Oaktree Specialty Lending, a specialty finance company, reported financial results for the fiscal quarter ended June 30, 2020, including:
- Total investment income of $34.4 million ($0.24 per share), which was up from $34.2 million ($0.24 per share) for fiscal Q2/20 and primarily driven by a larger average investment portfolio and higher yields on new originations, partially offset by lower LIBOR and lower original issuance discount (OID) income._x000D_
GAAP net investment income of $16.8 million ($0.12 per share), down from $22.8 million ($0.16 per share) for fiscal Q2/20, primarily due to a reversal of previously accrued Part II incentive fees
- Adjusted net investment income of $16.8 million ($0.12 per share), which was up from $16.2 million ($0.12 per share) for fiscal Q2/20, primarily driven by interest expense savings from the recent unsecured bond issuance and lower LIBOR, as well as higher investment income and lower professional fees and general and administrative expenses. This was partially offset by higher base management fees resulting from a larger investment portfolio_x000D_
- Net asset value (NAV) per share of $6.09 as of June 30, 2020 was up 14% from $5.34 as of March 31, 2020. The increase in NAV was primarily attributable to unrealized gains resulting from price increases on liquid debt investments and the impact of tighter credit spreads on private debt investment valuations following the improvement in broader credit market conditions. Also contributing to the NAV increase were unrealized gains on recent investments made in the June quarter_x000D_
- The origination of $260.5 million of new investment commitments and receipt of $127.8 million of proceeds from prepayments, exits, other paydowns and sales. Of these new investment commitments, 67.8% were first lien loans, 3.2% were second lien loans and 29% were subordinated debt investments. The weighted average yield on new investments was 10.5%_x000D_
- Total debt outstanding of $766.8 million as of June 30, 2020. The total debt to equity ratio was 0.89x, and the net debt to equity ratio was 0.83x, after adjusting for cash and cash equivalents_x000D_
- Liquidity as of June 30, 2020 composed of $50.7 million of unrestricted cash and cash equivalents and $233.2 million of undrawn capacity under the credit facility (subject to borrowing base and other limitations). Unfunded investment commitments were $154.6 million, with approximately $75.9 million that can be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies_x000D_
- The declaration of quarterly cash distribution of $0.105 per share, an 11% increase from the company’s prior quarter distribution. The distribution will be paid in cash and is payable Sept. 30, 2020 to stockholders of record on Sept. 15, 2020.
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“OCSL delivered strong results in the third quarter, highlighted by solid earnings and portfolio performance,” Armen Panossian, CEO and chief investment officer of Oaktree Specialty Lending, said. “We leveraged Oaktree’s opportunistic credit platform to originate $261 million of new investments at attractive yields during the quarter. NAV rebounded by 14%, reflecting the improvement in credit market conditions, and overall, credit quality remained stable amid the uncertain economic environment. As a result of the growth of our investment portfolio and optimistic outlook on new investment opportunities, our board of directors announced an 11% increase to our September dividend to $0.105 per share. We believe OCSL is poised to deliver continued strong risk-adjusted returns to our shareholders.”
As of June 30, 2020, the fair value of Oaktree’s investment portfolio was $1.6 billion and was composed of investments in 119 companies. These included debt investments in 96 companies and equity investments in 32 companies, including limited partnership interests in two private equity funds, as well as the company’s investment in Senior Loan Fund JV I, LLC (SLF JV I). Ten of the equity investments were in companies in which the company also had a debt investment.
As of June 30, 2020, 94.2% of Oaktree’s portfolio at fair value consisted of debt investments, including 61.3% of first lien loans, 19.6% of second lien loans and 13.3% of unsecured debt investments, including the debt investments in SLF JV I. This compared with 62.3% of first lien loans, 19.6% of second lien loans and 12.4% of unsecured debt investments, including the debt investments in SLF JV I at fair value as of March 31, 2020.
As of June 30, 2020, non-accruals represented 1.3% of the debt portfolio at cost and 0.2% at fair value in three positions. During the quarter ended June 30, 2020, Oaktree placed one new investment on non-accrual status, which represented 0.1% of the debt portfolio at both cost and fair value, and exited one investment that was previously on non-accrual status.
Oaktree’s investments in SLF JV I totaled $110 million at fair value as of June 30, 2020, up 19% from $92.2 million as of March 31, 2020. The sequential increase in the value of the company’s investments in SLF JV I was primarily driven by SLF JV I’s use of leverage and unrealized appreciation in the underlying investment portfolio resulting from the improvement in broader credit market conditions during the quarter.
As of June 30, 2020, SLF JV I had $315.4 million in assets, including senior secured loans to 53 portfolio companies. This compared with $329.6 million in assets, including senior secured loans to 53 portfolio companies, as of March 31, 2020. As of June 30, 2020, one investment held by SLF JV I was on non-accrual status, which represented 0.7% of the SLF JV I portfolio at cost and 0.3% at fair value, respectively. The joint venture generated income of $2 million for Oaktree during the quarter ended June 30, 2020, down slightly as compared with the prior quarter. As of June 30, 2020, SLF JV I had $76.1 million of undrawn capacity (subject to borrowing base and other limitations) on its $250 million senior revolving credit facility and its debt to equity ratio was 1.4x.
As of June 30, 2020, Oaktree had total principal value of debt outstanding of $766.8 million, including $466.8 million of outstanding borrowings under the revolving credit facility and $300 million of unsecured notes. The funding mix was composed of 61% secured and 39% unsecured borrowings as of June 30, 2020. Oaktree has no near-term debt maturities, as the next scheduled maturity is for the revolving credit facility in February 2024. The company was in compliance with all financial covenants under its credit facility as of June 30, 2020.
As of June 30, 2020, the weighted average interest rate on debt outstanding was 2.7%, down from 3.1% as of March 31, 2020, primarily reflecting lower LIBOR.
The company’s total debt to equity ratio was 0.89x and 0.94x as of June 30, 2020 and March 31, 2020, respectively. Net debt to equity ratio was 0.83x and 0.82x as of June 30, 2020 and March 31, 2020, respectively.
Oaktree Specialty Lending is a specialty finance company regulated as a business development company with an investment objective of generating current income and capital appreciation by providing companies with financing solutions, including first and second lien loans, unsecured and mezzanine loans, and preferred equity.
