Fitch Ratings has assigned a rating of 'BBB-' to Oaktree Specialty Lending Corporation's (OCSL) $300 million, 7.1%, unsecured notes maturing in February 2029.

Fitch does not expect there to be an impact on the company's leverage levels as a result of the issuance, as proceeds are expected to be used largely to repay outstanding borrowings under its revolving credit facilities and for general corporate purposes.

Key Rating Drivers

The assigned ratings reflect OCSL's access to investment resources from Oaktree Fund Advisors, focus on senior debt investments, solid asset quality metrics and appropriate asset coverage cushion.

Rating constraints include the higher-than-peer exposure to nonqualifying assets; and above-average, albeit declining, exposure to broadly syndicated loans which can result in higher valuation volatility.

Rating constraints for BDCs more broadly include the market impact on leverage, given the need to fair-value the portfolio quarterly, dependence on access to the capital markets to fund growth and a limited ability to retain capital due to distribution requirements. Fitch also believes BDCs will experience weaker asset quality metrics in 2023 amid higher interest rates and slower growth at portfolio companies.

The Stable Rating Outlook reflects Fitch's expectations that OCSL will continue to demonstrate solid asset quality metrics, focus on senior debt investments, manage leverage within the targeted range, maintain unsecured debt-to-total debt of at least 35%, and maintain sufficient liquidity and solid dividend coverage.


Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A sustained meaningful increase in non-accrual levels and/or realized losses, a sustained increase in leverage above the targeted range, a sustained decline in unsecured debt to below 35% of total debt outstanding and/or weaker cash-based NII coverage of the dividend.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Strong and differentiated credit performance of recent vintages, evaluated in combination with the consistency of OCSL's operating performance, asset quality metrics, investment valuations and underlying portfolio metrics could drive positive rating momentum. Positive rating momentum would also be conditioned upon an increase in unsecured debt to above 40% of total debt outstanding and the maintenance of sufficient liquidity, leverage levels commensurate with the risk profile of the portfolio and solid cash earnings coverage of the dividend.


The unsecured debt rating is equalized with the ratings assigned to OCSL's existing senior unsecured debt as the new notes will rank equally in the capital structure. The equalization of the unsecured ratings with the secured debt rating reflects OCSL's relatively low leverage and Fitch's expectation that proceeds from the issuance will be used to repay secured debt outstanding, thus increasing the amount of unsecured funding in the capital structure.


The unsecured debt rating is primarily linked to the Long-Term Issuer Default Rating (IDR)and is expected to move in tandem. However, a material reduction in unsecured debt as a proportion of total debt could result in the unsecured debt rating being notched down from the IDR.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit

Date of Relevant Committee

31 March 2023


The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit

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