Oaktree Specialty Lending (OCSL) - 2025 Q3 - Quarterly Results

Financial and Operational Highlights The company reported decreased net investment income for Q3 2025, maintained stable NAV, and declared a $0.40 per share quarterly distribution Key Financial Metrics For the third fiscal quarter of 2025, Oaktree Specialty Lending reported a decrease in both GAAP and Adjusted Net Investment Income per share, primarily due to lower non-recurring fee and interest income, alongside higher one-time interest expenses. Despite this, Net Asset Value (NAV) per share saw a slight increase to $16.76, and the company successfully amended its credit facility on more favorable terms Key Financial Metrics (Q3 2025 vs Q2 2025) | Financial Metric | Q3 2025 | Q2 2025 | | :--- | :--- | :--- | | Total Investment Income | $75.3M ($0.85/share) | $77.6M ($0.90/share) | | Adjusted Total Investment Income | $74.3M ($0.84/share) | $77.2M ($0.90/share) | | GAAP Net Investment Income | $33.5M ($0.38/share) | $39.1M ($0.45/share) | | Adjusted Net Investment Income | $32.5M ($0.37/share) | $38.7M ($0.45/share) | | NAV per Share | $16.76 | $16.75 | - The decrease in total investment income was driven by lower non-recurring fee income, reduced interest income from lower OID acceleration and tightening spreads, and lower dividend income from the SLF JV I investment[4] - The company originated $147.2 million of new investment commitments while receiving $249.4 million from prepayments, exits, and sales, indicating a net reduction in the portfolio size during the quarter[4] - Total debt to equity ratio was 0.99x, and liquidity consisted of $79.8 million in cash and $650.0 million of undrawn capacity under its newly amended credit facility[4] Distribution Declaration The Board of Directors declared a quarterly cash distribution of $0.40 per share for the third fiscal quarter of 2025 Distribution Details | Distribution Detail | Value | | :--- | :--- | | Distribution per Share | $0.40 | | Payment Date | September 30, 2025 | | Record Date | September 15, 2025 | Results of Operations The company's GAAP net investment income decreased to $33.5 million ($0.38 per share) from $39.1 million ($0.45 per share) in the prior quarter. The decline was primarily driven by a $2.3 million decrease in total investment income and a $3.5 million increase in net expenses, which included one-time costs related to the amendment of its credit facility Consolidated Statements of Operations (Selected Metrics) | ($ in thousands, except per share) | Q3 2025 (ended Jun 30) | Q2 2025 (ended Mar 31) | Q3 2024 (ended Jun 30) | | :--- | :--- | :--- | :--- | | GAAP Results | | | | | Total Investment Income | $75,271 | $77,568 | $94,966 | | Net Investment Income | $33,481 | $39,055 | $44,575 | | Net Investment Income per Share | $0.38 | $0.45 | $0.54 | | Net Increase (Decrease) in Net Assets | $38,352 | $(36,249) | $1,120 | | Non-GAAP Results | | | | | Adjusted Total Investment Income | $74,297 | $77,195 | $95,573 | | Adjusted Net Investment Income | $32,507 | $38,682 | $45,182 | | Adjusted Net Investment Income per Share | $0.37 | $0.45 | $0.55 | - The quarterly decline in adjusted total investment income was mainly due to a $1.5 million decrease in non-recurring fee income and a $1.2 million decrease in interest income[7] - Net expenses increased by $3.5 million quarter-over-quarter, primarily driven by $2.9 million in higher interest expense, due to the one-time acceleration of deferred financing costs from amending the syndicated credit facility and terminating another[8] Portfolio and Investment Activity The investment portfolio decreased slightly to $2.8 billion, maintaining high first-lien debt concentration, with minor declines in joint venture investments Portfolio Overview As of June 30, 2025, the investment portfolio was valued at $2.8 billion across 149 companies, showing a continued focus on first-lien debt, which constituted 81.1% of the portfolio. The number of investments on non-accrual status remained at ten, but their proportion of the debt portfolio's fair value decreased from 4.6% to 3.2% quarter-over-quarter Portfolio Metrics | Portfolio Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Investments at Fair Value | $2,809.4 M | $2,892.8 M | | Number of Portfolio Companies | 149 | 152 | | First Lien Debt (% of portfolio) | 81.1% | 80.9% | | Non-accrual (% of debt at FV) | 3.2% | 4.6% | | Weighted Avg. Yield on Debt | 10.1% | 10.2% | - The portfolio consisted of debt investments in 128 companies and equity investments in 41 companies, with 22 companies having both debt and equity investments from OCSL[13] - The percentage of floating-rate debt investments increased to 90.9% as of June 30, 2025, up from 89.8% as of March 31, 2025[10] Joint Venture Details The fair value of investments in both the SLF JV I and Glick JV experienced slight decreases during the quarter, primarily due to the use of leverage and underlying portfolio losses. Both joint ventures continue to be leveraged, with debt-to-equity ratios of 1.4x and 1.3x, respectively SLF JV I SLF JV I's fair value decreased slightly, contributing cash interest and dividend income to OCSL while maintaining a 1.4x debt-to-equity ratio - The fair value of OCSL's investment in SLF JV I decreased by 0.8% to $127.5 million as of June 30, 2025[16] - SLF JV I generated $3.3 million in cash interest income and $0.5 million in dividend income for OCSL during the quarter[17] - As of quarter-end, SLF JV I had $358.0 million in assets, a debt-to-equity ratio of 1.4x, and $73.0 million of undrawn capacity on its credit facility[17] Glick JV Glick JV's fair value also saw a minor decrease, providing consistent cash interest income to OCSL with a 1.3x debt-to-equity ratio - The fair value of OCSL's investment in Glick JV decreased by 0.6% to $47.1 million as of June 30, 2025[18] - Glick JV generated $1.3 million in cash interest income for OCSL, which was flat from the prior quarter[19] - As of quarter-end, Glick JV had $128.5 million in assets, a debt-to-equity ratio of 1.3x, and $31.0 million of undrawn capacity on its credit facility[19] Liquidity and Capital Resources As of June 30, 2025, the company maintained a stable leverage profile with a total debt-to-equity ratio of 0.99x and a net debt-to-equity ratio of 0.93x. Liquidity remained robust with $79.8 million in cash and $650.0 million of undrawn capacity on its credit facility, which is deemed sufficient to meet unfunded commitments and pursue new investments. The funding mix shifted further towards unsecured debt, now comprising 65% of borrowings Liquidity and Capital Metrics | Metric | As of June 30, 2025 | As of March 31, 2025 | | :--- | :--- | :--- | | Total Debt Outstanding | $1,460.0 M | - | | Unrestricted Cash | $79.8 M | $97.8 M | | Undrawn Credit Facility | $650.0 M | - | | Total Debt to Equity Ratio | 0.99x | 1.00x | | Net Debt to Equity Ratio | 0.93x | 0.93x | - The funding mix was composed of 35% secured and 65% unsecured borrowings[20] - The weighted average interest rate on debt outstanding decreased to 6.6% from 6.7% in the prior quarter, driven by reduced interest rate margins from the amended syndicated credit facility[22] - Unfunded investment commitments totaled $305.3 million, with approximately $264.4 million (excluding JVs) available to be drawn immediately[21] Non-GAAP Financial Measures Non-GAAP measures provide a clearer view of performance by excluding non-cash accounting impacts from mergers and certain incentive fees Explanation of Non-GAAP Measures The company provides adjusted (non-GAAP) financial measures to offer investors a clearer view of its ongoing performance by excluding the non-cash accounting impacts from the OCSI and OSI2 mergers. These adjustments remove the amortization or accretion of interest income and gains/losses resulting from the new cost basis established for acquired assets. Management uses these metrics internally for analysis and believes they align more closely with the economic earnings of the investment portfolio and the calculation of incentive fees - Management uses non-GAAP measures to evaluate financial results without the non-cash income/gain/loss effects from the OCSI and OSI2 Mergers[25] - The primary adjustments exclude amortization/accretion of interest income and realized/unrealized gains/losses that result solely from the cost basis established by merger accounting (ASC 805)[26][28] - Adjusted Net Investment Income also excludes capital gains incentive fees (Part II incentive fees)[28] Reconciliation Tables This section provides detailed reconciliations of GAAP to non-GAAP financial measures for the three months ended June 30, 2025, and comparative periods. For the current quarter, GAAP total investment income of $75.3 million was adjusted by ($1.0 million) to arrive at adjusted total investment income of $74.3 million. Similarly, GAAP net investment income of $33.5 million was adjusted to $32.5 million Reconciliation of GAAP to Adjusted Total Investment Income | Reconciliation (Q3 2025, $ in thousands) | Amount | | :--- | :--- | | GAAP total investment income | $75,271 | | Merger accounting adjustments | $(974) | | Adjusted total investment income | $74,297 | Reconciliation of GAAP to Adjusted Net Investment Income | Reconciliation (Q3 2025, $ in thousands) | Amount | | :--- | :--- | | GAAP net investment income | $33,481 | | Merger accounting adjustments | $(974) | | Part II incentive fee | $0 | | Adjusted net investment income | $32,507 | Consolidated Financial Statements This section presents the company's consolidated financial position and operational results, including assets, liabilities, and income statements Consolidated Statements of Assets and Liabilities As of June 30, 2025, OCSL reported total assets of $2.96 billion, down from $3.08 billion at the end of the prior quarter. Total liabilities decreased to $1.49 billion from $1.60 billion, primarily due to a reduction in payables from unsettled transactions. Total net assets remained stable at $1.48 billion, resulting in a NAV per share of $16.76 Consolidated Statements of Assets and Liabilities | ($ in thousands) | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Total investments at fair value | $2,809,377 | $2,892,771 | | Total assets | $2,964,212 | $3,079,167 | | Total liabilities | $1,487,743 | $1,604,054 | | Total net assets | $1,476,469 | $1,475,113 | Consolidated Statements of Operations For the three months ended June 30, 2025, the company generated total investment income of $75.3 million and incurred net expenses of $41.7 million, leading to net investment income of $33.5 million. After accounting for $4.9 million in net realized and unrealized gains, the net increase in net assets from operations for the quarter was $38.4 million, or $0.44 per share Consolidated Statements of Operations (Three months ended June 30, 2025) | ($ in thousands) | Three months ended June 30, 2025 | | :--- | :--- | | Total investment income | $75,271 | | Net expenses | $41,734 | | Net investment income | $33,481 | | Net realized and unrealized gains (losses) | $4,871 | | Net increase in net assets from operations | $38,352 |