Oaktree Specialty Lending (US:OCSL)2024-08-01 19:07Financial Data and Key Metrics Changes - Adjusted net investment income (NII) was $0.55 per share, down from $0.56 in the prior quarter, reflecting challenges in certain portfolio investments and an increase in non-accruals [4][20] - Net asset value (NAV) per share decreased to $18.19 from $18.72, primarily due to unrealized losses on certain investments [5] - Total debt outstanding was $1.74 billion with a weighted average interest rate of 7.0%, consistent with the previous quarter [22] Business Line Data and Key Metrics Changes - First lien investments increased from over 76% to approximately 82% of the portfolio, while second lien and unsecured debt investments decreased from 14% to below 8% [4] - New investment commitments totaled $339 million, marking the third consecutive quarter of commitments exceeding $300 million [7] - Paydowns and exits generated $186 million in proceeds, down from $323 million in the previous quarter [8] Market Data and Key Metrics Changes - The portfolio remains diversified across 158 companies with a fair value exceeding $3 billion, focusing on larger, more diversified businesses [10] - The median portfolio company EBITDA was approximately $147 million, with leverage in the portfolio at five times, consistent with prior quarters [11] - The weighted average interest coverage was 1.9 times, indicating stable performance despite elevated interest rates [11] Company Strategy and Development Direction - The company aims to maintain a focus on credit, particularly below investment grade and unrated debt, without pursuing unnatural growth [26] - The strategy includes a selective approach to investments, emphasizing first lien loans and maintaining a disciplined relative value philosophy [29][19] - The company is optimistic about M&A activity increasing in the second half of the year, despite remaining cautious about new leveraged buyouts (LBOs) [18][29] Management's Comments on Operating Environment and Future Outlook - Management noted that the credit markets are rallying as investors anticipate the end of the interest rate hike cycle, with a focus on monitoring portfolio companies amid rising interest rates [17][18] - The company is engaged in active dialogue with portfolio companies facing challenges, leveraging its experience to manage through the current market environment [17] - Management expressed confidence in the strength of the balance sheet and attractive investment opportunities for the remainder of fiscal year 2024 [23] Other Important Information - Oaktree agreed to waive $3.2 million of Part 1 incentive fees for the quarter, in addition to a permanent reduction in the base management fee from 1.5% to 1% on gross assets [6] - The company maintains strong liquidity with over $900 million available, including $96 million in cash and $828 million in undrawn credit facilities [22] Q&A Session Summary Question: Is the Part I fee waiver truly one-time? - Management confirmed that the Part I fee waiver is indeed a one-time occurrence and not ongoing [25] Question: Can you discuss the vision for Oaktree and any potential platform changes? - Management emphasized that Oaktree will continue to focus on credit and will not pursue unnatural growth, attributing recent performance issues to specific idiosyncratic situations rather than platform shifts [26][27] Question: Regarding elevated net deployment, is this expected to continue? - Management indicated that the elevated originations were partly due to timing and pent-up M&A activity, while remaining cautious about new LBOs and valuations [29]