Oaktree Specialty Lending (OCSL) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net investment income for Q4 2025 was $35.4 million or $0.40 per share, up from $32.5 million or $0.37 per share in the prior quarter, reflecting a return to normalized prepayment fees and lower interest expenses [4][18] - NAV per share decreased to $16.64 from $16.76 in the previous quarter due to unrealized depreciation on certain investments [18] - Adjusted total investment income increased to $76.9 million compared to $74.3 million in the third quarter, driven by higher prepayment fees and dividend income [18] Business Line Data and Key Metrics Changes - New-funded investment commitments amounted to $220 million, up 54% from the prior quarter, with first-lien loans representing 88% of new originations [11] - The weighted average yield on debt investments was 9.8%, with a median EBITDA of portfolio companies at approximately $150 million, reflecting a slight decrease from the prior quarter [13] Market Data and Key Metrics Changes - Private credit deal flows showed modest improvement, although the quality of deals was mixed, with a steady supply of high-quality opportunities alongside lower-quality deals [8] - The tightening of private credit spreads was noted, with spreads bottoming out at SOFR plus 450, indicating a cautious optimism in the market [9] Company Strategy and Development Direction - The company aims to prudently increase balance sheet leverage to enhance earnings power and deploy capital into interesting investment opportunities, maintaining a conservative leverage ratio of 0.97 times [6] - Focus on reducing non-accruals and optimizing joint ventures to improve earnings power and support net investment income [6] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious optimism regarding the long-term outlook on private credit, emphasizing the value of speed and assurance in deal execution for issuers [9] - The company does not expect outsized repayments for the December quarter and anticipates a deployment level consistent with past quarters [24] Other Important Information - The company has ample liquidity of approximately $695 million, including $80 million in cash and $615 million in undrawn capacity on its credit facility [20] - The joint ventures currently hold $513 million of investments, generating ROEs of 12.4% in aggregate during the fourth quarter [20] Q&A Session Summary Question: Expectations around investment activity in the December quarter - Management does not expect any outsized repayments and anticipates deployment levels to be consistent with past December quarters [24] Question: Yield on new investments and pipeline for complex transactions - The yield on new investments was higher due to the complexity of the Walgreens deal, but management does not foresee similar high-spread loans in the upcoming quarter [25][27] Question: Non-accruals in healthcare and pharma segments - Management noted that there are a few larger positions in life sciences that continue to be subject to workouts, with stable to slightly improving conditions [30][32]