Oaktree Specialty Lending (OCSL) - 2025 Q1 - Quarterly Report

Investment Portfolio - As of December 31, 2024, the company held $2,835.3 million in investments at fair value, down from$3,021.3 million at September 30, 2024, primarily due to sales of investments and net realized and unrealized losses during the quarter [322]. - Approximately 91.9% of the company's total assets represented investments at fair value as of December 31, 2024, compared to 94.5% as of September 30, 2024 [323]. - The fair value of investments is determined quarterly, with 96.8% of the portfolio valued based on market quotations or corroborated by independent valuation firms as of December 31, 2024 [320]. - The company invests primarily in below investment grade securities, which are often characterized as high yield or junk [306]. - The investment portfolio composition at cost as of December 31, 2024, included 82.13% in senior secured debt and 4.59% in common equity and warrants [330]. - The fair value of senior secured debt as of December 31, 2024, was 84.79%, while common equity and warrants accounted for 2.49% [330]. - The company’s investments primarily consist of loans, common and preferred equity, and warrants in privately-held companies [329]. - The company’s joint venture, SLF JV I, co-invests in senior secured loans of middle-market companies and is managed by a four-person Board of Directors [334]. - The company recorded net realized losses of $17.3 million for the three months ended December 31, 2024, compared to$8.5 million in 2023 [353]. - Net unrealized depreciation for the three months ended December 31, 2024 was $19.6 million, an improvement from$25.0 million in 2023 [355]. Financial Performance - For the three months ended December 31, 2024, the company originated $198.1 million of investment commitments and funded$201.3 million of investments [330]. - As of December 31, 2024, the total investment income was $86.6 million, a decrease of$11.3 million or 11.6% compared to $98.0 million for the same period in 2023 [349]. - Net expenses for the three months ended December 31, 2024 were$42.1 million, down by $11.7 million or 21.8$53.8 million in 2023 [350]. - Net investment income for the three months ended December 31, 2024 increased by $0.1 million compared to the same period in 2023, despite a decrease in total investment income [351]. - The company had$1,612.9 million in senior securities and an asset coverage ratio of 187.89% [358]. - For the three months ended December 31, 2024, net cash provided by operating activities was $144.0 million, primarily from$352.5 million of principal payments and sale proceeds [359]. Debt and Liquidity - The total debt outstanding as of December 31, 2024, was $1.610 billion, with a weighted average interest rate of 6.841$957.5 million of undrawn capacity on credit facilities as of December 31, 2024, and $660.0 million of borrowings outstanding [361]. - The company had$302.3 million of unfunded commitments as of December 31, 2024, with $275.2 million allocated for debt and equity financing to portfolio companies [363]. - The company has sufficient liquidity and capital resources to invest in market opportunities as they arise [365]. - The company had$430.0 million of borrowings outstanding under the Syndicated Facility as of December 31, 2024, with interest expense recorded at $9.5 million for the quarter [380]. - Outstanding borrowings under the OSI2 Citibank Facility were$230 million as of December 31, 2024, with a fair value of $230 million, and a weighted average interest rate of 7.412$28.1 million, while a 250 basis point decrease would lead to a net decrease of $27.3 million [410][411]. - The company has a risk management procedure in place to monitor and manage interest rate risks, with ongoing assessments of interest rate exposure [408]. - The company regularly measures exposure to interest rate risk and may engage in hedging transactions as necessary [411]. Shareholder Distributions - The company declared a quarterly distribution of$0.55 per share on November 8, 2023, totaling $41.7 million [373]. - On January 27, 2025, the Board of Directors declared quarterly and supplemental distributions of$0.40 per share and $0.07 per share, payable on March 31, 2025 [401]. - Oaktree Capital I, L.P. purchased 5,672,149 shares of the company's common stock for an aggregate price of$100.0 million, at a price of $17.63 per share, which was the company's net asset value as of January 31, 2025 [402]. Management and Governance - The company is externally managed by Oaktree, which provides investment advisory and administrative services [304][305]. - The company entered into a letter agreement with Oaktree for the waiver of certain portions of the incentive fee on income [403]. - Oaktree has agreed to ensure that the sales price per share in the at-the-market offering will not be less than the current net asset value per share [404][405]. - The company has qualified as a Regulated Investment Company (RIC) and intends to distribute at least 90% of its annual taxable income to stockholders [392][395]. Valuation and Methodology - The company utilizes various valuation techniques, including transaction precedent and enterprise value analysis, to determine fair value of investments [317]. - The company’s valuation methodology for investments involves significant management judgment, and estimated fair values may differ from realizable amounts [407].