolio companies.  The joint venture generated income of $2.3 million for Oaktree Specialty Lending during the quarter ended March 31, 2019.

    The Company intends to rotate out of approximately $296 million, at fair value, of investments it has identified as non-core investments. It will also seek to redeploy non-income generating investments comprised of equity investments, limited partnership interests and loans currently on non-accrual status into proprietary investments with higher yields. Certain additional information on such categorization and the portfolio composition is included in investor presentations that the Company files with the Securities and Exchange Commission ("SEC").

    Liquidity and Capital Resources

    As of March 31, 2019, the Company had $13.2 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $597.6 million and $255.2 million of undrawn capacity on its credit facility, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 5.1% as of March 31, 2019.

    As of March 31, 2019, the Company’s total leverage ratio was 0.64x debt-to-equity.

    During the quarter, the Company amended and restated its senior secured credit facility to increase the size of the facility from $600 million to $680 million (with an “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion), extend the period during which the Company may make drawings from expiring on November 30, 2020 to expiring on February 25, 2023, extend the final maturity date from November 30, 2021 to February 25, 2024, and lower the interest rate margins (a) for LIBOR loans (which may be 1-, 2-, 3- or 6-month, at the Company’s option), from 2.75% to 2.25% or from 2.25% to 2.00% and (b) for alternate base rate loans, from 1.75% to 1.25% or from 1.25% to 1.00%, each depending on the Company’s senior debt coverage ratio. In addition, the Company's 4.875% unsecured notes due 2019 matured on March 1, 2019 and were fully repaid during the quarter.

    Recent Developments

    On April 1, 2019, the Company increased the size of the ING Facility from $680 million to $700 million under the “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion.

    Conference Call Information

    Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2019 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 8, 2019. The conference call may be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412) 317-5238 (non-U.S. callers), participant password “Oaktree Specialty Lending.” During the earnings conference call, Oaktree Specialty Lending intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Specialty Lending website, www.oaktreespecialtylending.com. Alternatively, a live webcast of the conference call can be accessed on Oaktree Specialty Lending’s website.

    For those individuals unable to listen to the live broadcast of the conference call, a replay will be available on Oaktree Specialty Lending’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10130349, beginning approximately one hour after the broadcast.

    About Oaktree Specialty Lending Corporation

    Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is a specialty finance company dedicated to providing customized one-stop credit solutions to companies with limited access to public or syndicated capital markets. The firm seeks to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions including first and second lien loans, unsecured and mezzanine loans, and preferred equity. The Company is regulated as a business development company under the Investment Company Act of 1940, as amended. Oaktree Specialty Lending is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Specialty Lending's website at www.oaktreespecialtylending.com.

    Forward-Looking Statements

    Some of the statements in this press release constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements may include statements as to: our future operating results and distribution projections; our business prospects and the prospects of our portfolio companies; and the impact of the investments that we expect to make. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this press release involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K and our quarterly reports on Form 10-Q. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

    We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

    Contacts

    Investor Relations:
    Oaktree Specialty Lending Corporation
    Michael Mosticchio
    (212) 284-1900
    ocsl-ir@oaktreecapital.com

    Media Relations:
    Financial Profiles, Inc.
    Moira Conlon
    (310) 478-2700
    mediainquiries@oaktreecapital.com


    Oaktree Specialty Lending Corporation
    Consolidated Statements of Assets and Liabilities
    (in thousands, except per share amounts)

     March 31, 2019
    (unaudited)
     December 31, 2018
    (unaudited)
     September 30,
    2018
      ASSETS     
    Investments at fair value:     
    Control investments (cost March 31, 2019: $211,964; cost December 31, 2018: $212,583; cost
    September 30, 2018: $213,470)
    $193,416  $190,167  $196,874 
    Affiliate investments (cost March 31, 2019: $3,678; cost December 31, 2018: $2,659; cost
    September 30, 2018: $1,080)
    4,578  3,740  2,161 
    Non-control/Non-affiliate investments (cost March 31, 2019: $1,390,882; cost December 31,
    2018: $1,372,068; cost September 30, 2018: $1,392,383)
    1,306,894  1,270,978  1,292,166 
    Total investments at fair value (cost March 31, 2019: $1,606,524; cost December 31, 2018:
    $1,587,310; cost September 30, 2018: $1,606,933)
    1,504,888  1,464,885  1,491,201 
    Cash and cash equivalents12,815  56,186  13,380 
    Restricted cash337  470  109 
    Interest, dividends and fees receivable9,822  9,981  10,272 
    Due from portfolio companies1,407  2,122  1,357 
    Receivables from unsettled transactions1,818    26,760 
    Deferred financing costs6,848  4,798  5,209 
    Derivative assets at fair value563    162 
    Other assets2,819  3,082  3,008 
    Total assets$1,541,317  $1,541,524  $1,551,458 
          
      LIABILITIES AND NET ASSETS     
    Liabilities:     
    Accounts payable, accrued expenses and other liabilities$1,505  $2,362  $3,581 
    Base management fee and incentive fee payable8,922  8,370  8,223 
    Due to affiliate1,940  3,553  3,274 
    Interest payable2,117  6,233  3,365 
    Payable to syndication partners586  379  109 
    Director fees payable  68   
    Payables from unsettled transactions9,900  40,309  37,236 
    Derivative liability at fair value  190   
    Deferred tax liability713  557  422 
    Credit facility payable424,825  211,000  241,000 
    Unsecured notes payable (net of $2,908, $3,196 and $3,483 of unamortized financing costs as
    of March 31, 2019, December 31, 2018 and September 30, 2018, respectively)
    158,342  386,839  386,485 
    Secured borrowings at fair value (proceeds March 31, 2019: $11,502; proceeds December 31,
    2018: $11,869; proceeds September 30, 2018: $12,314)
    9,011  9,302  9,728 
    Total liabilities617,861  669,162  693,423 
    Commitments and contingencies     
    Net assets:     
    Common stock, $0.01 par value per share, 250,000 shares authorized; 140,961 shares issued
    and outstanding as of March 31, 2019, December 31, 2018 and September 30, 2018
    1,409  1,409  1,409 
    Additional paid-in-capital1,492,739  1,492,739  1,492,739 
    Accumulated overdistributed earnings(570,692) (621,786) (636,113)
    Total net assets (equivalent to $6.55, $6.19 and $6.09 per common share as of March 31,
    2019, December 31, 2018 and September 30, 2018, respectively)
    923,456  872,362  858,035 
    Total liabilities and net assets$1,541,317  $1,541,524  $1,551,458 


    Oaktree Specialty Lending Corporation

    Consolidated Statements of Operations
    (in thousands, except per share amounts)
    (unaudited)

     Three months ended
    March 31, 2019
     Three months ended
    December 31, 2018
     Three months ended
    March 31, 2018
     Six months ended
    March 31, 2019
     Six months ended
    March 31, 2018
    Interest income:         
    Control investments$2,852  $3,339  $3,071  $6,191  $6,274 
    Affiliate investments22  13  917  35  1,866 
    Non-control/Non-affiliate investments31,231  32,167  22,533  63,398  48,098 
    Interest on cash and cash equivalents204  270  112  474  333 
    Total interest income34,309  35,789  26,633  70,098  56,571 
    PIK interest income:         
    Control investments  67  1,210  67  2,401 
    Affiliate investments    188    364 
    Non-control/Non-affiliate investments2,280  765  548  3,045  1,048 
    Total PIK interest income2,280  832  1,946  3,112  3,813 
    Fee income:         
    Control investments7  6  128  13  248 
    Affiliate investments5  4  44  9  48 
    Non-control/Non-affiliate investments1,120  1,192  3,770  2,312  4,677 
    Total fee income1,132  1,202  3,942  2,334  4,973 
    Dividend and other income:         
    Control investments523  453  2,258  976  3,298 
    Total dividend and other income523  453  2,258  976  3,298 
    Total investment income38,244  38,276  34,779  76,520  68,655 
    Expenses:         
    Base management fee5,731  5,568  5,386  11,299  10,976 
    Part I incentive fee3,813  3,728  3,247  7,541  4,077 
    Part II incentive fee8,170  1,820    9,990   
    Professional fees499  966  1,015  1,465  3,913 
    Directors fees142  143  177  285  353 
    Interest expense8,970  8,904  8,530  17,874  18,114 
    Administrator expense406  763  391  1,169  885 
    General and administrative expenses705  631  722  1,336  1,838 
    Total expenses28,436  22,523  19,468  50,959  40,156 
    Fees waived(7,901) (1,564) 48  (9,465) (86)
    Net expenses20,535  20,959  19,516  41,494  40,070 
    Net investment income17,709  17,317  15,263  35,026  28,585 
    Unrealized appreciation (depreciation):         
    Control investments3,868  (5,820) (5,849) (1,952) (7,175)
    Affiliate investments(181)   (2,063) (181) (2,231)
    Non-control/Non-affiliate investments17,108  (784) 7,127  16,324  (36,506)
    Secured borrowings(76) (19) 408  (95) 2,063 
    Foreign currency forward contracts753  (352)   401   
    Net unrealized appreciation (depreciation)21,472  (6,975) (377) 14,497  (43,849)
    Realized gains (losses):         
    Affiliate investments    2,048    2,048 
    Non-control/Non-affiliate investments25,899  16,761  2,806  42,660  2,515 
    Foreign currency forward contracts(686) 1,201    515   
    Net realized gains (losses)25,213  17,962  4,854  43,175  4,563 
    Redemption premium on unsecured notes payable    (120)   (120)
    Provision for income tax (expense) benefit91  (586)   (495)  
    Net realized and unrealized gains (losses), net of taxes46,776  10,401  4,357  57,177  (39,406)
    Net increase (decrease) in net assets resulting from operations$64,485  $27,718  $19,620  $92,203  $(10,821)
    Net investment income per common share — basic and diluted$0.13  $0.12  $0.11  $0.25  $0.20 
    Earnings (loss) per common share — basic and diluted$0.46  $0.20  $0.14  $0.65  $(0.08)
    Weighted average common shares outstanding — basic and diluted140,961  140,961  140,961  140,961  140,961 


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