Oaktree Specialty Lending (US:OCSL)2026-02-03 23:50Investment Portfolio - As of December 31, 2025, the company held $2,949.1 million in investments at fair value, an increase from $2,847.8 million as of September 30, 2025, primarily due to purchases of investments during the quarter [331]. - Approximately 95.2% of the company's total assets represented investments at fair value as of December 31, 2025, compared to 94.8% as of September 30, 2025 [332]. - The fair value of investments is determined quarterly, with 99.8% of the portfolio valued based on market quotations or corroborated by independent valuation firms as of December 31, 2025 [329]. - The investment portfolio composition at cost as of December 31, 2025, included 83.26% in senior secured debt and 4.34% in common equity and warrants [339]. - The fair value of senior secured debt increased to 86.38% of total investments as of December 31, 2025, compared to 85.88% as of September 30, 2025 [339]. - The industry composition of the portfolio at cost included 17.10% in application software and 5.60% in health care services as of December 31, 2025 [340]. - The company’s investments primarily consist of loans, common and preferred equity, and warrants in privately-held companies [337]. Investment Strategy - The company focuses on situational lending, select sponsor lending, stressed sector and rescue lending, and public credit to achieve attractive risk-adjusted returns in the current market environment [315]. - The company aims to generate current income and capital appreciation through flexible financing solutions, including first lien loans, second lien loans, unsecured and mezzanine loans, and equity co-investments [314]. - The company continues to seek opportunities in the middle market, leveraging Oaktree's decades of credit investing experience to source and structure investments [319]. - The company’s investment strategy includes assessing portfolio companies based on financial statements, projections, and market conditions [336]. Financial Performance - Total investment income for the three months ended December 31, 2025, was $75.1 million, a decrease of $11.6 million or 13.3% compared to the same period in 2024 [357]. - Net expenses for the three months ended December 31, 2025, were $38.4 million, a decrease of $3.7 million or 8.8% compared to the same period in 2024 [358]. - The company recorded net realized gains of $1.3 million for the three months ended December 31, 2025, compared to net losses of $(17.3) million in the same period in 2024 [361]. - Net unrealized depreciation for the three months ended December 31, 2025, was $32.4 million, compared to $19.6 million in the same period in 2024 [363]. Cash and Debt Management - As of December 31, 2025, the company had $1,615.0 million in senior securities and an asset coverage ratio of 188.62% [366]. - For the three months ended December 31, 2025, net cash used by operating activities was $83.5 million, with net cash provided by financing activities of $84.8 million [367]. - As of December 31, 2025, the company had $80.8 million in cash and cash equivalents and portfolio investments valued at $2.9 billion [369]. - The company reported $665.0 million of borrowings outstanding under the Syndicated Facility as of December 31, 2025, with a fair value of $665.0 million [389]. - The company has $274.5 million of unfunded commitments as of December 31, 2025, which includes $247.3 million for debt and equity financing to portfolio companies [371]. - The company’s total debt was $1.615 billion as of December 31, 2025, with a weighted average interest rate of 5.945% for the three months ended December 31, 2025 [389]. - The company maintained a minimum shareholders' equity of $1.466 billion, exceeding the required target of $871 million as of September 30, 2025 [388]. Interest Rate Exposure - As of December 31, 2025, 91.3% of the company's debt investment portfolio bore interest at floating rates, indicating a significant exposure to interest rate fluctuations [414]. - The company regularly measures exposure to interest rate risk and assesses the need for hedging transactions [416]. - Interest rate sensitive assets and liabilities are compared to manage interest rate exposure effectively [416]. - The company has multiple interest reset periods for each loan, allowing flexibility in managing interest rates [416]. Shareholder Distributions - The company declared a quarterly distribution of $0.40 per share, payable in cash on March 31, 2026, to stockholders of record on March 16, 2026 [410]. - The company paid a quarterly distribution of $0.40 per share on January 27, 2025, totaling $31.5 million in cash [381]. - The company did not issue any shares of common stock during the three months ended December 31, 2025, as part of its dividend reinvestment plan [376]. Risk Management - The company monitors macroeconomic conditions, including inflation and geopolitical conflicts, which may impact market supply and demand dynamics [317]. - The company’s risk management procedures are designed to monitor financial market risks, including changes in interest rates that may affect both funding costs and interest income [413]. - The company anticipates timely distribution of its taxable income in accordance with tax rules, having not incurred a U.S. federal excise tax for calendar years 2024 or 2025 [403]. - The company must distribute at least 90% of its annual taxable income to maintain its RIC status, which may limit its ability to make distributions due to covenants in its credit facilities [404]. - The company’s investments are valued at fair value as determined by Oaktree, which may involve significant management judgment and could differ materially from realized values [412].