OAKTREE SPECIALTY LENDING CORPORATION Oaktree Specialty Lending Corporation Announces Fourth Fiscal Quarter and Full Year 2022 Financial Results and Declares Increased Quarterly Distribution of $0.18 Per Share and Special Distribution of $0.14 Per Share
LOS ANGELES, CA, November 15, 2022 - Oaktree Specialty Lending Corporation (NASDAQ: OCSL) ("Oaktree Specialty Lending" or the "Company"), a specialty finance company, today announced its financial results for the fiscal quarter and year ended September 30, 2022.
Financial Highlights for the Quarter and Year Ended September 30, 2022
- Total investment income was $70.1 million ($0.38 per share) and $262.5 million ($1.44 per share) for the fourth fiscal quarter and full year, respectively, as compared with $63.1 million ($0.34 per share) and $209.4 million ($1.29 per share) for the third fiscal quarter of 2022 and the full year of 2021. Adjusted total investment income was $68.0 million ($0.37 per share) and $251.3 million ($1.38 per share) for fiscal quarter and full year ended September 30, 2022, as compared with $60.9 million ($0.33 per share) and $198.1 million ($1.22 per share) for the third fiscal quarter of 2022 and the full year of 2021. The increase for the quarter was primarily driven by higher interest income resulting from rising base rates, partially offset by lower prepayment fees. The increase for the full year was primarily driven by higher interest income resulting from rising base rates and a larger investment portfolio.
- GAAP net investment income was $35.9 million ($0.20 per share) and $148.6 million ($0.82 per share) for the fourth fiscal quarter and full year, respectively, as compared with $40.4 million ($0.22 per share) and $97.1 million ($0.60 per share) for the third fiscal quarter of 2022 and the full year of 2021. The decrease for the quarter was principally from a reversal of accrued capital gains incentive fees in the prior quarter and higher interest expense, partially offset by higher total investment income. The full year increase was primarily driven by higher total investment income and a reversal of accrued capital gains incentive fees, partially offset by higher interest expense, base management fees (net of waivers) and part I incentive fees.
- Adjusted net investment income was $33.7 million ($0.18 per share) and $128.6 million ($0.71 per share) for the fourth fiscal quarter and full year, as compared with $31.4 million ($0.17 per share) and $103.4 million ($0.64 per share) for the third fiscal quarter of 2022 and the full year of 2021. The increase for the quarter primarily reflected higher adjusted total investment income, partially offset by higher interest expense. The increase for the full year was primarily driven by higher adjusted total investment income, partially offset by higher interest expense, base management fees (net of waivers) and part I incentive fees.
- Net asset value ("NAV") per share was $6.79 as of September 30, 2022, as compared with $6.89 as of June 30, 2022. The decrease primarily reflected credit spread widening on debt investments and unrealized losses on certain equity investments, partially offset by undistributed net investment income. The NAV decline from $7.28 as of September 30, 2021 primarily reflected credit spread widening on debt investments and unrealized losses on certain equity investments, partially offset by undistributed net investment income.
- Originated $97.0 million of new investment commitments and received $146.1 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended September 30, 2022. The weighted average yield on new debt investments was 9.9%.
- No investments were on non-accrual status as of September 30, 2022.
- Total debt outstanding was $1,350.0 million as of September 30, 2022. The total debt to equity ratio was 1.08x, and the net debt to equity ratio was 1.06x, after adjusting for cash and cash equivalents.
- Liquidity as of September 30, 2022 was composed of $23.5 million of unrestricted cash and cash equivalents and $500.0 million of undrawn capacity under the credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $224.2 million, or $175.2 million excluding unfunded commitments to the Company's joint ventures. Of the $175.2 million, approximately $141.9 million can be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies.
- A quarterly cash distribution was declared of $0.18 per share, up 6% from the prior quarter and the tenth consecutive quarterly distribution increase. The distribution is payable in cash on December 30, 2022 to stockholders of record on December 15, 2022.
- A special distribution was also declared of $0.14 per share payable in cash on December 30, 2022 to stockholders of record on December 15, 2022.
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Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, "We delivered another quarter of exceptional results, ending our fiscal year with strong momentum. Over the course of the year, we prudently grew our portfolio, selectively investing across non-sponsor and sponsor-owned companies, while maintaining excellent credit quality. Additionally, rising base rates supported investment income, given our portfolio's exposure to floating rate loans. We generated a record level of adjusted net investment income for the year as a result, with an ROE of nearly 10%, and we increased the dividend level by 16%. As we look ahead to fiscal year 2023, we believe our substantial dry powder and defensively positioned portfolio position us well for what looks to be a continuing volatile market environment."
Distribution Declaration
The Board of Directors declared a quarterly distribution of $0.18 per share, an increase of 6%, or $0.01 per share, from the prior quarter and the tenth consecutive quarterly distribution increase. The distribution is payable in cash on December 30, 2022 to stockholders of record on December 15, 2022.
The Board of Directors also declared a special distribution of $0.14 per share payable in cash on December 30, 2022 to stockholders of record on December 15, 2022 to offset an increase in taxable income driven by gains on foreign currency forward contracts and equity investments held through a taxable subsidiary.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company's stockholders.
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Results of Operations
For the three months ended | For the year ended | |||||||||||||
September 30, | June 30, 2022 | September 30, | September 30, | September 30, | ||||||||||
($ in thousands, except per share data) | 2022 | 2021 | ||||||||||||
(unaudited) | (unaudited) | (unaudited) | 2022 | 2021 | ||||||||||
GAAP operating results: | ||||||||||||||
Interest income | $ | 61,719 | $ | 54,728 | $ | 55,094 | $ | 228,916 | $ | 174,381 | ||||
PIK interest income | 6,011 | 5,178 | 4,960 | 20,526 | 16,447 | |||||||||
Fee income | 1,539 | 2,275 | 645 | 6,631 | 14,098 | |||||||||
Dividend income | 875 | 956 | 3,101 | 6,447 | 4,459 | |||||||||
Total investment income | 70,144 | 63,137 | 63,800 | 262,520 | 209,385 | |||||||||
Net expenses | 34,286 | 22,767 | 28,321 | 110,591 | 109,484 | |||||||||
Net investment income before taxes | 35,858 | 40,370 | 35,479 | 151,929 | 99,901 | |||||||||
(Provision) benefit for taxes on net investment income | - | - | (2,437) | (3,308) | (2,795) | |||||||||
Net investment income | 35,858 | 40,370 | 33,042 | 148,621 | 97,106 | |||||||||
Net realized and unrealized gains (losses), net of taxes | (22,650) | (78,204) | 3,519 | (119,398) | 140,154 | |||||||||
Net increase (decrease) in net assets resulting from operations | $ | 13,208 | $ | (37,834) | $ | 36,561 | $ | 29,223 | $ | 237,260 | ||||
Total investment income per common share | ||||||||||||||
$ | 0.38 | $ | 0.34 | $ | 0.35 | $ | 1.44 | $ | 1.29 | |||||
Net investment income per common share | $ | 0.20 | $ | 0.22 | $ | 0.18 | $ | 0.82 | $ | 0.60 | ||||
Net realized and unrealized gains (losses), net of taxes per | $ | (0.12) | $ | (0.43) | $ | 0.02 | $ | (0.66) | $ | 0.86 | ||||
common share | ||||||||||||||
Earnings (loss) per common share - basic and diluted | $ | 0.07 | $ | (0.21) | $ | 0.20 | $ | 0.16 | $ | 1.46 | ||||
Non-GAAP Financial Measures1: | ||||||||||||||
Adjusted total investment income | $ | 67,971 | $ | 60,949 | $ | 58,229 | $ | 251,303 | $ | 198,089 | ||||
Adjusted net investment income | $ | 33,685 | $ | 31,386 | $ | 29,100 | $ | 128,613 | $ | 103,425 | ||||
Adjusted net realized and unrealized gains (losses), net of taxes | $ | (20,477) | $ | (76,016) | $ | 9,088 | $ | (108,183) | $ | 117,372 | ||||
Adjusted earnings (loss) | $ | 13,208 | $ | (37,834) | $ | 36,559 | $ | 29,221 | $ | 203,182 | ||||
Adjusted total investment income per share | $ | 0.37 | $ | 0.33 | $ | 0.32 | $ | 1.38 | $ | 1.22 | ||||
Adjusted net investment income per share | $ | 0.18 | $ | 0.17 | $ | 0.16 | $ | 0.71 | $ | 0.64 | ||||
Adjusted net realized and unrealized gains (losses), net of taxes | $ | (0.11) | $ | (0.41) | $ | 0.05 | $ | (0.59) | $ | 0.72 | ||||
per share | ||||||||||||||
Adjusted earnings (loss) per share | $ | 0.07 | $ | (0.21) | $ | 0.20 | $ | 0.16 | $ | 1.25 |
______________________
- See Non-GAAPFinancial Measures below for a description of the non-GAAP measures and the reconciliations from the most comparable GAAP financial measures to the Company's non-GAAP measures, including on a per share basis. The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company's performance without giving effect to non-cash income/ gain resulting from the merger of Oaktree Strategic Income Corporation with and into the Company (the "OCSI Merger") and in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.
As of | ||||||||
($ in thousands, except per share data and ratios) | September 30, 2022 | June 30, 2022 | September 30, 2021 | |||||
(unaudited) | ||||||||
Select balance sheet and other data: | ||||||||
Cash and cash equivalents | $ | 23,528 | $ | 34,306 | $ | 29,334 | ||
Investment portfolio at fair value | 2,494,111 | 2,565,389 | 2,556,629 | |||||
Total debt outstanding (net of unamortized financing costs) | 1,301,043 | 1,356,606 | 1,268,743 | |||||
Net assets | 1,245,563 | 1,263,529 | 1,312,823 | |||||
Net asset value per share | 6.79 | 6.89 | 7.28 | |||||
Total debt to equity ratio | 1.08x | 1.10x | 0.97x | |||||
Net debt to equity ratio | 1.06x | 1.08x | 0.95x |
Adjusted total investment income for the quarter ended September 30, 2022 was $68.0 million and included $59.6 million of interest income from portfolio investments, $6.0 million of payment-in-kind ("PIK") interest income, $1.5 million of fee income and $0.9 million of dividend income. The increase of $7.0 million was primarily driven by $7.8 million of higher interest income primarily driven by the impact of rising interest rates on the Company's floating rate investments, partially offset by $0.7 million of lower fee income primarily driven by lower prepayment fees.
Adjusted total investment income for full-year 2022 was $251.3 million and included $217.8 million of interest income from portfolio investments, $20.5 million of payment-in-kind ("PIK") interest income, $6.6 million of fee income and $6.4 million of dividend income. The increase of $53.2 million for the year ended September 30, 2022 was primarily driven by $58.7 million of higher interest income principally due to the impact of rising interest rates on our floating rate investments and net portfolio growth from new originations and the increase in assets resulting from the OCSI Merger that was completed during the quarter ended March 31, 2021. Also contributing to the increase was $2.0 million of higher dividend income primarily
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driven by higher dividends received from the Company's investment in the SLF JV I, partially offset by $7.5 million of lower fee income primarily driven by lower prepayment fees.
Net expenses for the quarter ended September 30, 2022 totaled $34.3 million, up $11.5 million from the quarter ended June 30, 2022. The increase primarily reflected a $6.8 million reversal of accrued capital gains incentive fees in the prior quarter, $3.9 million of higher interest expense as a result of the impact of rising interest rates on the Company's floating rate liabilities, $0.5 million of higher part I incentive fees and $0.5 million of higher professional fees.
Net expenses for full-year 2022 totaled $110.6 million, up $1.1 million from the year ended September 30, 2021. The increase was primarily driven by $16.4 million of higher interest expense as a result of higher average borrowings outstanding and the impact of rising interest rates on the Company's floating rate liabilities, $5.9 million of higher management fees (net of waivers) as a result of a larger investment portfolio and $5.0 million of higher part I incentive fees. This was partially offset by $26.4 million of lower accrued capital gains incentive fees.
Adjusted net investment income was $33.7 million ($0.18 per share) for the quarter ended September 30, 2022, up from $31.4 million ($0.17 per share) for the quarter ended June 30, 2022. The increase of $2.3 million primarily reflected $7.0 million of higher adjusted total investment income, partially offset by $3.9 million of higher interest expense, $0.5 million of higher part I incentive fees and $0.5 million of higher professional fees.
Adjusted net investment income was $128.6 million ($0.71 per share) for full-year 2022, up from $103.4 million ($0.64 per share) for the year ended September 30, 2021. The increase of $25.2 million primarily reflected $53.2 million of higher adjusted total investment income, partially offset by $16.4 million of higher interest expense, $5.9 million of higher management fees (net of waivers) and $5.0 million of higher part I incentive fees.
Adjusted net realized and unrealized losses, net of taxes, were $20.5 million and $108.2 million for the quarter and year ended September 30, 2022, primarily reflecting credit spread widening on debt investments and unrealized losses on certain equity investments.
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Portfolio and Investment Activity
As of
($ in thousands) | September 30, 2022 | June 30, 2022 | September 30, 2021 | |||||
(unaudited) | (unaudited) | (unaudited) | ||||||
Investments at fair value | $ | 2,494,111 | $ | 2,565,389 | $ | 2,556,629 | ||
Number of portfolio companies | 149 | 151 | 138 | |||||
Average portfolio company debt size | $ | 16,500 | $ | 16,700 | $ | 18,700 | ||
Asset class: | ||||||||
Senior secured debt | 86.9 % | 86.6 % | 86.7 % | |||||
Unsecured debt | 2.3 % | 2.5 % | 1.7 % | |||||
Equity | 4.2 % | 4.3 % | 4.2 % | |||||
JV interests | 6.7 % | 6.6 % | 7.4 % | |||||
- % | ||||||||
Non-accrual debt investments: | ||||||||
Non-accrual investments at fair value | $ | - | $ | - | $ | - | ||
Non-accrual investments as a percentage of debt investments | - % | - % | - % | |||||
Number of investments on non-accrual | - | - | - | |||||
Interest rate type: | ||||||||
Percentage floating-rate | 86.5 % | 87.8 % | 91.5 % | |||||
Percentage fixed-rate | 13.5 % | 12.2 % | 8.5 % | |||||
Yields: | ||||||||
Weighted average yield on debt investments1 | 10.6 % | 9.3 % | 8.7 % | |||||
Cash component of weighted average yield on debt investments | 9.3 % | 8.2 % | 7.4 % | |||||
Weighted average yield on total portfolio investments2 | 10.2 % | 9.0 % | 8.3 % | |||||
Investment activity: | ||||||||
New investment commitments | $ | 97,000 | $ | 131,900 | $ | 385,000 | ||
New funded investment activity3 | $ | 84,500 | $ | 130,000 | $ | 416,400 | ||
Proceeds from prepayments, exits, other paydowns and sales | $ | 146,100 | $ | 129,900 | $ | 201,800 | ||
Net new investments4 | $ | (61,600) | $ | 100 | $ | 214,600 | ||
Number of new investment commitments in new portfolio companies | 6 | 12 | 14 | |||||
Number of new investment commitments in existing portfolio companies | 5 | 16 | 6 | |||||
Number of portfolio company exits | 8 | 7 | 11 |
______________________
- Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments, including the Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis
established by ASC 805 (see Non-GAAP Financial Measures below) for the assets acquired in connection with the OCSI Merger.
- Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments and dividend income, including the
Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 for the assets acquired in connection with the OCSI Merger.
- New funded investment activity includes drawdowns on existing revolver and delayed draw term loan commitments.
- Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.
As of September 30, 2022, the fair value of the investment portfolio was $2.5 billion and was composed of investments in 149 companies. These included debt investments in 135 companies, equity investments in 38 companies, and the Company's joint venture investments in SLF JV I ("SLF JV I") and OCSI Glick JV LLC ("Glick JV"). 26 of the equity investments were in companies in which the Company also had a debt investment.
As of September 30, 2022, 95.0% of the Company's portfolio at fair value consisted of debt investments, including 71.2% of first lien loans, 15.7% of second lien loans and 8.1% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV. This compared to 70.0% of first lien loans, 16.6% of second lien loans and 8.2% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV, as of June 30, 2022.
As of September 30, 2022, there were no investments on non-accrual status.
The Company's investments in SLF JV I totaled $117.0 million at fair value as of September 30, 2022, down 2% from $119.3 million as of June 30, 2022. The decrease was primarily driven by SLF JV's use of leverage and unrealized price declines in
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Oaktree Specialty Lending Corporation published this content on 15 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 November 2022 11:10:46 UTC.
