Oaktree Specialty Lending (OCSL) and Oaktree Strategic Income (OCSI) are merging, with OCSL as the surviving company. Oaktree Fund Advisors waived a total of $6 million of management fees for two years following closing in support of the merger.

Keefe, Bruyette & Woods, a Stifel Company, served as financial advisor and Stradley Ronon Stevens & Young served as the legal counsel to the special committee of OCSL. Houlihan Lokey Capital served as financial advisor and Dechert served as the legal counsel to the special committee of OCSI. Proskauer Rose served as the legal counsel to OCSL, OCSI and Oaktree.

The boards of directors of both OCSL and OCSI, on the recommendation of separate special committees consisting only of certain independent directors, unanimously approved the transaction.

Under the terms of the proposed merger, OCSI shareholders will receive an amount of OCSL shares with a net asset value equal to the NAV of OCSI shares that they hold at the time of closing. The exchange ratio will be determined at closing such that shares issued by OCSL to OCSI shareholders will result in an ownership split of the combined company based on the respective NAVs of each of OCSL and OCSI. For illustrative purposes, based on June 30, 2020 net asset values and excluding transaction costs and other tax-related distributions, OCSL would issue approximately 1.39 shares for each OCSI share outstanding, resulting in pro forma ownership of 77.5% for current OCSL stockholders and 22.5% for current OCSI stockholders.

“Since taking over management of OCSL and OCSI three years ago, we have made significant progress in reshaping the portfolios by reducing non-core and underperforming positions and investing in opportunities that align with Oaktree’s value-driven investment style. Our announcement today represents the next step in our plan to further drive stockholder value, and we look forward to leveraging the benefits provided by the larger company with greater scale, portfolio diversity and financial flexibility,” Armen Panossian, CEO and chief investment officer of OCSL and OCSI, said.

“We are thrilled to announce this merger. We believe this transaction will provide many immediate and long-term benefits to both companies and position us to continue to deliver strong risk-adjusted returns and investment performance to both groups of shareholders,” Matt Pendo, president and chief operating officer of OCSL and OCSI, said.

Prior to the anticipated closing in the second fiscal quarter of 2021, the OCSL and OCSI boards of directors intend to declare and pay the ordinary course quarterly distributions that would have otherwise been paid on or about March 31, 2021. Additionally, the OCSI board of directors intends to declare a special distribution that will represent any previously undistributed taxable income. This distribution will help ensure that OCSI maintains its RIC status and avoids paying excise tax.

The combined company will continue to be externally managed by Oaktree and all current OCSL officers and directors will remain in their current positions. The combined company will trade under the ticker symbol “OCSL” on the Nasdaq Global Select Market.

The transaction, which is intended to be treated as a tax-free reorganization, is subject to approval by OCSL and OCSI stockholders and other customary closing conditions. Assuming these conditions are satisfied, the transaction is expected to close in the second fiscal quarter of 2021.