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Oaktree Specialty Lending Corporation Announces Third Fiscal Quarter 2019 Financial Results and Declares Distribution of $0.095 Per Share
Source: Nasdaq GlobeNewswire / 07 Aug 2019 06:00:35 America/New_York
LOS ANGELES, Aug. 07, 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 June 30, 2019.
Financial Highlights for the Quarter Ended June 30, 2019
- Total investment income of $36.7 million ($0.26 per share), down from $38.2 million ($0.27 per share) for the second fiscal quarter of 2019, primarily reflecting lower original issue discount ("OID") accretion, partially offset by the call protection and prepayment fees earned in connection with the exit of two investments.
- Net investment income of $16.6 million ($0.12 per share), down from $17.7 million ($0.13 per share) for the second fiscal quarter of 2019, primarily reflecting lower investment income, partially offset by lower operating expenses.
- Net asset value ("NAV") per share of $6.60, up from $6.55 for the second fiscal quarter of 2019, primarily driven by income earned in excess of dividends paid and net appreciation on investments.
- Originated $66.8 million of new investment commitments and received $138.3 million of proceeds from prepayments, exits, other paydowns and sales.
- A quarterly distribution was declared of $0.095 per share, payable on September 30, 2019 to stockholders of record on September 13, 2019.
Edgar Lee, Chief Executive Officer and Chief Investment Officer, said, “The third quarter was highlighted by continued strong financial results and portfolio performance. NAV increased for the sixth consecutive quarter to $6.60 per share, an 11% increase over the same period one year ago, and net investment income remained solid at $0.12 per share. We made further progress in reducing risk in the portfolio, successfully exiting $27 million of non-core investments, while adding $67 million of new investments that are consistent with our late-cycle investment approach. Importantly, with leverage of only 0.58x and $330 million of dry powder, we are well capitalized and have ample capacity to invest in new opportunities.”
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.095 per share, payable on September 30, 2019 to stockholders of record on September 13, 2019.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
Results of Operations
For the three months ended ($ in thousands, except per share data) June 30, 2019 March 31, 2019 June 30, 2018 Operating results: Interest income $ 32,910 $ 34,309 $ 26,634 PIK interest income 1,198 2,280 1,457 Fee income 1,826 1,132 2,425 Dividend income 735 523 1,331 Total investment income 36,669 38,244 31,847 Net expenses 20,061 20,535 17,417 Net investment income 16,608 17,709 14,430 Net realized and unrealized gains (losses), net of taxes 3,378 46,776 9,822 Net increase (decrease) in net assets resulting from operations $ 19,986 $ 64,485 $ 24,252 Net investment income per common share $ 0.12 $ 0.13 $ 0.10 Net realized and unrealized gains (losses), net of taxes per common share $ 0.02 $ 0.33 $ 0.07 Earnings (loss) per common share — basic and diluted $ 0.14 $ 0.46 $ 0.17 As of ($ in thousands, except per share data and ratios) June 30, 2019 March 31, 2019 September 30, 2018 Select balance sheet and other data: Investment portfolio at fair value $ 1,455,031 $ 1,504,888 $ 1,491,201 Total debt outstanding 537,278 592,178 637,213 Net assets 930,050 923,456 858,035 Net asset value per share 6.60 6.55 6.09 Total leverage 0.58x 0.64x 0.75x Total investment income for the quarter ended June 30, 2019 was $36.7 million and included $32.9 million of interest income from portfolio investments, $1.2 million of payment-in-kind ("PIK") interest income, $1.8 million of fee income and $0.7 million of dividend income. Total investment income was lower as compared to the quarter ended March 31, 2019, primarily due to lower OID accretion, partially offset by the call protection and prepayment fees earned in connection with the exit of two investments during the quarter. PIK interest income represented 3.3% of total investment income for the quarter ended June 30, 2019.
Net expenses for the quarter totaled $20.1 million, down from the quarter ended March 31, 2019. The decrease in net expenses was primarily driven by lower interest expense as a result of a lower level of borrowings during the quarter, partially offset by higher accrued capital gains incentive fees (net of fees waived). The capital gains incentive fees are required to be accrued under U.S. GAAP, but payment is not contractually due under the terms of the investment advisory agreement, unless and until realized capital gains exceed realized capital losses and unrealized capital depreciation on a cumulative basis.
Net realized and unrealized gains, net of taxes, were $3.4 million, primarily reflecting unrealized appreciation on certain debt and equity investments.
Portfolio and Investment Activity
As of ($ in thousands) June 30, 2019 March 31, 2019 June 30, 2018 Investments at fair value $ 1,455,031 $ 1,504,888 $ 1,520,518 Number of portfolio companies 105 110 116 Average portfolio company debt size $ 15,400 $ 15,000 $ 14,500 Asset class: Senior secured debt 79.7 % 78.9 % 76.0 % Unsecured debt 7.0 % 8.0 % 10.9 % Equity 4.3 % 4.2 % 3.8 % SLF JV I 8.8 % 8.4 % 8.7 % Limited partnership interests 0.2 % 0.5 % 0.6 % Non-accrual debt investments: Non-accrual investments at fair value $ 86,796 $ 85,854 $ 67,131 Non-accrual investments as a percentage of debt investments 6.4 % 6.1 % 4.6 % Number of investments on non-accrual 5 6 8 Interest rate type: Percentage floating-rate 88.5 % 86.3 % 82.9 % Percentage fixed-rate 11.5 % 13.7 % 17.1 % Yields: Weighted average yield on debt investments (1) 8.7 % 9.0 % 8.8 % Cash component of weighted average yield on debt investments 8.0 % 8.3 % 8.5 % Weighted average yield on total portfolio investments (2) 8.2 % 8.3 % 8.4 % Investment activity: New investment commitments $ 66,800 $ 100,000 $ 379,800 New funded investment activity (3) $ 74,100 $ 111,100 $ 389,000 Proceeds from prepayments, exits, other paydowns and sales $ 138,300 $ 120,700 $ 280,700 Net new investments (4) $ (64,200 ) $ (9,600 ) $ 108,300 Number of new investment commitments in new portfolio companies 3 5 24 Number of new investment commitments in existing portfolio companies 4 1 4 Number of portfolio company exits 8 4 28 __________
(1 ) Annual 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 includes 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 June 30, 2019, the fair value of the investment portfolio was $1.5 billion and was comprised of investments in 105 companies. These included debt investments in 82 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, 93.4% of the Company's portfolio as of June 30, 2019 consisted of debt investments, including 54.0% of first liens, 25.8% of second liens and 13.6% of unsecured debt investments, including the debt investments in SLF JV I.
As of June 30, 2019, there were five investments on which the Company had stopped accruing cash and/or PIK interest or OID income that, in the aggregate, represented 10.5% of the Company's debt portfolio at cost and 6.4% at fair value. During the three months ended June 30, 2019, the Company exited one investment which was on non-accrual status.
As of June 30, 2019, SLF JV I had $348.7 million in assets, including senior secured loans to 51 portfolio companies. The joint venture generated income of $2.3 million for Oaktree Specialty Lending during the quarter ended June 30, 2019. During the quarter ended June 30, 2019, SLF JV I increased the size of its senior revolving credit facility from $200 million to $250 million. As of June 30, 2019, SLF JV I had $62.9 million of undrawn capacity on its senior revolving credit facility.
The Company intends to rotate out of approximately $273 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 June 30, 2019, the Company had $5.6 million of cash and cash equivalents, total principal value of debt outstanding of $542.6 million and $330.2 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 June 30, 2019.
As of June 30, 2019, the Company’s total leverage ratio was 0.58x debt-to-equity.
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss its third fiscal quarter 2019 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on August 7, 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 10133101, 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.comMedia Relations:
Financial Profiles, Inc.
Moira Conlon
(310) 478-2700
mediainquiries@oaktreecapital.comOaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)June 30, 2019
(unaudited)March 31, 2019
(unaudited)September 30,
2018ASSETS Investments at fair value: Control investments (cost June 30, 2019: $190,181; cost March 31, 2019: $211,964;
cost September 30, 2018: $213,470)$ 175,052 $ 193,416 $ 196,874 Affiliate investments (cost June 30, 2019: $5,064; cost March 31, 2019: $3,678;
cost September 30, 2018: $1,080)5,964 4,578 2,161 Non-control/Non-affiliate investments (cost June 30, 2019: $1,337,252; cost March 31, 2019:
$1,390,882; cost September 30, 2018: $1,392,383)1,274,015 1,306,894 1,292,166 Total investments at fair value (cost June 30, 2019: $1,532,497; cost March 31, 2019:
$1,606,524; cost September 30, 2018: $1,606,933)1,455,031 1,504,888 1,491,201 Cash and cash equivalents 5,637 12,815 13,380 Restricted cash — 337 109 Interest, dividends and fees receivable 13,156 9,822 10,272 Due from portfolio companies 1,850 1,407 1,357 Receivables from unsettled transactions 4 1,818 26,760 Deferred financing costs 6,759 6,848 5,209 Derivative assets at fair value — 563 162 Other assets 2,579 2,819 3,008 Total assets $ 1,485,016 $ 1,541,317 $ 1,551,458 LIABILITIES AND NET ASSETS Liabilities: Accounts payable, accrued expenses and other liabilities $ 1,078 $ 1,505 $ 3,581 Base management fee and incentive fee payable 9,987 8,922 8,223 Due to affiliate 3,431 1,940 3,274 Interest payable 2,267 2,117 3,365 Payable to syndication partners — 586 109 Payables from unsettled transactions — 9,900 37,236 Derivative liability at fair value 206 — — Deferred tax liability 719 713 422 Credit facility payable 369,825 424,825 241,000 Unsecured notes payable (net of $2,808, $2,908 and $3,483 of unamortized financing costs
as of June 30, 2019, March 31, 2019 and September 30, 2018, respectively)158,442 158,342 386,485 Secured borrowings at fair value (proceeds June 30, 2019: $11,502; proceeds March 31, 2019:
$11,502; proceeds September 30, 2018: $12,314)9,011 9,011 9,728 Total liabilities 554,966 617,861 693,423 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 June 30, 2019, March 31, 2019 and September 30, 20181,409 1,409 1,409 Additional paid-in-capital 1,492,739 1,492,739 1,492,739 Accumulated overdistributed earnings (564,098 ) (570,692 ) (636,113 ) Total net assets (equivalent to $6.60, $6.55 and $6.09 per common share as of June 30, 2019, March 31, 2019
and September 30, 2018, respectively)930,050 923,456 858,035 Total liabilities and net assets $ 1,485,016 $ 1,541,317 $ 1,551,458 Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)Three months ended
June 30, 2019Three months ended
March 31, 2019Three months ended
June 30, 2018Nine months ended
June 30, 2019Nine months ended
June 30, 2018Interest income: Control investments $ 2,859 $ 2,852 $ 2,737 $ 9,050 $ 9,011 Affiliate investments 70 22 161 105 2,027 Non-control/Non-affiliate investments 29,850 31,231 23,629 93,248 71,727 Interest on cash and cash equivalents 131 204 107 605 440 Total interest income 32,910 34,309 26,634 103,008 83,205 PIK interest income: Control investments — — 1,045 67 3,446 Affiliate investments — — 52 — 416 Non-control/Non-affiliate investments 1,198 2,280 360 4,243 1,408 Total PIK interest income 1,198 2,280 1,457 4,310 5,270 Fee income: Control investments 6 7 697 19 945 Affiliate investments 5 5 — 14 48 Non-control/Non-affiliate investments 1,815 1,120 1,728 4,127 6,405 Total fee income 1,826 1,132 2,425 4,160 7,398 Dividend income: Control investments 735 523 1,331 1,711 4,629 Total dividend income 735 523 1,331 1,711 4,629 Total investment income 36,669 38,244 31,847 113,189 100,502 Expenses: Base management fee 5,548 5,731 5,909 16,847 16,885 Part I incentive fee 3,787 3,813 2,733 11,328 6,810 Part II incentive fee 607 8,170 — 10,597 — Professional fees 721 499 924 2,186 4,837 Directors fees 143 142 154 428 507 Interest expense 7,592 8,970 8,291 25,466 26,405 Administrator expense 384 406 466 1,553 1,351 General and administrative expenses 645 705 488 1,981 2,326 Total expenses 19,427 28,436 18,965 70,386 59,121 Fees waived 634 (7,901 ) (1,548 ) (8,831 ) (1,634 ) Net expenses 20,061 20,535 17,417 61,555 57,487 Net investment income 16,608 17,709 14,430 51,634 43,015 Unrealized appreciation (depreciation): Control investments 3,419 3,868 97,000 1,467 89,825 Affiliate investments — (181 ) 72 (181 ) (2,159 ) Non-control/Non-affiliate investments 20,744 17,108 1,810 37,068 (34,696 ) Secured borrowings — (76 ) 377 (95 ) 2,440 Foreign currency forward contracts (768 ) 753 — (367 ) — Net unrealized appreciation (depreciation) 23,395 21,472 99,259 37,892 55,410 Realized gains (losses): Control investments — — (91,470 ) — (91,470 ) Affiliate investments — — — — 2,048 Non-control/Non-affiliate investments (21,112 ) 25,899 2,033 21,548 4,548 Foreign currency forward contracts 1,268 (686 ) — 1,783 — Net realized gains (losses) (19,844 ) 25,213 (89,437 ) 23,331 (84,874 ) Redemption premium on unsecured notes payable — — — — (120 ) Provision for income tax (expense) benefit (173 ) 91 — (668 ) — Net realized and unrealized gains (losses), net of taxes 3,378 46,776 9,822 60,555 (29,584 ) Net increase (decrease) in net assets resulting from operations $ 19,986 $ 64,485 $ 24,252 $ 112,189 $ 13,431 Net investment income per common share — basic and diluted $ 0.12 $ 0.13 $ 0.10 $ 0.37 $ 0.31 Earnings (loss) per common share — basic and diluted $ 0.14 $ 0.46 $ 0.17 $ 0.80 $ 0.10 Weighted average common shares outstanding — basic and diluted 140,961 140,961 140,961 140,961 140,961 
- Total investment income of $36.7 million ($0.26 per share), down from $38.2 million ($0.27 per share) for the second fiscal quarter of 2019, primarily reflecting lower original issue discount ("OID") accretion, partially offset by the call protection and prepayment fees earned in connection with the exit of two investments.
