Oaktree Specialty Lending Corporation Announces Third Fiscal Quarter 2024 Financial Results and Declares Quarterly Distribution of $0.55 Per Share

Rhea-AI Summary

Oaktree Specialty Lending (NASDAQ: OCSL) announced its financial results for the fiscal quarter ended June 30, 2024. Total investment income was $95.0 million ($1.16 per share), a slight increase from $94.0 million ($1.18 per share) in the prior quarter, driven by higher interest income and OID accretion, but offset by non-accrual investments and lower amendment fees.

Adjusted total investment income was $95.6 million ($1.17 per share), down from $97.3 million ($1.22 per share). GAAP net investment income rose to $44.6 million ($0.54 per share) from $41.4 million ($0.52 per share). However, NAV per share decreased to $18.19 from $18.72, due to unrealized losses.

New investment commitments were $338.7 million with proceeds of $185.5 million from prepayments and sales. The quarterly distribution of $0.55 per share is payable on September 30, 2024, to stockholders of record on September 16, 2024.

Positive

• Total investment income increased to $95.0 million.
• GAAP net investment income rose to $44.6 million.
• New investment commitments amounted to $338.7 million.
• Quarterly distribution of $0.55 per share declared.

Negative

• NAV per share decreased to $18.19 due to unrealized losses.
• Adjusted total investment income decreased to $95.6 million.
• Increase in non-accrual investments to 5.7% of debt portfolio at cost.

Insights

Financial Analyst

Oaktree Specialty Lending 's Q3 FY2024 results show mixed performance. While total investment income increased slightly to $95.0 million from $94.0 million in Q2, adjusted total investment income decreased to $95.6 million from $97.3 million. This decline was primarily due to certain investments being placed on non-accrual status and lower amendment fees.

The company's GAAP net investment income rose to $44.6 million ($0.54 per share) from $41.4 million ($0.52 per share) in Q2. However, the adjusted net investment income per share decreased slightly to $0.55 from $0.56, mainly due to an increase in weighted average shares outstanding.

Of concern is the decline in net asset value (NAV) per share to $18.19 from $18.72 in the previous quarter, reflecting unrealized losses on certain debt and equity investments. The increase in non-accrual investments to 3.7% of the debt portfolio at fair value, up from 2.4% in Q2, is also worrying and suggests potential credit quality issues.

On a positive note, the company maintained its quarterly distribution of $0.55 per share. The total debt to equity ratio of 1.16x and net debt to equity ratio of 1.10x indicate a manageable leverage position.

Overall, while the company shows some resilience in its core earnings, the deteriorating credit quality and NAV decline warrant close monitoring by investors.

Investment Strategist

Oaktree Specialty Lending's Q3 results reveal both opportunities and challenges in the current market environment. The company's ability to originate $338.7 million of new investment commitments with a weighted average yield of 11.1% on new debt investments demonstrates its capacity to find attractive opportunities in the middle market lending space.

However, the shift towards first lien loans, now comprising 82.5% of the portfolio compared to 80.8% in the previous quarter, suggests a more defensive positioning. This strategy, while potentially reducing risk, may also limit upside potential in terms of yield.

The increase in non-accrual investments is concerning, rising from 5 to 8 investments and now representing 3.7% of the debt portfolio at fair value. This trend, coupled with the NAV decline, indicates heightened credit stress in certain portfolio companies and may be a harbinger of broader economic challenges.

The company's liquidity position remains strong, with $96.3 million in unrestricted cash and $827.5 million of undrawn capacity on credit facilities. This provides flexibility to capitalize on new opportunities or manage potential portfolio stress.

The maintained dividend of $0.55 per share, representing a yield of approximately 12% based on current share prices, remains attractive in the current interest rate environment. However, investors should closely monitor the sustainability of this payout given the increasing credit stress in the portfolio.

In summary, while Oaktree Specialty Lending continues to offer an attractive yield, the increasing credit risk and NAV erosion suggest a cautious approach may be warranted.

LOS ANGELES, CA, Aug. 01, 2024 (GLOBE NEWSWIRE) -- Oaktree Specialty Lending Corporation (NASDAQ: OCSL) (“Oaktree Specialty Lending” or the “Company”), a specialty finance company, today announced its financial results for the fiscal quarter ended June 30, 2024.

Financial Highlights for the Quarter Ended June 30, 2024  

• Total investment income was $95.0 million ($1.16 per share) for the third fiscal quarter of 2024, as compared with $94.0 million ($1.18 per share) for the second fiscal quarter of 2024. The increase was primarily driven by higher interest income as a result of the growth in the investment portfolio and higher original issue discount (“OID”) accretion driven by purchase premium acceleration in the prior quarter from the repayment of certain investments acquired in the mergers with Oaktree Strategic Income Corporation (“OCSI”) and Oaktree Strategic Income II, Inc. (“OSI2”). This was partially offset by the impact of certain investments that were placed on non-accrual status and a decrease in amendment fees. Adjusted total investment income was $95.6 million ($1.17 per share) for the third fiscal quarter, as compared with $97.3 million ($1.22 per share) for the second fiscal quarter of 2024. The decrease was primarily driven by lower interest income due to the impact of certain investments that were placed on non-accrual status and lower OID acceleration from investment repayments as well as a decrease in amendment fees. This was partially offset by higher coupon interest income as a result of the growth in the investment portfolio.
  
  
• GAAP net investment income was $44.6 million ($0.54 per share) for the third fiscal quarter of 2024, as compared with $41.4 million ($0.52 per share) for the second fiscal quarter of 2024. The increase for the quarter was primarily driven by lower part I incentive fees (net of fees waived) and higher total investment income, partially offset by higher interest expense.
  
  
• Adjusted net investment income was $45.2 million ($0.55 per share) for the third fiscal quarter of 2024, as compared with $44.7 million ($0.56 per share) for the second fiscal quarter of 2024. The increase for the quarter was primarily driven by lower part I incentive fees (net of fees waived), partially offset by lower adjusted total investment income and higher interest expense. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding.
  
  
• Net asset value ("NAV") per share was $18.19 as of June 30, 2024, down as compared with $18.72 as of March 31, 2024. The decline from March 31, 2024 primarily reflected unrealized losses on certain debt and equity investments.
  
  
• Waived part I incentive fees of $3.2 million in addition to the $1.5 million of management fees waived for the quarter ended June 30, 2024.
  
  
• Originated $338.7 million of new investment commitments and received $185.5 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended June 30, 2024. The weighted average yield on new debt investments was 11.1%.
  
  
• Total debt outstanding was $1,740.0 million as of June 30, 2024. The total debt to equity ratio was 1.16x, and the net debt to equity ratio was 1.10x, after adjusting for cash and cash equivalents.
  
  
• Liquidity as of June 30, 2024 was composed of $96.3 million of unrestricted cash and cash equivalents and $827.5 million of undrawn capacity under the Company's credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $291.4 million, or $264.3 million excluding unfunded commitments to the Company's joint ventures. Of the $264.3 million, approximately $219.4 million can be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies or other restrictions.
  
  
• A quarterly cash distribution was declared of $0.55 per share. The distribution is payable in cash on September 30, 2024 to stockholders of record on September 16, 2024.

Armen Panossian, Chief Executive Officer and Chief Investment Officer, said “Our fiscal third quarter results were supported by continued origination activity, which led to portfolio growth and increased coupon interest income. Our originations in the third quarter were $339 million of new investment commitments, while also realizing repayments and sales of $186 million.”

“We remain focused on shifting our investment composition to first lien loans and on improving our portfolio quality and performance in this changing market environment. During the quarter, however, we experienced challenges at certain portfolio investments, resulting in a decline in NAV and an increase in non-accruals,” Panossian added. “We continue to leverage our expertise in navigating turnarounds with the goal of achieving favorable outcomes on these investments and generating value for our shareholders.”

“In addition to the permanent management fee reduction that went into effect on July 1, 2024, we have announced an incentive fee waiver as part of our third quarter results, which demonstrates our commitment to shareholders. We remain confident in our strategy and the ability of our portfolio to deliver sustainable and attractive returns.”

Distribution Declaration

The Board of Directors declared a quarterly distribution of $0.55 per share. The distribution is payable in cash on September 30, 2024 to stockholders of record on September 16, 2024.

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, 2024 (unaudited)				March 31, 2024 (unaudited)				June 30, 2023 (unaudited)
GAAP operating results:
Interest income		$	85,953			$	85,256			$	95,310
PIK interest income			6,149				4,816				3,967
Fee income			1,460				2,546				1,573
Dividend income			1,404				1,411				1,050
Total investment income			94,966				94,029				101,900
Net expenses			50,391				52,662				53,487
Net investment income			44,575				41,367				48,413
Net realized and unrealized gains (losses), net of taxes			(43,455	)			(32,030	)			(11,728	)
Net increase (decrease) in net assets resulting from operations		$	1,120			$	9,337			$	36,685
Total investment income per common share		$	1.16			$	1.18			$	1.32
Net investment income per common share		$	0.54			$	0.52			$	0.63
Net realized and unrealized gains (losses), net of taxes per common share		$	(0.53	)		$	(0.40	)		$	(0.15	)
Earnings (loss) per common share — basic and diluted		$	0.01			$	0.12			$	0.48
Non-GAAP Financial Measures1:
Adjusted total investment income		$	95,573			$	97,340			$	101,058
Adjusted net investment income		$	45,182			$	44,678			$	47,571
Adjusted net realized and unrealized gains (losses), net of taxes		$	(44,055	)		$	(35,344	)		$	(11,116	)
Adjusted earnings (loss)		$	1,127			$	9,334			$	36,455
Adjusted total investment income per share		$	1.17			$	1.22			$	1.31
Adjusted net investment income per share		$	0.55			$	0.56			$	0.62
Adjusted net realized and unrealized gains (losses), net of taxes per share		$	(0.54	)		$	(0.44	)		$	(0.14	)
Adjusted earnings (loss) per share		$	0.01			$	0.12			$	0.47

______________________
_{¹ See Non-GAAP Financial Measures below for a description of the non-GAAP measures and the reconciliations from the most comparable GAAP financial measures to the Company's non-GAAP measures, including on a per share basis. The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company’s performance without giving effect to non-cash income/gain/loss resulting from the merger of OCSI with and into the Company in March 2021 (the "OCSI Merger") and the merger of OSI2 with and into the Company in January 2023 (the "OSI2 Merger") and, in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.}

		As of
($ in thousands, except per share data and ratios)		June 30, 2024 (unaudited)				March 31, 2024 (unaudited)				June 30, 2023 (unaudited)
Select balance sheet and other data:
Cash and cash equivalents		$	96,321			$	125,031			$	59,704
Investment portfolio at fair value			3,121,703				3,047,445				3,135,619
Total debt outstanding (net of unamortized financing costs)			1,697,164				1,635,642				1,740,066
Net assets			1,496,133				1,524,099				1,509,441
Net asset value per share			18.19				18.72				19.58
Total debt to equity ratio			1.16	x			1.10	x			1.18	x
Net debt to equity ratio			1.10	x			1.02	x			1.14	x

Adjusted total investment income for the quarter ended June 30, 2024 was $95.6 million and included $86.6 million of interest income from portfolio investments, $6.1 million of payment-in-kind ("PIK") interest income, $1.5 million of fee income and $1.4 million of dividend income. The $1.8 million decline in adjusted total investment income was attributable to a $0.7 million decrease in interest income, which was attributable to certain investments that were placed on non-accrual status and lower OID acceleration from investment repayments and was partially offset by higher coupon interest income as a result of the growth in the investment portfolio. Also contributing to the decline was a $1.1 million decrease in fee income which was primarily due to lower amendment fees.

Net expenses for the quarter ended June 30, 2024 totaled $50.4 million, down $2.3 million from the quarter ended March 31, 2024. The decrease for the quarter was primarily driven by $3.3 million lower part I incentive fees (net of fees waived) as a result of the Part I incentive fees waived by Oaktree during the quarter, partially offset by $0.6 million of higher interest expense from an increase in borrowings and $0.2 million of higher general and administrative expenses.

Adjusted net investment income was $45.2 million ($0.55 per share) for the quarter ended June 30, 2024, as compared to $44.7 million ($0.56 per share) for the quarter ended March 31, 2024. The increase of $0.5 million for the quarter reflected $2.3 million of lower net expenses, partially offset by $1.8 million of lower adjusted total investment income. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding.

Adjusted net realized and unrealized losses, net of taxes, was $44.1 million for the quarter ended June 30, 2024, primarily reflecting realized and unrealized losses on certain debt and equity investments.

Portfolio and Investment Activity

		As of
($ in thousands)		June 30, 2024 (unaudited)				March 31, 2024 (unaudited)				June 30, 2023 (unaudited)
Investments at fair value		$	3,121,703			$	3,047,445			$	3,135,619
Number of portfolio companies			158				151				156
Average portfolio company debt size		$	19,900			$	20,100			$	19,800
Asset class:
First lien debt			82.5	%			80.8	%			76.5	%
Second lien debt			3.5	%			5.4	%			12.0	%
Unsecured debt			3.8	%			2.6	%			1.7	%
Equity			4.2	%			4.8	%			3.8	%
JV interests			6.0	%			6.4	%			6.0	%
Non-accrual debt investments:
Non-accrual investments at fair value		$	110,599			$	69,128			$	91,152
Non-accrual investments at cost			172,827				127,720				111,732
Non-accrual investments as a percentage of debt investments at fair value			3.7	%			2.4	%			3.1	%
Non-accrual investments as a percentage of debt investments at cost			5.7	%			4.3	%			3.6	%
Number of investments on non-accrual			8				5				5
Interest rate type:
Percentage floating-rate			85.3	%			85.4	%			86.0	%
Percentage fixed-rate			14.7	%			14.6	%			14.0	%
Yields:
Weighted average yield on debt investments1			11.9	%			12.2	%			12.3	%
Cash component of weighted average yield on debt investments			10.6	%			11.0	%			11.4	%
Weighted average yield on total portfolio investments2			11.5	%			11.7	%			11.8	%
Investment activity:
New investment commitments		$	338,700			$	395,600			$	251,000
New funded investment activity3		$	293,200			$	377,400			$	243,300
Proceeds from prepayments, exits, other paydowns and sales		$	185,500			$	322,600			$	261,000
Net new investments4		$	107,700			$	54,800			$	(17,700	)
Number of new investment commitments in new portfolio companies			11				20				6
Number of new investment commitments in existing portfolio companies			9				15				4
Number of portfolio company exits			3				15				16

______________________
_{¹ Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments, including the Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see Non-GAAP Financial Measures below) for the assets acquired in connection with the OCSI Merger and OSI2 Merger.
² Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments and dividend income, including the Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 for the assets acquired in connection with the OCSI Merger and OSI2 Merger.
³ New funded investment activity includes drawdowns on existing revolver and delayed draw term loan commitments.
⁴ Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.}

As of June 30, 2024, the fair value of the investment portfolio was $3.1 billion and was composed of investments in 158 companies. These included debt investments in 141 companies, equity investments in 42 companies, and the Company's joint venture investments in SLF JV I and OCSI Glick JV LLC ("Glick JV"). 27 of the equity investments were in companies in which the Company also had a debt investment.

As of June 30, 2024, 94.9% of the Company's portfolio at fair value consisted of debt investments, including 82.5% of first lien loans, 3.5% of second lien loans and 9.0% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV. This compared to 80.8% of first lien loans, 5.4% of second lien loans and 7.9% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV, as of March 31, 2024.

As of June 30, 2024, there were eight investments on non-accrual status, which represented 5.7% and 3.7% of the debt portfolio at cost and fair value, respectively. This is up from five investments on non-accrual status in the prior quarter, which represented 4.3% and 2.4% of the debt portfolio at cost and fair value, respectively.

SLF JV I

The Company's investments in SLF JV I totaled $138.5 million at fair value as of June 30, 2024, down 2.7% from $142.3 million as of March 31, 2024. The decrease was primarily driven by SLF JV I’s use of leverage and unrealized depreciation in the underlying investment portfolio.

As of June 30, 2024, SLF JV I had $390.8 million in assets, including senior secured loans to 49 portfolio companies. This compared to $398.7 million in assets, including senior secured loans to 54 portfolio companies, as of March 31, 2024. SLF JV I generated cash interest income of $3.5 million for the Company during the quarter ended June 30, 2024, consistent with the prior quarter. In addition, SLF JV I generated dividend income of $1.4 million for the Company during the quarter ended June 30, 2024, consistent with the prior quarter. As of June 30, 2024, SLF JV I had $72.0 million of undrawn capacity (subject to borrowing base and other limitations) on its $270 million senior revolving credit facility, and its debt to equity ratio was 1.3x.

Glick JV

The Company's investments in Glick JV totaled $49.9 million at fair value as of June 30, 2024, down 2.8% from $51.3 million as of March 31, 2024. The decrease was primarily driven by SLF JV I’s use of leverage and unrealized depreciation in the underlying investment portfolio.

As of June 30, 2024, Glick JV had $150.2 million in assets, including senior secured loans to 45 portfolio companies. This compared to $154.7 million in assets, including senior secured loans to 49 portfolio companies, as of March 31, 2024. Glick JV generated cash interest income of $1.5 million during the quarter ended June 30, 2024, consistent with the prior quarter. As of June 30, 2024, Glick JV had $22.0 million of undrawn capacity (subject to borrowing base and other limitations) on its $100 million senior revolving credit facility, and its debt to equity ratio was 1.5x.

Liquidity and Capital Resources

As of June 30, 2024, the Company had total principal value of debt outstanding of $1,740.0 million, including $790.0 million of outstanding borrowings under its revolving credit facilities, $300.0 million of the 3.500% Notes due 2025, $350.0 million of the 2.700% Notes due 2027 and $300.0 million of the 7.100% Notes due 2029. The funding mix was composed of 45% secured and 55% unsecured borrowings as of June 30, 2024. The Company was in compliance with all financial covenants under its credit facilities as of June 30, 2024.

As of June 30, 2024, the Company had $96.3 million of unrestricted cash and cash equivalents and $827.5 million of undrawn capacity on its credit facilities (subject to borrowing base and other limitations). As of June 30, 2024, unfunded investment commitments were $291.4 million, or $264.3 million excluding unfunded commitments to the Company's joint ventures. Of the $264.3 million, approximately $219.4 million could be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies or other restrictions. The Company has analyzed cash and cash equivalents, availability under its credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believes its liquidity and capital resources are sufficient to invest in market opportunities as they arise.

As of June 30, 2024, the weighted average interest rate on debt outstanding, including the effect of the interest rate swap agreements, was 7.0%, unchanged from March 31, 2024.

The Company’s total debt to equity ratio was 1.16x and 1.10x as of each of June 30, 2024 and March 31, 2024, respectively. The Company's net debt to equity ratio was 1.10x and 1.02x as of each of June 30, 2024 and March 31, 2024, respectively.

Non-GAAP Financial Measures

On a supplemental basis, the Company is disclosing certain adjusted financial measures, each of which is calculated and presented on a basis of methodology other than in accordance with GAAP (“non-GAAP”). The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company’s performance without giving effect to non-cash income/gain/loss resulting from the OCSI Merger and the OSI2 Merger and in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of the below non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.

• "Adjusted Total Investment Income" and "Adjusted Total Investment Income Per Share" – represents total investment income excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the OCSI Merger and the OSI2 Merger.
  
  
• “Adjusted Net Investment Income” and “Adjusted Net Investment Income Per Share” – represents net investment income, excluding (i) any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the OCSI Merger and the OSI2 Merger and (ii) capital gains incentive fees ("Part II incentive fees").
  
  
• “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes” and “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes Per Share” – represents net realized and unrealized gains (losses) net of taxes excluding any net realized and unrealized gains (losses) resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the OCSI Merger and the OSI2 Merger.
  
  
• “Adjusted Earnings (Loss)” and “Adjusted Earnings (Loss) Per Share” – represents the sum of (i) Adjusted Net Investment Income and (ii) Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes and includes the impact of Part II incentive fees¹, if any.
  

The OCSI Merger and the OSI2 Merger (the "Mergers") were accounted for as asset acquisitions in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations—Related Issues ("ASC 805"). The consideration paid to each of the stockholders of OCSI and OSI2 were allocated to the individual assets acquired and liabilities assumed based on the relative fair values of the net identifiable assets acquired other than "non-qualifying" assets, which established a new cost basis for the acquired investments under ASC 805 that, in aggregate, was different than the historical cost basis of the acquired investments prior to the OCSI Merger or the OSI2 Merger, as applicable. Additionally, immediately following the completion of the Mergers, the acquired investments were marked to their respective fair values under ASC 820, Fair Value Measurements, which resulted in unrealized appreciation/depreciation. The new cost basis established by ASC 805 on debt investments acquired will accrete/amortize over the life of each respective debt investment through interest income, with a corresponding adjustment recorded to unrealized appreciation/depreciation on such investment acquired through its ultimate disposition. The new cost basis established by ASC 805 on equity investments acquired will not accrete/amortize over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, the Company will recognize a realized gain/loss with a corresponding reversal of the unrealized appreciation/depreciation on disposition of such equity investments acquired.

The Company’s management uses the non-GAAP financial measures described above internally to analyze and evaluate financial results and performance and to compare its financial results with those of other business development companies that have not adjusted the cost basis of certain investments pursuant to ASC 805. The Company’s management believes "Adjusted Total Investment Income", "Adjusted Total Investment Income Per Share", "Adjusted Net Investment Income" and "Adjusted Net Investment Income Per Share" are useful to investors as an additional tool to evaluate ongoing results and trends for the Company without giving effect to the income resulting from the new cost basis of the investments acquired in the Mergers because these amounts do not impact the fees payable to Oaktree Fund Advisors, LLC (the "Adviser") under its second amended and restated advisory agreement (the "A&R Advisory Agreement"), and specifically as its relates to "Adjusted Net Investment Income" and "Adjusted Net Investment Income Per Share", without giving effect to Part II incentive fees. In addition, the Company’s management believes that “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes”, “Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes Per Share”, “Adjusted Earnings (Loss)” and “Adjusted Earnings (Loss) Per Share” are useful to investors as they exclude the non-cash income and gain/loss resulting from the Mergers and are used by management to evaluate the economic earnings of its investment portfolio. Moreover, these metrics more closely align the Company's key financial measures with the calculation of incentive fees payable to the Adviser under with the A&R Advisory Agreement (i.e., excluding amounts resulting solely from the lower cost basis of the acquired investments established by ASC 805 that would have been to the benefit of the Adviser absent such exclusion).

________________________
_{¹ Adjusted earnings (loss) includes accrued Part II incentive fees. As of and for the three months ended June 30, 2024, there was no accrued Part II incentive fee liability. Part II incentive fees are contractually calculated and paid at the end of the fiscal year in accordance with the A&R Advisory Agreement, which differs from Part II incentive fees accrued under GAAP. For the three months ended June 30, 2024, no amounts were payable under the A&R Advisory Agreement.}

The following table provides a reconciliation of total investment income (the most comparable U.S. GAAP measure) to adjusted total investment income for the periods presented:

		For the three months ended
		June 30, 2024 (unaudited)								March 31, 2024 (unaudited)								June 30, 2023 (unaudited)
($ in thousands, except per share data)		Amount				Per Share				Amount				Per Share				Amount				Per Share
GAAP total investment income		$	94,966			$	1.16			$	94,029			$	1.18			$	101,900			$	1.32
Interest income amortization (accretion) related to merger accounting adjustments			607				0.01				3,311				0.04				(842	)			(0.01	)
Adjusted total investment income		$	95,573			$	1.17			$	97,340			$	1.22			$	101,058			$	1.31

The following table provides a reconciliation of net investment income (the most comparable U.S. GAAP measure) to adjusted net investment income for the periods presented:

		For the three months ended
		June 30, 2024 (unaudited)								March 31, 2024 (unaudited)								June 30, 2023 (unaudited)
($ in thousands, except per share data)		Amount				Per Share				Amount				Per Share				Amount				Per Share
GAAP net investment income		$	44,575			$	0.54			$	41,367			$	0.52			$	48,413			$	0.63
Interest income amortization (accretion) related to merger accounting adjustments			607				0.01				3,311				0.04				(842	)			(0.01	)
Part II incentive fee			—				—				—				—				—				—
Adjusted net investment income		$	45,182			$	0.55			$	44,678			$	0.56			$	47,571			$	0.62

The following table provides a reconciliation of net realized and unrealized gains (losses), net of taxes (the most comparable U.S. GAAP measure) to adjusted net realized and unrealized gains (losses), net of taxes for the periods presented:

		For the three months ended
		June 30, 2024 (unaudited)								March 31, 2024 (unaudited)								June 30, 2023 (unaudited)
($ in thousands, except per share data)		Amount				Per Share				Amount				Per Share				Amount				Per Share
GAAP net realized and unrealized gains (losses), net of taxes		$	(43,455	)		$	(0.53	)		$	(32,030	)		$	(0.40	)		$	(11,728	)		$	(0.15	)
Net realized and unrealized gains (losses) related to merger accounting adjustments			(600	)			(0.01	)			(3,314	)			(0.04	)			612				0.01
Adjusted net realized and unrealized gains (losses), net of taxes		$	(44,055	)		$	(0.54	)		$	(35,344	)		$	(0.44	)		$	(11,116	)		$	(0.14	)

The following table provides a reconciliation of net increase (decrease) in net assets resulting from operations (the most comparable U.S. GAAP measure) to adjusted earnings (loss) for the periods presented:

		For the three months ended
		June 30, 2024 (unaudited)								March 31, 2024 (unaudited)								June 30, 2023 (unaudited)
($ in thousands, except per share data)		Amount				Per Share				Amount				Per Share				Amount				Per Share
Net increase (decrease) in net assets resulting from operations		$	1,120			$	0.01			$	9,337			$	0.12			$	36,685			$	0.48
Interest income amortization (accretion) related to merger accounting adjustments			607				0.01				3,311				0.04				(842	)			(0.01	)
Net realized and unrealized gains (losses) related to merger accounting adjustments			(600	)			(0.01	)			(3,314	)			(0.04	)			612				0.01
Adjusted earnings (loss)		$	1,127			$	0.01			$	9,334			$	0.12			$	36,455			$	0.47

Conference Call Information

Oaktree Specialty Lending will host a conference call to discuss its third fiscal quarter 2024 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on August 1, 2024. The conference call may be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412) 317-5238 (non-U.S. callers). All callers will need to reference “Oaktree Specialty Lending” once connected with the operator. Alternatively, a live webcast of the conference call can be accessed through the Investors section of Oaktree Specialty Lending’s website, www.oaktreespecialtylending.com. During the conference call, the Company intends to refer to an investor presentation that will be available on the Investors section of its 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 8388100, 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 Company's investment objective is 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, and is externally managed by Oaktree Fund Advisors, LLC, an affiliate of 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, future performance or financial condition. The forward-looking statements may include statements as to: future operating results of the Company and distribution projections; business prospects of the Company and the prospects of its portfolio companies; and the impact of the investments that the Company expects 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. Certain factors could cause actual results and conditions to differ materially from those projected, including the uncertainties associated with (i) changes in the economy, financial markets and political environment, including the impacts of inflation and elevated interest rates; (ii) risks associated with possible disruption in the operations of the Company 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; (iii) future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities); (iv) conditions in the Company’s operating areas, particularly with respect to business development companies or regulated investment companies; and (v) other considerations that may be disclosed from time to time in the Company’s publicly disseminated documents and filings. The Company has based the forward-looking statements included in this press release on information available to it on the date of this press release, and the Company assumes no obligation to update any such forward-looking statements. The Company undertakes 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 it may make directly to you or through reports that the Company in the future may file with the Securities and Exchange Commission, 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
Dane Kleven
(213) 356-3260
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)
	June 30, 2024 (unaudited)				March 31, 2024 (unaudited)				September 30, 2023
ASSETS
Investments at fair value:
Control investments (cost June 30, 2024: $369,660; cost March 31, 2024: $366,987; cost September 30, 2023: $345,245)	$	299,072			$	313,979			$	297,091
Affiliate investments (cost June 30, 2024: $38,101; cost March 31, 2024: $38,016; cost September 30, 2023: $24,898)		35,396				35,635				23,349
Non-control/Non-affiliate investments (cost June 30, 2024: $2,885,171; cost March 31, 2024: $2,838,769; cost September 30, 2023: $2,673,976)		2,787,235				2,697,831				2,571,980
Total investments at fair value (cost June 30, 2024: $3,292,932; March 31, 2024: $3,243,772; cost September 30, 2023: $3,044,119)		3,121,703				3,047,445				2,892,420
Cash and cash equivalents		96,321				125,031				136,450
Restricted cash		10,993				12,461				9,089
Interest, dividends and fees receivable		27,609				36,504				44,570
Due from portfolio companies		954				1,797				6,317
Receivables from unsettled transactions		18,760				20,372				55,441
Due from broker		30,310				40,630				54,260
Deferred financing costs		12,418				11,113				12,541
Deferred offering costs		78				90				160
Derivative assets at fair value		436				—				4,910
Other assets		2,599				2,496				1,681
Total assets	$	3,322,181			$	3,297,939			$	3,217,839
LIABILITIES AND NET ASSETS
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	4,070			$	3,775			$	2,950
Base management fee and incentive fee payable		15,415				18,556				19,547
Due to affiliate		4,803				3,773				4,310
Interest payable		19,329				16,069				16,007
Payables from unsettled transactions		51,595				61,020				11,006
Derivative liabilities at fair value		33,672				35,005				47,519
Deferred tax liability		—				—				5
Credit facilities payable		790,000				730,000				710,000
Unsecured notes payable (net of $5,468, $6,001 and $7,076 of unamortized financing costs as of June 30, 2024, March 31, 2024 and September 30, 2023, respectively)		907,164				905,642				890,731
Total liabilities		1,826,048				1,773,840				1,702,075
Commitments and contingencies
Net assets:
Common stock, $0.01 par value per share, 250,000 shares authorized; 82,245, 81,396 and 77,225 shares issued and outstanding as of June 30, 2024, March 31, 2024 and September 30, 2023, respectively		822				814				772
Additional paid-in-capital		2,264,449				2,248,363				2,166,330
Accumulated overdistributed earnings		(769,138	)			(725,078	)			(651,338	)
Total net assets (equivalent to $18.19, $18.72 and $19.63 per common share as of June 30, 2024, March 31, 2024 and September 30, 2023, respectively)		1,496,133				1,524,099				1,515,764
Total liabilities and net assets	$	3,322,181			$	3,297,939			$	3,217,839

Oaktree Specialty Lending Corporation Consolidated Statements of Operations (in thousands, except per share amounts)
	Three months ended June 30, 2024 (unaudited)				Three months ended March 31, 2024 (unaudited)				Three months ended June 30, 2023 (unaudited)				Nine months ended June 30, 2024 (unaudited)				Nine months ended June 30, 2023 (unaudited)
Interest income:
Control investments	$	5,924			$	5,949			$	5,568			$	17,878			$	15,326
Affiliate investments		192				10				681				526				1,970
Non-control/Non-affiliate investments		78,681				77,803				88,069				239,205				234,516
Interest on cash and cash equivalents		1,156				1,494				992				5,014				2,221
Total interest income		85,953				85,256				95,310				262,623				254,033
PIK interest income:
Control investments		677				598				—				1,819				—
Affiliate investments		11				—				—				11				—
Non-control/Non-affiliate investments		5,461				4,218				3,967				12,984				14,220
Total PIK interest income		6,149				4,816				3,967				14,814				14,220
Fee income:
Control investments		13				13				13				39				38
Affiliate investments		—				—				5				5				15
Non-control/Non-affiliate investments		1,447				2,533				1,555				5,269				5,921
Total fee income		1,460				2,546				1,573				5,313				5,974
Dividend income:
Control investments		1,400				1,400				1,050				4,200				3,150
Non-control/Non-affiliate investments		4				11				—				30				4
Total dividend income		1,404				1,411				1,050				4,230				3,154
Total investment income		94,966				94,029				101,900				286,980				277,381
Expenses:
Base management fee		11,781				11,604				11,983				34,862				33,383
Part I incentive fee		8,341				8,452				9,590				25,821				26,300
Professional fees		1,091				1,213				1,387				3,808				4,962
Directors fees		160				160				160				480				480
Interest expense		32,513				31,881				30,793				96,564				79,316
Administrator expense		391				326				322				1,083				935
General and administrative expenses		824				526				752				1,941				2,753
Total expenses		55,101				54,162				54,987				164,559				148,129
Management fees waived		(1,500	)			(1,500	)			(1,500	)			(4,500	)			(4,025	)
Part I incentive fees waived		(3,210	)			—				—				(3,210	)			—
Net expenses		50,391				52,662				53,487				156,849				144,104
Net investment income before taxes		44,575				41,367				48,413				130,131				133,277
Excise tax		—				—				—				—				(78	)
Net investment income		44,575				41,367				48,413				130,131				133,199
Unrealized appreciation (depreciation):
Control investments		(17,580	)			(6,193	)			734				(22,434	)			(900	)
Affiliate investments		(324	)			93				149				(1,156	)			(302	)
Non-control/Non-affiliate investments		42,997				(21,396	)			(6,497	)			3,986				(36,296	)
Foreign currency forward contracts		1,106				2,244				4,575				(4,474	)			(4,802	)
Net unrealized appreciation (depreciation)		26,199				(25,252	)			(1,039	)			(24,078	)			(42,300	)
Realized gains (losses):
Control investments		—				—				—				786				—
Non-control/Non-affiliate investments		(69,163	)			(5,433	)			(4,294	)			(87,936	)			(14,404	)
Foreign currency forward contracts		(289	)			(1,170	)			(6,309	)			2,642				(5,513	)
Net realized gains (losses)		(69,452	)			(6,603	)			(10,603	)			(84,508	)			(19,917	)
(Provision) benefit for taxes on realized and unrealized gains (losses)		(202	)			(175	)			(86	)			(553	)			397
Net realized and unrealized gains (losses), net of taxes		(43,455	)			(32,030	)			(11,728	)			(109,139	)			(61,820	)
Net increase (decrease) in net assets resulting from operations	$	1,120			$	9,337			$	36,685			$	20,992			$	71,379
Net investment income per common share — basic and diluted	$	0.54			$	0.52			$	0.63			$	1.63			$	1.89
Earnings (loss) per common share — basic and diluted	$	0.01			$	0.12			$	0.48			$	0.26			$	1.01
Weighted average common shares outstanding — basic and diluted		81,830				79,763				77,080				79,804				70,431

FAQ

What were OCSL's earnings for the third fiscal quarter of 2024?

For the third fiscal quarter of 2024, OCSL reported a total investment income of $95.0 million and a GAAP net investment income of $44.6 million.

What was OCSL's NAV per share as of June 30, 2024?

The NAV per share for OCSL was $18.19 as of June 30, 2024.

What is the dividend declared by OCSL for the third fiscal quarter of 2024?

OCSL declared a quarterly distribution of $0.55 per share, payable on September 30, 2024, to stockholders of record on September 16, 2024.

How did OCSL's non-accrual investments change in the third fiscal quarter of 2024?

OCSL's non-accrual investments increased to 5.7% of the debt portfolio at cost, up from 4.3% in the previous quarter.

What was the total debt outstanding for OCSL as of June 30, 2024?

As of June 30, 2024, OCSL had total debt outstanding of $1,740.0 million.