Group 1 - The article expresses skepticism regarding the near- to medium-term return prospects for business development companies (BDCs) due to lower base rates, higher long-term yields, shallow leveraged buyout (LBO) and merger & acquisition (M&A) volumes, and an increasing supply of new private credit [1] Group 2 - Roberts Berzins has over a decade of experience in financial management, focusing on helping top-tier corporates shape financial strategies and execute large-scale financings [1] - Berzins has contributed to institutionalizing the Real Estate Investment Trust (REIT) framework in Latvia to enhance the liquidity of pan-Baltic capital markets [1] - His policy-level work includes developing national State-Owned Enterprise (SOE) financing guidelines and frameworks for channeling private capital into affordable housing [1]

Group 1 - Oaktree Specialty Lending (NASDAQ: OCSL) is currently trading at a 16% discount from its net asset value, indicating potential for price recovery [1] - The company has a catalyst in its portfolio related to credit performance, which may enhance its rebound prospects in 2025 [1] - Oaktree Specialty Lending has recently cut its dividend, which may impact investor sentiment [1]

Core Insights - The article emphasizes the importance of dividend investing in quality blue-chip stocks, BDCs, and REITs for building a sustainable retirement income [1][2]. Group 1: Investment Strategy - The company focuses on a buy-and-hold investment strategy, prioritizing quality over quantity in its portfolio [1]. - The goal is to help lower and middle-class workers build investment portfolios that consist of high-quality, dividend-paying companies [1]. Group 2: Personal Investment Philosophy - The company aims to achieve financial independence through dividend income within the next 5-7 years [1]. - There is a strong emphasis on educating investors to conduct their own due diligence before making investment decisions [1].

Financial Data and Key Metrics Changes - Adjusted net investment income decreased to $39 million or $0.45 per share from $45 million or $0.54 per share in the previous quarter [5][22] - Net asset value declined to $16.75 per share from $17.63 in the prior quarter [5] - Investments on non-accrual status increased to 4.67% of fair market value and cost, compared to 3.95% in the first quarter [6] Business Line Data and Key Metrics Changes - The company committed $407 million of capital across 32 investments, compared to 13 investments totaling $198 million in the previous quarter [15] - The weighted average yield on new debt investments was 9.5%, slightly down from 9.6% in the prior quarter [16] - The portfolio's weighted average interest coverage declined to 1.8 times from 2.1 times in the previous quarter [17] Market Data and Key Metrics Changes - The median EBITDA of portfolio companies increased to approximately $158 million, up $16 million from the prior quarter [17] - The leverage in portfolio companies remained steady at 5.4 times, below overall middle market leverage levels [17] Company Strategy and Development Direction - The company is focusing on larger, more diversified businesses that can withstand uncertain times, emphasizing investments at the top of the capital structure [16][28] - The company is actively managing non-accrual investments and has taken steps to align interests with shareholders, including amending the incentive fee structure and purchasing shares [10][27] Management's Comments on Operating Environment and Future Outlook - The management noted significant uncertainty in the trade environment due to potential new tariffs and their impact on portfolio performance [28] - There is a cautious outlook on M&A activity, with expectations that many lenders will be more conservative in capital deployment [28] - The company believes it is well-positioned to navigate the current market environment and deliver attractive risk-adjusted returns to shareholders [29] Other Important Information - The company successfully issued new unsecured bonds to refinance existing bonds and amended its senior secured revolving credit facility, reducing interest rates [9][24] - The joint ventures currently hold $440 million of investments, generating attractive annualized ROEs of approximately 10.6% [25] Q&A Session Summary Question: Did the company lean into any liquid markets, structured finance, or syndicated loans in April? - The company was somewhat active but remained cautious due to unresolved tariff situations, experiencing a sell-off in high yield bonds and senior loans [32][33] Question: How successfully has the company been focusing on larger and diversified businesses? - The market conditions have been challenging, but there is a return of larger borrowers into the direct lending market, improving the pipeline for issuing direct loans [36][39] Question: What is the expected run rate for net investment income given the markdowns and changes in non-accruals? - The company is focused on working through non-accrual situations and expects repayments to remain significant despite market volatility [46][52] Question: Is the yield reflective of what the portfolio should generate going forward? - The decline in yield is attributed to reference rate declines and new non-accruals, but the current yield is considered a decent run rate [58][59] Question: What is the expected ROE for the joint ventures over time? - The company aims to achieve an ROE in the 11% to 12% range, depending on the opportunities available [62]

Financial Data and Key Metrics Changes - Adjusted net investment income decreased to $39 million or $0.45 per share from $45 million or $0.54 per share in the previous quarter [5][22] - Net asset value declined to $16.75 per share from $17.63 in the prior quarter [5] - Investments on non-accrual status increased to 4.67% of fair market value and cost, compared to 3.95% in the first quarter [6] Business Line Data and Key Metrics Changes - The company committed $407 million of capital across 32 investments, compared to 13 investments totaling $198 million in the previous quarter [15] - The weighted average yield on new debt investments was 9.5%, slightly down from 9.6% in the prior quarter [16] - The median EBITDA of portfolio companies increased to approximately $158 million, a $16 million increase from the prior quarter [17] Market Data and Key Metrics Changes - The leverage in portfolio companies remained steady at 5.4 times, below overall middle market leverage levels [17] - The portfolio's weighted average interest coverage declined to 1.8 times from 2.1 times in the previous quarter [17] - The JVs generated attractive annualized ROEs of approximately 10.6% in aggregate [25] Company Strategy and Development Direction - The company is focusing on larger, more diversified businesses to mitigate risks in the current environment [16][28] - There is a heightened focus on underwriting and risk evaluation due to potential impacts from tariffs and inflation [28] - The company aims to capitalize on opportunities during market volatility, leveraging its experience in capital solutions [28] Management's Comments on Operating Environment and Future Outlook - The management noted significant uncertainty surrounding the trade environment and its impact on M&A activity [27][28] - There is an expectation of cautious capital deployment among lenders due to the health of existing portfolio companies [28] - The company believes it is well-positioned to navigate the current market environment and deliver attractive risk-adjusted returns [28] Other Important Information - The company successfully issued new unsecured bonds to refinance existing bonds and amended its senior secured revolving credit facility, reducing interest rates [9][24] - The company has ample liquidity of approximately $1.1 billion, including $98 million in cash and $1 billion in undrawn capacity on credit facilities [24] Q&A Session Summary Question: Did the company lean into any liquid markets, structured finance, or syndicated loans in April? - The company was somewhat active but remained cautious due to unresolved tariff situations [32][33] Question: How successfully has the company been focusing on larger and diversified businesses? - The market conditions have been challenging, but there is a return of larger borrowers into the direct lending market [36][39] Question: Is the current yield reflective of what the portfolio should generate going forward? - The current yield is influenced by reference rate declines and markdowns from non-accruals, but it is considered a decent run rate [58][59] Question: Will repayment activity slow down during this period of volatility? - There is an expectation that repayments may slow down due to market volatility, but significant repayments are still anticipated [52][53] Question: What is the expected ROE for the joint ventures over time? - The company aims to achieve an ROE in the 11% to 12% range, depending on the opportunity set [62]

Financial Data and Key Metrics Changes - Adjusted net investment income decreased to $39 million or $0.45 per share from $45 million or $0.54 per share in the previous quarter [5] - Net asset value declined to $16.75 per share from $17.63 in the prior quarter [5] - Investments on non-accrual status increased to 4.67% of fair market value and cost, compared to 3.95% in the first quarter [6] Business Line Data and Key Metrics Changes - The company committed $407 million of capital across 32 investments, compared to 13 investments totaling $198 million in the previous quarter [15] - The weighted average yield on new debt investments was 9.5%, slightly down from 9.6% in the prior quarter [16] - The median EBITDA of portfolio companies increased to approximately $158 million, up $16 million from the prior quarter [16] Market Data and Key Metrics Changes - The leverage in portfolio companies remained steady at 5.4 times, below overall middle market leverage levels [16] - The portfolio's weighted average interest coverage declined to 1.8 times from 2.1 times in the previous quarter [16] - The joint ventures generated an attractive annualized ROE of approximately 10.6% [24] Company Strategy and Development Direction - The company is focusing on larger, more diversified businesses that can withstand uncertain times [16] - There is a heightened focus on underwriting and risk evaluation due to potential impacts from tariffs and inflation [28] - The company is actively seeking opportunities in capital solutions or rescue financing during periods of market volatility [28] Management's Comments on Operating Environment and Future Outlook - The management noted significant uncertainty surrounding the trade environment and its potential impact on portfolio performance [27] - There is an expectation of cautious capital deployment among lenders due to the current economic outlook [28] - The company believes it is well-positioned to navigate the current market environment and deliver attractive risk-adjusted returns to shareholders [29] Other Important Information - The company successfully issued new unsecured bonds to refinance existing bonds and amended its senior secured revolving credit facility, reducing interest rates [8] - The company has ample liquidity of approximately $1.1 billion, including $98 million in cash and $1 billion in undrawn capacity on credit facilities [23] Q&A Session Summary Question: Did the company lean into any liquid markets, structured finance, or syndicated loans in April? - The company was somewhat active but remained cautious due to unresolved tariff situations [32] Question: How successfully has the company been focusing on larger and diversified businesses? - The company noted that while larger borrowers were initially seeking better pricing in the broadly syndicated loan market, there has been a return of larger borrowers to the direct lending market [34][38] Question: Should the company expect any slowing of repayment activity during this period of volatility? - The management anticipates that repayments will remain significant but acknowledges that volatility may lead to a slowdown in the future [52] Question: Is the current yield reflective of what the portfolio should generate going forward? - The management indicated that the current yield is a decent run rate, influenced by reference rate declines and new non-accruals [59] Question: What is the expected ROE for the joint ventures over time? - The management believes achieving an ROE in the 11% to 12% range is achievable, depending on the opportunity set [62]

Company Performance - Oaktree Specialty Lending (OCSL) reported quarterly earnings of $0.45 per share, missing the Zacks Consensus Estimate of $0.51 per share, and down from $0.56 per share a year ago, representing an earnings surprise of -11.76% [1] - The company posted revenues of $77.57 million for the quarter ended March 2025, missing the Zacks Consensus Estimate by 6.81%, and down from year-ago revenues of $94.03 million [2] - Oaktree Specialty Lending has not surpassed consensus EPS or revenue estimates over the last four quarters [2] Stock Performance - Oaktree Specialty Lending shares have declined approximately 5.8% since the beginning of the year, compared to a decline of -5.3% for the S&P 500 [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $0.48 on revenues of $84.26 million, and for the current fiscal year, it is $2 on revenues of $339.55 million [7] - The estimate revisions trend for Oaktree Specialty Lending is currently unfavorable, which may impact future stock movements [6] Industry Context - The Financial - Miscellaneous Services industry, to which Oaktree Specialty Lending belongs, is currently in the top 37% of over 250 Zacks industries, suggesting a favorable industry outlook [8]

Financial Performance - Adjusted Net Investment Income and GAAP Net Investment Income were both $045 per share, compared to $054 per share in the previous quarter[9] - Net Asset Value per share decreased to $1675, down from $1763 as of December 31, 2024, primarily due to write-downs on certain debt and equity investments[9] - A quarterly cash distribution of $040 per share and a supplemental cash distribution of $002 per share were declared[9] Portfolio Composition and Investment Activity - Total investments at fair value amounted to $29 billion across 152 portfolio companies[9, 11] - New investment commitments totaled $407 million with a weighted average yield of 95% on new debt investments[9, 17] - $406 million was funded in new investments, while $279 million was received from prepayments, exits, other paydowns, and sales[9] - The portfolio is composed of 84% senior secured debt investments, including 81% first lien loans, and 90% of the debt portfolio is floating rate[9] Capital Structure and Liquidity - The company has $98 million in cash and $104 billion of undrawn capacity on credit facilities[9] - The existing revolving credit facility was repriced, extending the maturity by approximately 2 years and reducing pricing by 125 bps[9] - The company refinanced its 2025 notes with $300 million of unsecured notes due in 2030, priced at 634% (SOFR+219%)[9] Strategic Actions - Oaktree purchased $100 million of newly issued shares of OCSL common stock at a price of $1763/share[7] - An incentive fee cap was instituted, resulting in a waiver of $67 million of Part I incentive fees in the second fiscal quarter of 2025[7]

[Financial Performance](index=1&type=section&id=Financial%20Performance) [Financial Highlights (Q2 2025)](index=1&type=section&id=Financial%20Highlights%20(Q2%202025)) Oaktree Specialty Lending reported a decline in Q2 2025 financial metrics, including GAAP and Adjusted Net Investment Income, driven by a smaller portfolio and increased non-accrual investments, resulting in a lower NAV per share Key Financial Metrics | Financial Metric | Q2 2025 (ended Mar 31, 2025) | Q1 2025 (ended Dec 31, 2024) | Change | | :--- | :--- | :--- | :--- | | Total Investment Income (USD) | $77.6M ($0.90/share) | $86.6M ($1.05/share) | ▼ | | Adjusted Total Investment Income (USD) | $77.2M ($0.90/share) | $87.1M ($1.06/share) | ▼ | | GAAP Net Investment Income (USD) | $39.1M ($0.45/share) | $44.3M ($0.54/share) | ▼ | | Adjusted Net Investment Income (USD) | $38.7M ($0.45/share) | $44.7M ($0.54/share) | ▼ | | NAV per Share (USD) | $16.75 | $17.63 | ▼ | - The decline in investment income was primarily driven by a smaller average investment portfolio, the impact of certain investments being placed on non-accrual status, and decreases in reference rates[2](index=2&type=chunk) - The CEO acknowledged that "certain challenged portfolio company investments weighed on our results in the second quarter," indicating a focus on resolving these issues[3](index=3&type=chunk) [Results of Operations](index=3&type=section&id=Results%20of%20Operations) Total investment income decreased in Q2 2025, partially offset by lower net expenses, but significant net realized and unrealized losses resulted in a net decrease in net assets Consolidated Statements of Operations | (USD thousands) | Q2 2025 (ended Mar 31) | Q1 2025 (ended Dec 31) | Q2 2024 (ended Mar 31) | | :--- | :--- | :--- | :--- | | Total Investment Income | $77,568 | $86,647 | $94,029 | | Net Expenses | $38,235 | $42,082 | $52,662 | | Net Investment Income | $39,055 | $44,302 | $41,367 | | Net Realized/Unrealized Losses | $(75,304) | $(37,063) | $(32,030) | | **Net (Decrease) in Net Assets** | **$(36,249)** | **$7,239** | **$9,337** | - The **$9.9 million** quarterly decline in adjusted total investment income was primarily due to a smaller portfolio, non-accrual placements, and lower reference rates[7](index=7&type=chunk) - Net expenses decreased by **$3.8 million** quarter-over-quarter, driven by **$2.4 million** in lower interest expense and **$1.5 million** in lower Part I incentive fees[8](index=8&type=chunk) [Financial Position](index=3&type=section&id=Financial%20Position) As of March 31, 2025, NAV per share decreased to **$16.75**, while total debt was reduced, improving the total and net debt-to-equity ratios to **1.00x** and **0.93x** respectively Balance Sheet Highlights | Balance Sheet Metric | As of Mar 31, 2025 | As of Dec 31, 2024 | | :--- | :--- | :--- | | Investment Portfolio at Fair Value (USD billions) | $2.89B | $2.84B | | Net Assets (USD billions) | $1.48B | $1.45B | | Net Asset Value per Share (USD) | $16.75 | $17.63 | | Total Debt to Equity Ratio (x) | 1.00x | 1.11x | | Net Debt to Equity Ratio (x) | 0.93x | 1.03x | - The decline in NAV per share from December 31, 2024, was primarily due to losses on certain debt and equity investments[2](index=2&type=chunk) [Portfolio Analysis](index=4&type=section&id=Portfolio%20Analysis) [Portfolio Overview and Investment Activity](index=4&type=section&id=Portfolio%20Overview%20and%20Investment%20Activity) The investment portfolio's fair value was **$2.9 billion** with **80.9%** in first-lien debt, but credit quality showed stress with non-accrual investments increasing to **4.6%** of debt at fair value Investment Activity (Q2 2025) | Investment Activity | Amount (USD thousands) | | :--- | :--- | | New Investment Commitments | $407,000 | | Proceeds from Exits/Sales | $279,400 | | **Net New Investments** | **$126,400** | - The portfolio remains heavily weighted towards floating-rate debt, which constituted **89.8%** of investments as of March 31, 2025, an increase from **87.6%** in the prior quarter[10](index=10&type=chunk) Non-Accrual Investments | Non-Accrual Investments | As of Mar 31, 2025 | As of Dec 31, 2024 | | :--- | :--- | :--- | | Number of Investments | 10 | 9 | | As a % of Debt at Fair Value (%) | 4.6% | 3.9% | | As a % of Debt at Cost (%) | 7.6% | 5.1% | - The weighted average yield on new debt investments made during the quarter was **9.5%**[2](index=2&type=chunk) [Joint Venture Performance](index=5&type=section&id=Joint%20Venture%20Performance) Both SLF JV I and Glick JV experienced declines in fair value due to leverage and unrealized depreciation in their underlying investment portfolios - SLF JV I's investments decreased in fair value to **$128.6 million**; it held **$374.7 million** in assets across **52** portfolio companies with a debt-to-equity ratio of **1.3x**[17](index=17&type=chunk)[18](index=18&type=chunk) - Glick JV's investments decreased in fair value to **$47.3 million**; it held **$125.1 million** in assets across **41** portfolio companies with a debt-to-equity ratio of **1.3x**[19](index=19&type=chunk)[20](index=20&type=chunk) [Capital, Liquidity, and Shareholder Returns](index=5&type=section&id=Capital%2C%20Liquidity%2C%20and%20Shareholder%20Returns) [Liquidity and Capital Resources](index=5&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$97.8 million** cash and over **$1.0 billion** undrawn credit, refinancing debt with **$300 million** unsecured notes and shifting funding mix to **65%** unsecured borrowings - As of March 31, 2025, liquidity consisted of **$97.8 million** in unrestricted cash and over **$1.0 billion** of undrawn capacity under credit facilities[2](index=2&type=chunk)[22](index=22&type=chunk) - The company issued **$300 million** of **6.340%** unsecured notes due 2030 and repaid **$300 million** of notes that matured in February 2025, increasing the weighted average interest rate on debt to **6.7%**[2](index=2&type=chunk)[23](index=23&type=chunk) - The funding mix as of March 31, 2025, was **35%** secured and **65%** unsecured borrowings[21](index=21&type=chunk) [Distribution Declaration](index=2&type=section&id=Distribution%20Declaration) The Board declared a total cash distribution of **$0.42 per share** for the quarter, comprising a regular and a supplemental distribution, payable on June 30, 2025 - A quarterly cash distribution of **$0.40 per share** was declared[2](index=2&type=chunk)[4](index=4&type=chunk) - A supplemental cash distribution of **$0.02 per share** was also declared[2](index=2&type=chunk)[4](index=4&type=chunk) [Other Information](index=6&type=section&id=Other%20Information) [Recent Developments](index=6&type=section&id=Recent%20Developments) Post-quarter, on April 8, 2025, the company amended its Syndicated Facility, reducing interest rate margins, removing a key covenant, and extending maturity to April 2030 - On April 8, 2025, the company amended its senior secured credit facility with several favorable changes, including reduced interest rate margins on SOFR loans to **1.875%**, removal of the Consolidated Interest Coverage Ratio covenant, and extension of the final maturity date to April 8, 2030[25](index=25&type=chunk) [Non-GAAP Financial Measures](index=7&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Adjusted Net Investment Income to provide a clearer view of performance by excluding non-cash merger adjustments and capital gains incentive fees - Adjusted financial measures exclude non-cash income/gain/loss from the OCSI and OSI2 Mergers, which established a new cost basis for acquired assets under ASC 805[26](index=26&type=chunk)[27](index=27&type=chunk) - Adjusted Net Investment Income also excludes capital gains incentive fees (Part II incentive fees) to better align with management's view of core earnings[29](index=29&type=chunk) Reconciliation of GAAP to Adjusted Net Investment Income | (USD thousands) | Q2 2025 (ended Mar 31) | | :--- | :--- | | GAAP Net Investment Income | $39,055 | | Interest Income Adjustments (Merger) | $(373) | | Part II Incentive Fee | — | | **Adjusted Net Investment Income** | **$38,682** |

Core Viewpoint - Oaktree Specialty Lending Corporation reported a decline in financial performance for the second fiscal quarter of 2025, primarily due to lower investment income and challenges with certain portfolio investments [3][4][11]. Financial Performance - Total investment income for the second fiscal quarter of 2025 was $77.6 million ($0.90 per share), down from $86.6 million ($1.05 per share) in the first fiscal quarter [4][11]. - Adjusted total investment income was $77.2 million ($0.90 per share) for the second quarter, compared to $87.1 million ($1.06 per share) in the previous quarter [4][11]. - GAAP net investment income decreased to $39.1 million ($0.45 per share) from $44.3 million ($0.54 per share) in the prior quarter [4][11]. - Net asset value (NAV) per share fell to $16.75 as of March 31, 2025, down from $17.63 as of December 31, 2024, reflecting losses on certain investments [4][11]. Investment Activity - The company originated $407.0 million in new investment commitments and received $279.4 million from prepayments and exits during the quarter [4][12]. - The weighted average yield on new debt investments was 9.5% [4][12]. - As of March 31, 2025, the fair value of the investment portfolio was $2.9 billion, consisting of investments in 152 companies [12][16]. Debt and Liquidity - Total debt outstanding was $1,470.0 million, with a total debt to equity ratio of 1.00x and a net debt to equity ratio of 0.93x [4][26]. - Liquidity included $97.8 million in unrestricted cash and over $1.0 billion in undrawn capacity under credit facilities [4][24]. - The company issued $300 million in unsecured notes during the quarter, maturing on February 27, 2030, with an interest rate of 6.340% [4][23]. Distributions - A quarterly cash distribution of $0.40 per share and a supplemental distribution of $0.02 per share were declared, payable on June 30, 2025 [5][6]. Portfolio Composition - As of March 31, 2025, 94.9% of the portfolio at fair value consisted of debt investments, with 80.9% in first lien loans [17][18]. - The number of portfolio companies increased to 152 from 136 as of December 31, 2024 [12][17]. Recent Developments - On April 8, 2025, the company amended its senior secured credit facility, reducing interest rate margins and extending the maturity date [27]. Management Commentary - The CEO emphasized the focus on resolving challenges with certain portfolio investments and diversifying the portfolio to capitalize on market opportunities amid economic uncertainty [3][5].