UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 2018
Oaktree Specialty Lending Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 814-00755 | 26-1219283 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 333 South Grand Avenue, 28th Floor Los Angeles, CA |
90071 | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code: (213) 830-6300
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
On May 8, 2018, Oaktree Specialty Lending Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended March 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1.
On May 8, 2018, the Company will host a conference call to discuss its financial results for the fiscal quarter ended March 31, 2018. In connection therewith, the Company provided an investor presentation on its website at http://www.oaktreespecialtylending.com. A copy of the investor presentation is attached hereto as Exhibit 99.2.
The information disclosed under this Item 2.02, including Exhibits 99.1 and 99.2 hereto, is being “furnished” and is not deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor is it deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits |
| 99.1 | Press release of Oaktree Specialty Lending Corporation dated May 8, 2018 | |
| 99.2 | Oaktree Specialty Lending Corporation Second Quarter 2018 Earnings Presentation | |
SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| OAKTREE SPECIALTY LENDING CORPORATION | ||||||
| Date: May 8, 2018 | By: | /s/ Mel Carlisle | ||||
| Name: | Mel Carlisle | |||||
| Title: | Chief Financial Officer and Treasurer | |||||
Exhibit 99.1
Oaktree Specialty Lending Corporation Announces Second Fiscal Quarter 2018 Financial Results
LOS ANGELES, CA, May 8, 2018 - 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 ended March 31, 2018.
Second Fiscal Quarter 2018 Highlights
| • | Total investment income of $34.8 million, or $0.25 per share; |
| • | Net investment income of $15.3 million, or $0.11 per share; |
| • | Net asset value per share as of March 31, 2018 of $5.87; and |
| • | Originated $223.2 million of new investment commitments and received $151.8 million in connection with five full repayments and exits of investments. |
Management Commentary
“We have made measurable progress in executing on our plan to reposition the portfolio and enhance its return on equity,” said Edgar Lee, Chief Executive Officer and Chief Investment Officer of Oaktree Specialty Lending. “In the second quarter, we continued to reduce non-core investments, while redeploying capital into $223 million of new investments better aligned with Oaktree’s investment approach. The significant advantages of Oaktree’s platform, including scale, relationships and a disciplined approach to credit investing have begun to show tangible results for OCSL.”
Portfolio and Investment Activity
As of March 31, 2018, the fair value of the investment portfolio was $1.4 billion and was comprised of investments in 115 companies. These included loans to 72 companies, 8 public bond issuances, the investment in Senior Loan Fund JV I, LLC (“SLF JV I”) and equity investments in 59 companies, including in SLF JV I and 16 private equity funds. 25 of these equity investments were in companies in which Oaktree Specialty Lending also had a debt investment.
At fair value, 92.4% of the Company’s portfolio as of March 31, 2018 consisted of debt investments, including 52.8% of first lien loans, 23.8% of second lien loans and 15.8% of unsecured debt investments, including the debt investments in SLF JV I.
As of March 31, 2018, SLF JV I had $322.9 million in assets, including senior secured loans to 40 portfolio companies. The joint venture generated income of $4.2 million for Oaktree Specialty Lending during the second quarter.
The weighted average yield on the Company’s debt investments as of March 31, 2018, including the return on our mezzanine note investments in SLF JV I, was 9.3%.
As of March 31, 2018, $1.1 billion of the Company’s debt investments, or 84.6% of the total debt portfolio, at fair value, had floating interest rates.
During the quarter ended March 31, 2018, the Company originated $223.2 million of investment commitments, including investments in nine new and one existing portfolio company, and funded $227.8 million of investments across new and existing portfolio companies.
During the quarter, the Company received $151.8 million from the full repayments and exits of five investments, and $90.1 million from other paydowns and sales of investments.
Results of Operations
Total investment income for the quarter ended March 31, 2018 was $34.8 million, including $26.6 million of cash interest income from portfolio investments. Payment-in-kind (“PIK”) interest income, net of PIK collected in cash, represented 5.3% of total investment income for the quarter ended March 31, 2018.
Net expenses for the quarter were $19.5 million, a decrease of $1.0 million from the quarter ended December 31, 2017. The decrease in net expenses was due primarily to a decrease in professional fees, interest expense and general and administrative expenses, partially offset by an increase in Part I incentive fees.
Net unrealized depreciation on the investment portfolio for the quarter was $0.4 million and net realized gains on investments and secured borrowings for the quarter were $4.9 million.
Liquidity and Capital Resources
As of March 31, 2018, the Company had $8.2 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $586.0 million and $417.0 million of undrawn capacity on its credit facility, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 4.9% as of March 31, 2018.
As of March 31, 2018, the Company’s total leverage ratio was 0.71x debt-to-equity.
Dividend Declaration
The Board of Directors declared a quarterly dividend of $0.095 per share, payable on June 29, 2018 to stockholders of record on June 15, 2018.
Dividends are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of dividend distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.
Portfolio Asset Quality
As of March 31, 2018, there were eight investments on which the Company had stopped accruing cash and/or PIK interest or original issue discount (“OID”) income that, in the aggregate, represented 12.8% of the debt portfolio at cost and 2.4% at fair value.
| ($ in thousands) | ||||||||
| Non-Accrual - Debt Investments |
As of March 31, 2018 | As of September 30, 2017 | ||||||
| Non-Accrual Investments at Fair Value |
$ | 30,886 | $ | 67,015 | ||||
| Non-Accrual Investments/Total Investments at Fair Value |
2.4 | % | 4.7 | % | ||||
Oaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)
| March 31, 2018 (unaudited) |
December 31, 2017 (unaudited) |
September 30, 2017 |
||||||||||
| ASSETS | ||||||||||||
| Investments at fair value: |
||||||||||||
| Control investments (cost March 31, 2018: $431,809; cost December 31, 2017: $438,415; cost September 30, 2017: $444,826) |
$ | 285,079 | $ | 297,534 | $ | 305,271 | ||||||
| Affiliate investments (cost March 31, 2018: $10,881; cost December 31, 2017: 33,397; cost September 30, 2017: $33,743) |
11,890 | 36,469 | 36,983 | |||||||||
|
Non-control/Non-affiliate investments (cost March 31, 2018: $1,219,816; cost December 31, 2017: 1,204,629; cost September 30, 2017: $1,279,096) |
1,103,715 | 1,081,401 | 1,199,501 | |||||||||
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| Total investments at fair value (cost March 31, 2018: $1,662,506; cost December 31, 2017: 1,676,441; cost September 30, 2017: $1,757,665) |
1,400,684 | 1,415,404 | 1,541,755 | |||||||||
| Cash and cash equivalents |
7,951 | 45,435 | 53,018 | |||||||||
| Restricted cash |
204 | 319 | 6,895 | |||||||||
| Interest, dividends and fees receivable |
7,771 | 9,082 | 6,892 | |||||||||
| Due from portfolio companies |
5,676 | 5,368 | 5,670 | |||||||||
| Receivables from unsettled transactions |
12,852 | 8,869 | — | |||||||||
| Deferred financing costs |
6,031 | 6,443 | 1,304 | |||||||||
| Other assets |
3,346 | 3,260 | 514 | |||||||||
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| Total assets |
$ | 1,444,515 | $ | 1,494,180 | $ | 1,616,048 | ||||||
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| LIABILITIES AND NET ASSETS | ||||||||||||
| Liabilities: |
||||||||||||
| Accounts payable, accrued expenses and other liabilities |
$ | 2,986 | $ | 3,490 | $ | 2,417 | ||||||
| Base management fee and Part I incentive fee payable |
8,594 | 6,286 | 6,750 | |||||||||
| Due to affiliate |
1,709 | 1,534 | 1,815 | |||||||||
| Interest payable |
3,278 | 6,547 | 3,167 | |||||||||
| Amounts payable to syndication partners |
1 | — | 1 | |||||||||
| Director fees payable |
176 | 176 | 184 | |||||||||
| Payables from unsettled transactions |
21,107 | 33,465 | 58,691 | |||||||||
| Credit facilities payable |
183,000 | 205,000 | 255,995 | |||||||||
| Unsecured notes payable (net of $4,058, $4,432 and $4,737 of unamortized financing costs as of March 31, 2018, December 31, 2017 and September 30, 2017, respectively) |
385,778 | 406,486 | 406,115 | |||||||||
| Secured borrowings at fair value (proceeds March 31, 2018: $12,948; proceeds December 31, 2017: $13,489; proceeds September 30, 2017: $13,489) |
10,652 | 11,601 | 13,256 | |||||||||
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| Total liabilities |
617,281 | 674,585 | 748,391 | |||||||||
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| Commitments and contingencies |
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| Net assets: |
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| Common stock, $0.01 par value, 250,000 shares authorized; 140,961 shares issued and outstanding as of March 31, 2018, December 31, 2017 and September 30, 2017 |
1,409 | 1,409 | 1,409 | |||||||||
| Additional paid-in-capital |
1,579,278 | 1,579,278 | 1,579,278 | |||||||||
| Net unrealized depreciation on investments and secured borrowings |
(259,526 | ) | (259,149 | ) | (215,677 | ) | ||||||
| Net realized loss on investments, secured borrowings and unsecured notes payable |
(473,567 | ) | (478,301 | ) | (478,010 | ) | ||||||
| Accumulated overdistributed net investment income |
(20,360 | ) | (23,642 | ) | (19,343 | ) | ||||||
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| Total net assets (equivalent to $5.87, $5.81 and $6.16 per common share at March 31, 2018, December 31, 2017 and September 30, 2017, respectively) |
827,234 | 819,595 | 867,657 | |||||||||
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| Total liabilities and net assets |
$ | 1,444,515 | $ | 1,494,180 | $ | 1,616,048 | ||||||
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Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three months ended March 31, 2018 |
Three months ended December 31, 2017 |
Three months ended March 31, 2017 |
Six months ended March 31, 2018 |
Six months ended March 31, 2017 |
||||||||||||||||
| Interest income: |
||||||||||||||||||||
| Control investments |
$ | 3,071 | $ | 3,203 | $ | 2,949 | $ | 6,274 | $ | 7,394 | ||||||||||
| Affiliate investments |
917 | 949 | 976 | 1,866 | 1,984 | |||||||||||||||
|
Non-control/Non-affiliate investments |
22,533 | 25,565 | 34,216 | 48,098 | 72,517 | |||||||||||||||
| Interest on cash and cash equivalents |
112 | 221 | 164 | 333 | 283 | |||||||||||||||
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| Total interest income |
26,633 | 29,938 | 38,305 | 56,571 | 82,178 | |||||||||||||||
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| PIK interest income: |
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| Control investments |
1,210 | 1,191 | 2,362 | 2,401 | 3,922 | |||||||||||||||
| Affiliate investments |
188 | 176 | 196 | 364 | 397 | |||||||||||||||
|
Non-control/Non-affiliate investments |
548 | 500 | 997 | 1,048 | 2,073 | |||||||||||||||
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| Total PIK interest income |
1,946 | 1,867 | 3,555 | 3,813 | 6,392 | |||||||||||||||
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| Fee income: |
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| Control investments |
128 | 120 | 313 | 248 | 622 | |||||||||||||||
| Affiliate investments |
44 | 4 | 247 | 48 | 729 | |||||||||||||||
|
Non-control/Non-affiliate investments |
3,770 | 907 | 2,293 | 4,677 | 5,070 | |||||||||||||||
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| Total fee income |
3,942 | 1,031 | 2,853 | 4,973 | 6,421 | |||||||||||||||
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| Dividend and other income: |
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| Control investments |
2,258 | 1,040 | 842 | 3,298 | 2,304 | |||||||||||||||
|
Non-control/Non-affiliate investments |
— | — | — | — | 20 | |||||||||||||||
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| Total dividend and other income |
2,258 | 1,040 | 842 | 3,298 | 2,324 | |||||||||||||||
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| Total investment income |
34,779 | 33,876 | 45,555 | 68,655 | 97,315 | |||||||||||||||
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| Expenses: |
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| Base management fee |
5,386 | 5,590 | 8,035 | 10,976 | 16,649 | |||||||||||||||
| Part I incentive fee |
3,247 | 830 | 3,168 | 4,077 | 7,231 | |||||||||||||||
| Professional fees |
1,015 | 2,898 | 1,723 | 3,913 | 2,787 | |||||||||||||||
| Board of Directors fees |
177 | 176 | 193 | 353 | 390 | |||||||||||||||
| Interest expense |
8,530 | 9,584 | 12,712 | 18,114 | 25,901 | |||||||||||||||
| Administrator expense |
391 | 494 | 619 | 885 | 1,150 | |||||||||||||||
| General and administrative expenses |
722 | 1,116 | 1,319 | 1,838 | 2,787 | |||||||||||||||
| Loss on legal settlements |
— | — | — | — | 3 | |||||||||||||||
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| Total expenses |
19,468 | 20,688 | 27,769 | 40,156 | 56,898 | |||||||||||||||
| Fees waived |
48 | (134 | ) | (61 | ) | (86 | ) | (122 | ) | |||||||||||
| Insurance recoveries |
— | — | (657 | ) | — | (1,259 | ) | |||||||||||||
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| Net expenses |
19,516 | 20,554 | 27,051 | 40,070 | 55,517 | |||||||||||||||
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| Net investment income |
15,263 | 13,322 | 18,504 | 28,585 | 41,798 | |||||||||||||||
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| Unrealized appreciation (depreciation) on investments: |
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| Control investments |
(5,849 | ) | (1,326 | ) | 13,172 | (7,175 | ) | 14,509 | ||||||||||||
| Affiliate investments |
(2,063 | ) | (168 | ) | (687 | ) | (2,231 | ) | (662 | ) | ||||||||||
|
Non-control/Non-affiliate investments |
7,127 | (43,633 | ) | 94,039 | (36,506 | ) | 18,321 | |||||||||||||
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| Net unrealized appreciation (depreciation) on investments |
(785 | ) | (45,127 | ) | 106,524 | (45,912 | ) | 32,168 | ||||||||||||
| Net unrealized (appreciation) depreciation on secured borrowings |
408 | 1,655 | (334 | ) | 2,063 | (418 | ) | |||||||||||||
| Realized gain (loss) on investments and secured borrowings: |
||||||||||||||||||||
| Control investments |
— | — | (22,312 | ) | — | (45,936 | ) | |||||||||||||
| Affiliate investments |
2,048 | — | — | 2,048 | — | |||||||||||||||
|
Non-control/Non-affiliate investments |
2,806 | (291 | ) | (93,581 | ) | 2,515 | (93,053 | ) | ||||||||||||
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| Net realized gain (loss) on investments and secured borrowings |
4,854 | (291 | ) | (115,893 | ) | 4,563 | (138,989 | ) | ||||||||||||
| Redemption premium on unsecured notes payable |
(120 | ) | — | — | (120 | ) | — | |||||||||||||
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| Net increase (decrease) in net assets resulting from operations |
$ | 19,620 | $ | (30,441 | ) | $ | 8,801 | $ | (10,821 | ) | $ | (65,441 | ) | |||||||
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| Net investment income per common share — basic |
$ | 0.11 | $ | 0.09 | $ | 0.13 | $ | 0.20 | $ | 0.29 | ||||||||||
| Earnings (loss) per common share — basic |
$ | 0.14 | $ | (0.22 | ) | $ | 0.06 | $ | (0.08 | ) | $ | (0.46 | ) | |||||||
| Weighted average common shares outstanding — basic |
140,961 | 140,961 | 140,961 | 140,961 | 141,917 | |||||||||||||||
| Net investment income per common share — diluted |
$ | 0.11 | $ | 0.09 | $ | 0.13 | $ | 0.20 | $ | 0.29 | ||||||||||
| Earnings (loss) per common share — diluted |
$ | 0.14 | $ | (0.22 | ) | $ | 0.06 | $ | (0.08 | ) | $ | (0.46 | ) | |||||||
| Weighted average common shares outstanding — diluted |
140,961 | 140,961 | 140,961 | 140,961 | 141,917 | |||||||||||||||
| Distributions per common share |
$ | 0.085 | $ | 0.125 | $ | 0.14 | $ | 0.21 | $ | 0.32 | ||||||||||
Conference Call Information
Oaktree Specialty Lending will host a conference call to discuss its second fiscal quarter 2018 results at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time on May 8, 2018. The conference call may be accessed by dialing (877) 507-3275 (U.S. callers) or +1 (412) 317-5238 (non-U.S. callers), participant password “Oaktree Specialty Lending.” During the earnings conference call, Oaktree Specialty Lending intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Specialty Lending website, www.oaktreespecialtylending.com. Alternatively, a live webcast of the conference call can be accessed on Oaktree Specialty Lending’s website.
For those individuals unable to listen to the live broadcast of the conference call, a replay will be available for 30 days on Oaktree Specialty Lending’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10118718, beginning approximately one hour after the broadcast.
About Oaktree Specialty Lending Corporation
Oaktree Specialty Lending Corporation (NASDAQ:OCSL) is a specialty finance company dedicated to providing customized one-stop credit solutions to companies with limited access to public or syndicated capital markets. The firm seeks to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions including first and second lien loans, unsecured and mezzanine loans, and preferred equity. The company is regulated as a business development company under the Investment Company Act of 1940, as amended. Oaktree Specialty Lending is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Specialty Lending’s website at www.oaktreespecialtylending.com.
Forward-Looking Statements
Some of the statements in this press release constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements may include statements as to: our future operating results and distribution projections; our business prospects and the prospects of our portfolio companies; and the impact of the investments that we expect to make. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this press release involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Contacts
Investor Relations:
Oaktree Specialty Lending Corporation
Michael Mosticchio
(212) 284-1900
ocsl-ir@oaktreecapital.com
Media Relations:
Financial Profiles, Inc.
Moira Conlon
(310) 478-2700
mediainquiries@oaktreecapital.com
Second Quarter Fiscal Year 2018 Earnings Presentation May 8, 2018 Nasdaq: OCSL Exhibit 99.2
Forward Looking Statements Some of the statements in this presentation constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this presentation may include statements as to: our future operating results and distribution projections; the ability of our Investment Adviser to find lower-risk investments to reposition our portfolio and to implement our Investment Adviser’s future plans with respect to our business; our business prospects and the prospects of our portfolio companies; the impact of the investments that we expect to make; the ability of our portfolio companies to achieve their objectives; our expected financings and investments; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our portfolio companies; and the cost or potential outcome of any litigation to which we may be a party. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this presentation involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings. We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Unless otherwise indicated, data provided herein are dated as of March 31, 2018.
Q2 2018 Accomplishments and Highlights Net asset value per share of $5.87 as of March 31, 2018 vs. $5.81 as of December 31, 2017 Credit quality remained stable as NAV per share increased $0.06 from December 31, 2017 Monetized $122 million of non-core investments during Q2 2018 Non-core investments represented 42% of the portfolio at fair value as of March 31, 20181 We expect non-core investments will decline to approximately one third of our portfolio by the end of next quarter, based on monetizations that we anticipate will occur before June 30, 2018 Monetized $357 million of non-core investments since September 30, 2017 Entered into $223 million of new investment commitments Primary focus on credit selection in a low yield environment First lien originations represented 43% of new investment commitments Net investment income per share of $0.11 for the quarter ended March 31, 2018 vs. $0.09 for the quarter ended December 31, 2017 Our Board of Directors declared a dividend of $0.095 per share (an increase of $0.01 per share); payable on June 29, 2018 to stockholders of record as of June 15, 2018 1Excludes investments in Kemper JV.
Portfolio Summary as of March 31, 2018 (As % of total portfolio, at fair value; $ in millions) (As % of total portfolio, at fair value) Portfolio Composition Top 10 Industries4 Portfolio Characteristics (at fair value) As of March 31, 2018, unless otherwise noted 1Includes the investments in Kemper JV. 2Liquid investments are investments that had publicly quoted valuations. 3Debt portfolio excludes the investments in Kemper JV. 4Excludes multi-sector holdings, which includes our investments in the Kemper JV and limited partnership interests. $1.4 billion invested in 115 companies 92% of the total portfolio consists of debt investments1 $15 million average debt investment size $452 million or 39% of debt portfolio considered liquid investments2,3 9.3% weighted average yield on debt investments, increased from 9.0% as of December 31, 2017 85% of debt portfolio consists of floating rate investments3
Portfolio Summary: Core vs. Non-core Assets $732 million (58% of the total portfolio at fair value) Average debt price: 99.6% Represents 45 companies, an increase from 42 in Q1 2018 $223 million of investments originated during Q2 2018 Non-core Investments1 ($ in millions, at fair value) As of March 31, 2018, unless otherwise noted Note:Numbers rounded to the nearest million or percentage point. 1Total portfolio excludes investments in Kemper JV. -11% Core Investments1 Performing Investments Underperforming Investments $427 million (34% of the total portfolio at fair value) Represents 60 companies, down from 70 in Q1 2018 $109 million (9% of the total portfolio at fair value), down from $122 million at fair value in Q1 2018 Represents 9 companies
Non-core: Performing Investments Investment Portfolio Characteristics $332 million – Debt investments at fair value Reduction of approximately $99 million during the quarter which were executed at or above December 31, 2017 fair values $284 million – private loans We expect to exit over 30% of the remaining non-core investments during Q3 2018 Average debt price: 98.7% Average net leverage thru tranche1: 3.6x $47 million – publicly quoted liquid loans $96 million – Equity and limited partnership interests Reduction of $9 million during the quarter across 6 issuers All monetized at or above December 31, 2017 fair values (As % of non-core performing investment portfolio, at fair value; $ in millions) Non-core: Performing Investments by Type As of March 31, 2018, unless otherwise noted Note:Numbers may not sum due to rounding. 1Excludes our sole venture lending investment and investments in aviation companies. -42% ($ in millions) Non-core: Performing Portfolio Trend
Non-core: Underperforming Investments Non-core: Underperforming by Type Investment Portfolio Characteristics (As % of non-core underperforming investment portfolio, at fair value; $ in millions) $109 million of non-core, underperforming investments $31 million on non-accrual, down from $41 million as of December 31, 2017 9 companies Average debt price: 33.8% Over 75% of the Q2 2018 reduction was due to monetizations We continue to pursue sale processes on several of these assets As of March 31, 2018 -30% ($ in millions) Non-core: Underperforming Portfolio Trend
Q2 2018 Portfolio Originations $223 million of new commitments $218 million in 9 new portfolio companies and $5 million in 1 existing portfolio company 43% First lien 48% Second lien 9% Unsecured 10 industry sectors 10.3% weighted average yield at cost on new investments New Investment Highlights1 1New investments exclude fundings of existing revolver or delayed draw term loan commitments. (As % of new investment commitments, at fair value) New Investment Industry Composition1 (As % of total Q2’18 commitments; $ in millions) New Investment Composition1
Historical Financial Information ($ in thousands, except per share data) Operating Results Q2’18 Q1’18 Q4’17 Q3'17 Q2'17 Mar-18 Dec-17 Sep-17 Jun-17 Mar-17 Total investment income $34,779 $33,876 $35,732 $44,917 $45,555 Net expenses $19,516 $20,554 $24,268 $25,527 $27,051 Net investment income $15,263 $13,322 $11,464 $19,390 $18,504 Net realized and unrealized depreciation on investments 4,357 (43,763) (136,933) (25,447) (9,703) Net increase/decrease in net assets resulting from operations $19,620 ($30,441) ($125,469) ($6,057) $8,801 Net investment income per common share $0.11 $0.09 $0.08 $0.14 $0.13 Net realized and unrealized depreciation per share 0.03 (0.31) (0.97) (0.18) (0.07) Earnings (loss) per share – diluted $0.14 ($0.22) ($0.89) ($0.04) $0.06 Select Balance Sheet and Other Data Investment Portfolio (at fair value) $1,400,684 $1,415,404 $1,541,755 $1,790,538 $1,788,686 Total Debt Outstanding1 579,430 623,087 675,366 910,734 887,578 Total Net Assets 827,234 819,595 867,657 1,010,750 1,019,626 Net Asset Value per share $5.87 $5.81 $6.16 $7.17 $7.23 Total Leverage 0.71x 0.77x 0.78x 0.90x 0.87x Weighted Average Yield on Debt Investments2 9.3% 9.0% 9.6% 10.3% 10.4% Cash Component of Weighted Average Yield on Debt Investments 8.7% 8.4% 8.5% 9.1% 9.1% Weighted Average Yield on Total Portfolio Investments3 8.6% 8.5% 8.4% 9.5% 9.9% Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree Capital Management, L.P., which occurred on October 17, 2017. Results in prior periods occurred during management by Fifth Street Management LLC. 1Net of unamortized financing costs. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on Kemper JV debt investments. 3Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on Kemper JV debt investments.
Historical Portfolio Activity ($ in thousands) As of and for Three Months Ended Q2’18 Q1’18 Q4’17 Q3’17 Q2’17 Mar-18 Dec-17 Sep-17 Jun-17 Mar-17 Investments at Fair Value $1,400,684 $1,415,404 $1,541,755 $1,790,540 $1,788,690 Number of Portfolio Companies 115 122 125 133 133 Average Portfolio Company Debt Investment Size $14,600 $14,100 $16,400 $16,000 $19,400 Asset Class: Senior Secured Debt 76.6% 75.8% 78.0% 74.1% 74.6% Subordinated Debt 6.7% 7.0% 6.1% 8.2% 7.4% Equity 5.5% 6.0% 5.5% 8.3% 8.6% Kemper JV 9.5% 9.4% 8.7% 7.9% 7.9% Limited Partnership interests 1.8% 1.8% 1.7% 1.5% 1.5% Interest Rate Type: % Floating-Rate 84.6% 82.4% 83.6% 79.5% 78.9% % Fixed-Rate 15.4% 17.6% 16.4% 20.5% 21.1% Investment Activity at Cost: New Investment Commitments $223,200 $183,000 $155,800 $188,100 $112,700 New Funded Investment Activity1 $227,800 $200,200 $168,000 $192,300 $103,900 Proceeds from Prepayments, Exits, Other Paydowns and Sales $241,900 $284,800 $283,300 $172,300 $264,300 Net New Investments2 ($18,700) ($101,800) ($127,500) $15,800 ($151,600) Number of New Investment Commitments in New Portfolio Companies 9 13 9 25 6 Number of New Investment Commitments in Existing Portfolio Companies 1 1 5 3 1 Number of Portfolio Company Exits 5 9 17 9 11 Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree Capital Management, L.P., which occurred on October 17, 2017. Results in prior periods occurred during management by Fifth Street Management LLC. Numbers may not sum due to rounding. 1New funded investment activity includes drawdowns on existing revolver commitments. 2Net new investments consists of new investment commitments less proceeds from prepayments, exits, other paydowns and sales.
Net Asset Value Per Share Bridge – 2Q 2018 ($0.085) Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. ($0.00)
Capital Structure Optimization Funding Sources as of March 31, 2018 Capacity Outstanding Interest Rate Maturity Syndicated Credit Facility $600.0 million $183.0 million LIBOR+225-275 bps November 2021 2019 Notes2 $228.8 million $228.8 million 4.875% March 2019 2024 Notes $75.0 million $75.0 million 5.875% October 2024 2028 Notes $86.3 million $86.3 million 6.125% April 2028 As of March 31, 2018 1Long-term portfolio leverage may vary depending on market conditions. 2The original issue size of these notes was $250 million. We repurchased $21 million of these notes during the quarter ended March 31, 2018. Current leverage of 0.71x with target range of 0.70x to 0.85x debt-to-equity1 Strong support from banking partners; 14 lending participants in $600 million secured revolving credit facility Well-positioned to benefit from a rise in interest rates given fixed rate borrowings During the quarter, we opportunistically repurchased approximately $21 million of our 2019 Notes
Opportunities to Increase Return on Equity Rotation out of broadly syndicated loans priced below LIBOR + 400 Rotated out of approximately $47 million during the quarter $35 million remaining as of March 31, 2018 Redeploy non-income generating investments comprised of equity, limited partnership interests and loans on non-accrual Monetized $9 million of equities and limited partnership interests during the quarter Realized over $10 million from loans on non-accrual during the quarter ended March 31, 2018 Operating cost savings from leveraging Oaktree’s platform Professional fees, administrator and other G&A costs declined by over $2 million as compared with Q1 2018 Deployment of approximately $27 million of uninvested cash previously held at SBIC subsidiaries Proceeds were deployed in January 2018 Benefit from rising interest rates as majority of debt portfolio is comprised of floating rate securities 85% of debt portfolio consisted of floating rate instruments as of March 31, 20181 1Debt portfolio excludes the investments in Kemper JV.
Contact: Michael Mosticchio, Investor Relations ocsl-ir@oaktreecapital.com