Earnings Presentation
NASDAQ: OCSL
Second Quarter 2024
April 30, 2024
Forward Looking Statements & Legal Disclosures
Some of the statements in this presentation constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this presentation may include statements as to: our future operating results and distribution projections; the ability of Oaktree Fund Advisors, LLC (together with its affiliates, "Oaktree") to reposition our portfolio and to implement Oaktree's future plans with respect to our business; the ability of Oaktree and its affiliates to attract and retain highly talented professionals; our business prospects and the prospects of our portfolio companies; the impact of the investments that we expect to make; the ability of our portfolio companies to achieve their objectives; our expected financings and investments and additional leverage we may seek to incur in the future; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our portfolio companies; and the cost or potential outcome of any litigation to which we may be a party. 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 presentation 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 for the fiscal year ended September 30, 2023 and our quarterly report on Form 10-Q for the quarter ended March 31, 2024. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment, including the impacts of inflation and elevated interest rates; risks associated with possible disruption in our operations or the economy generally due to terrorism, war or other geopolitical conflict (including the current conflicts in Ukraine and Israel), natural disasters, pandemics or cybersecurity incidents; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities); conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations 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.
Calculation of Assets Under Management
References to total "assets under management" or "AUM" represent assets managed by Oaktree and a proportionate amount of the AUM reported by DoubleLine Capital LP ("DoubleLine Capital"), in which Oaktree owns a 20% minority interest. Oaktree's methodology for calculating AUM includes (i) the net asset value ("NAV") of assets managed directly by Oaktree, (ii) the leverage on which management fees are charged, (iii) undrawn capital that Oaktree is entitled to call from investors in Oaktree funds pursuant to their capital commitments, (iv) for collateralized loan obligation vehicles ("CLOs"), the aggregate par value of collateral assets and principal cash, (v) for publicly-traded business development companies, gross assets (including assets acquired with leverage), net of cash, and (vi) Oaktree's pro rata portion (20%) of the AUM reported by DoubleLine Capital. This calculation of AUM is not based on the definitions of AUM that may be set forth in agreements governing the investment funds, vehicles or accounts managed and is not calculated pursuant to regulatory definitions.
Unless otherwise indicated, data provided herein are dated as of March 31, 2024.
Second Quarter 2024 | Investor Presentation NASDAQ: OCSL |
Highlights for the Quarter Ended March 31, 2024
Adjusted Net | • $0.56 per share, as compared with $0.57 per share for the quarter ended December 31, 2023 | |
Investment Income1 | • GAAP net investment income was $0.52 per share, as compared with $0.57 in the quarter ended December 31, 2023 | |
Net Asset Value Per | • $18.72 per share, as compared with $19.14 per share as of December 31, 2023 | |
Share | • | The decrease was primarily due to realized and unrealized losses on certain debt and equity investments |
Dividends | • | Declared a cash distribution of $0.55 per share for the fifth quarter in a row |
• | Distribution will be payable on June 28, 2024 to stockholders of record as of June 14, 2024 | |
• $396 million of new investment commitments | ||
Investment | • 11.1% weighted average yield on new debt investments | |
Activity | • $377 million of new investment fundings | |
• | Received $323 million of proceeds from prepayments, exits, other paydowns and sales | |
• | $3.0 billion at fair value across 151 portfolio companies | |
Investment | • | 12.2% weighted average yield on debt investments, unchanged from the prior quarter |
Portfolio | • | 86% senior secured, including 81% first lien loans |
• | 85% of debt portfolio was floating rate | |
Capital Structure | • | 1.02x net debt to equity ratio, which is unchanged from the prior quarter ended December 31, 2023 |
& Liquidity | • | $125 million of cash and $888 million of undrawn capacity on credit facilities |
Permanent Base
Management Fee
Reduction
- Permanently reduced base management fee to 1.00% of gross assets, net of all other existing base management fee waivers, from 1.50% of gross assets, effective July 1, 2024
- Waived additional base management fees such that the total amount of waived base management fees (including those previously waived) will be $1.5 million for each of the quarters ended March 31, 2024 and June 30, 2024
- The new base management fee is expected to increase net investment income per share by $0.15 annually, or $0.03 to $0.04 per share a quarter
- This equates to an estimated 0.8% increase in return on net investment income2, representing a 7% increase from current levels
- See page 20 for a description of this non-GAAP measure.
- Return on net investment income calculated as the net investment income per share increase from the base management fee change annualized divided by the net asset value per share of the most recent completed
quarter. | 2 |
Permanent Base Management Fee Reduction
Management Fee Reduction
- Permanently reducing the base management fee, effective as of July 1, 2024, to an annual rate of 1.00% of total gross assets, net of all other existing waivers of the base management fee
- Waived additional base management fees such that the total amount of waived base management fees (including those previously waived) will be $1.5 million for each of the quarters ended March 31, 2024 and June 30, 2024
- Strong Shareholder Alignment
- Demonstrates strong support from our investment adviser, Oaktree
- Larger share of OCSL's investment income will flow directly to shareholders
Permanent Increase in Earnings Power
- The new base management fee is expected to increase net investment income per share by $0.15 annually, or $0.03 to $0.04 per share a quarter
- This equates to an estimated 0.8% increase in return on net investment income1, representing a 7% increase from current levels
Lower Fees
- Lower base management fee vs. top-20 listed BDCs by market cap2
Base Management Fee
Incentive Fee on Income and Capital Gains
Incentive Fee Hurdle Rate
Current Fee
Structure
1.50%
17.50%
6.00%
New Fee
Structure
1.00%3
17.50%
6.00%
- Return on net investment income calculated as the net investment income per share increase from the base management fee change annualized divided by the net asset value per share of the most recent completed quarter.
- Top-20listed BDCs by market capitalization as of April 25, 2024: ARCC, BBDC, BCSF, BXSL, CGBD, FSK, GBDC, GSBD, MFIC, MSDL, NCDL, NMFC, OBDC, OBDE, OCSL, PFLT, PSEC, SLRC, TCPC and TSLX.
3. Net of existing base management fee waivers. | 3 |
Portfolio Summary
Portfolio Characteristics
(At fair value)
$3.0bn | 151 |
Total Investments | Portfolio Companies |
12.2% | $134mm |
Weighted Average Yield on | Median Debt Portfolio |
Debt Investments | Company EBITDA1 |
Portfolio Composition
(As % of total portfolio at fair value; $ in millions)
3% 5% 6%
5% | First Lien - $2,463 |
Second Lien - $166 | |
Unsecured Debt - $78 | |
Equity - $146 | |
Joint Ventures - $194 | |
81% |
Top Ten Sub-Industries2,3
(As % of total portfolio at fair value)
86% | 85% |
Senior Secured | Floating Rate |
Debt Investments |
Application Software
Biotechnology
Industrial Machinery & Sup. & Cmpnts.
Health Care Services
Health Care Technology
Data Processing & Outsourced Services
Real Estate Operating Companies
Pharmaceuticals
Diversified Support Services
Interactive Media & Services
17.5%
4.1%
4.1%
3.9%
3.4%
3.0%
2.7%
2.3%
2.2%
2.2%
As of March 31, 2024
Note: Numbers may not sum due to rounding.
- Excludes investments in negative EBITDA borrowers, royalty interest financings, structured products and recurring revenue software businesses.
- Based on GICS sub-industry classification.
- Excludes multi-sector holdings, which is primarily composed of investments in Senior Loan Fund JV I LLC (the "Kemper JV") and OCSI Glick JV (the "Glick JV"), joint ventures that invest primarily in senior
secured loans of middle market companies. | 4 |
Portfolio Diversity
Diversity by Investment Size
(As % of total portfolio at fair value)
Joint
Ventures
Portfolio By Industry1
(As % of total portfolio at fair value) | |
Industry | % of Portfolio |
Software | 19.0% |
6%
Top 10
Health Care Providers & Services | 5.9% |
Investments
20%
Next 15 | |
Remaining 124 | Investments |
Investments | 21% |
53% |
Commercial Services & Supplies | 5.6% |
Real Estate Management & Development | 5.0% |
Machinery | 5.0% |
Specialty Retail | 4.8% |
Biotechnology | 4.1% |
Financial Services | 3.7% |
Health Care Technology | 3.3% |
Professional Services | 3.2% |
Chemicals | 2.8% |
Metals & Mining | 2.4% |
Remaining 24 Industries | 28.8% |
Joint Ventures | 6.4% |
OCSL's portfolio is diverse across borrowers and industries
As of March 31, 2024 | |
Note: Numbers may not sum due to rounding. | 5 |
1. Based on GICS industry classification. |
Spotlight on OCSL's Software Exposure
Software Exposure | End Market Diversity |
(As % of total portfolio at fair value)
Software | Software: |
Rest of Portfolio | 19.0% |
Application Software | |||
IT Consulting & Other Services | |||
19.0% | 16.3% | Alternative Carriers | |
Interactive Media & Services | |||
4.8% | 12.2% | Diversified Real Estate Activities (New Code) | |
5.2% | Internet Services & Infrastructure | ||
6.0% | 9.4% | Specialized Consumer Services | |
6.1% | 7.3% | Human Resource & Employment Services | |
6.5% 7.2% | Broadcasting | ||
1
Other
Oaktree's Approach to Software Investing | Software Portfolio Characteristics |
- Target large, diversified businesses with entrenched customer bases
- Companies provide mission critical software solutions that lead to high customer retention rates
- Focus on constructing a balanced application software portfolio that is composed of businesses that serve different end markets
- Backed by large, well-established private equity firms who have strong reputations and deep sector expertise
3/31/2024 | |
Fair Value of Software Portfolio ($ in millions) | $579 |
Number of Portfolio Companies | 24 |
First Lien (% of software portfolio) | 90.3% |
Average Portfolio Company Revenues2 ($ millions) | $577 |
Average LTV3 | 39% |
As of March 31, 2024
- Includes Oil & Gas Exploration & Production, Aerospace & Defense, Diversified Financial Services, Education Services, Automotive Parts & Equipment, Property & Casualty Insurance, Interactive Media & Services and Health Care Technology.
- Revenues based on the most recent portfolio company financial statements for the trailing twelve-month reported period.
3. Average loan-to-value ("LTV") represents the net ratio of loan-to-value for each software portfolio company, weighted based on the fair value of total software investments. | 6 |
Investment Activity
New Investment Highlights | Historical Funded Originations and Exits | |
($ in millions) |
$396mm | $377mm |
New Investment | New Investment |
Commitments | Fundings1 |
11.1% | 100% |
Weighted Average Yield on | Also Held by Other |
New Debt Commitments | Oaktree Funds |
$222mm | $174mm |
New Investment Commitments | New Investment Commitments |
in New Portfolio Companies | in Existing Portfolio |
Companies |
$400 | $243 $261 | $364 | $368 | $377 | $323 | |||||||||||
$300 | $162 | $214 | ||||||||||||||
$200 | ||||||||||||||||
$117 | ||||||||||||||||
$100 | $104 | |||||||||||||||
$0 | ||||||||||||||||
3/31/23 | 6/30/23 | 9/30/23 | 12/31/23 | 3/31/24 | ||||||||||||
New Funded Investments1 | Investment Exits 2 | |||||||||||||||
New Investment Composition
(As % of new investment commitments; $ in millions)
1% | |
7% | First Lien - $364mm |
Subordinated Debt - $27mm |
Preferred & Common Equity - $5mm
92% | ||
As of March 31, 2024 | ||
Note: Numbers rounded to the nearest million or percentage point and may not sum as a result. Excludes the $572 million of investments at fair value acquired in the merger of Oaktree Strategic Income II, Inc. ("OSI2") | ||
with and into OCSL (the "OSI2 Merger"), which closed on January 23, 2023. | ||
1. | New funded investments includes drawdowns on existing delayed draw and revolver commitments. | 7 |
2. | Investment exits includes proceeds from prepayments, exits, other paydowns and sales. |
Investment Activity (continued)
New Investment Commitment Detail
($ in millions) | |||||||||||
Security Type | Market | ||||||||||
Investment | Number of | Second | Unsecured | Private | Primary | Secondary | Avg. Secondary | ||||
Fiscal Quarter | Commitments | Deals | First Lien | Lien | & Other | Placement | (Public) | (Public) | Purchase Price | ||
2Q2020 | $273 | 39 | $210 | $21 | $42 | $141 | $58 | $75 | 83% | ||
3Q2020 | $261 | 18 | $177 | $8 | $76 | $154 | $71 | $35 | 74% | ||
4Q2020 | $148 | 10 | $123 | $25 | $0.5 | $90 | $57 | $2 | 96% | ||
1Q2021 | $286 | 21 | $196 | $90 | -- | $181 | $84 | $22 | 93% | ||
2Q2021 | $318 | 20 | $253 | $44 | $21 | $245 | $63 | $10 | 93% | ||
3Q2021 | $178 | 10 | $141 | $25 | $12 | $104 | $70 | $5 | 97% | ||
4Q2021 | $385 | 20 | $350 | $13 | $23 | $304 | $79 | $2 | 100% | ||
1Q2022 | $300 | 21 | $220 | $77 | $2 | $227 | $73 | -- | N/A | ||
2Q2022 | $228 | 25 | $163 | $17 | $48 | $162 | $26 | $40 | 96% | ||
3Q2022 | $132 | 28 | $100 | $6 | $25 | $63 | $5 | $63 | 91% | ||
4Q2022 | $97 | 11 | $65 | -- | $32 | $71 | $22 | $4 | 92% | ||
1Q2023 | $250 | 25 | $214 | $10 | $26 | $188 | $49 | $14 | 82% | ||
2Q2023 | $124 | 9 | $124 | -- | -- | $118 | $5 | $1 | 81% | ||
3Q2023 | $251 | 10 | $227 | $24 | $0.2 | $224 | $20 | $7 | 85% | ||
4Q2023 | $87 | 6 | $87 | -- | -- | $76 | $12 | -- | N/A | ||
1Q2024 | $370 | 24 | $354 | -- | $16 | $302 | -- | $68 | 90% | ||
2Q2024 | $396 | 35 | $364 | -- | $32 | $205 | $99 | $92 | 98% | ||
Note: Numbers may not sum due to rounding. Excludes any positions originated, purchased and sold within the same quarter and the assets acquired in the OSI2 Merger. | 8 |
I n v e s t o r
P r e s e n t a
Financial Highlights
As of | ||||||
($ and number of shares in thousands, except per share amounts) | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | 3/31/2023 | |
GAAP Net Investment Income per Share | $0.52 | $0.57 | $0.62 | $0.63 | $0.63 | |
Adjusted Net Investment Income per Share1 | $0.56 | $0.57 | $0.62 | $0.62 | $0.62 | |
Net Realized and Unrealized Gains (Losses), Net of Taxes per Share | -$0.40 | -$0.43 | -$0.02 | -$0.15 | -$0.33 | |
Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes per Share1 | -$0.44 | -$0.42 | -$0.02 | -$0.14 | -$0.05 | |
Earnings (Loss) per Share | $0.12 | $0.14 | $0.60 | $0.48 | $0.29 | |
Adjusted Earnings (Loss) per Share1 | $0.12 | $0.15 | $0.60 | $0.47 | $0.57 | |
Quarterly Distributions per Share | $0.55 | $0.55 | $0.55 | $0.55 | $0.55 | |
Special Distributions per Share | -- | $0.07 | -- | -- | -- | |
NAV per Share | $18.72 | $19.14 | $19.63 | $19.58 | $19.66 | |
Weighted Average Shares Outstanding | 79,763 | 77,840 | 77,130 | 77,080 | 73,203 | |
Shares Outstanding, End of Period | 81,396 | 78,965 | 77,225 | 77,080 | 77,080 | |
Investment Portfolio (at Fair Value) | $3,047,445 | $3,018,552 | $2,892,420 | $3,135,619 | $3,164,860 | |
Cash and Cash Equivalents | $125,031 | $112,369 | $136,450 | $59,704 | $43,750 | |
Total Assets | $3,297,939 | $3,266,195 | $3,217,839 | $3,335,974 | $3,318,507 | |
Total Debt Outstanding2 | $1,635,642 | $1,622,717 | $1,600,731 | $1,740,066 | $1,723,840 | |
Net Assets | $1,524,099 | $1,511,651 | $1,515,764 | $1,509,441 | $1,515,150 | |
Total Debt to Equity Ratio | 1.10x | 1.10x | 1.10x | 1.18x | 1.16x | |
Net Debt to Equity Ratio | 1.02x | 1.02x | 1.01x | 1.14x | 1.14x | |
Weighted Average Interest Rate on Debt Outstanding3 | 7.0% | 7.0% | 7.0% | 6.6% | 6.2% | |
Note: The Company completed a 1-for-3 reverse stock split on January 20, 2023, effective as of the commencement of trading on January 23, 2023. All share amounts and per share information included in this | ||||||
presentation reflect the reverse stock split on a retroactive basis. | ||||||
1. See page 20 for a description of the non-GAAP measures as necessary. | ||||||
2. | Net of unamortized financing costs. | 9 | ||||
3. | Includes effect of the interest rate swap agreements the Company entered into in connection with the issuance of the 2027 Notes and the 2029 Notes. |
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Oaktree Specialty Lending Corporation published this content on 30 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 April 2024 10:14:03 UTC.