Oaktree Specialty Lending Corporation

Good morning and welcome. Thank you for joining the Oak Tree Specialty Lending Corporation's first fiscal quarter 2021 conference call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode, but we will be prompted for a question and answer session following the prepared remarks. Now I would like to introduce Michael Mostichio of Investor Relations, who will host today's conference. Mr. Mostichio, you may begin.

Thank you, operator, and welcome to Oak Tree Specialty Lending Corporation's first fiscal quarter conference call. Our earnings release, which we issued this morning, and the accompanying slide presentation can be accessed on the investor section of our website at oaktreespecialtylending.com. Our speakers today are Armin Pinocian, Chief Executive Officer and Chief Investment Officer, Matt Pendo, President and Chief Operating Officer, and Mel Carlisle, Chief Financial Officer and Treasurer. We will be happy to take your questions following their prepared remarks. Before we begin, I want to remind you that comments on today's call include forward-looking statements reflecting our current views with respect to, among other things, the timing or likelihood of the merger closing, the expected synergies and savings associated with the merger, the ability to realize the anticipated benefits of the merger, and our future operating results and financial performance. Our actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to our SEC filings for discussion of these factors in further detail. We undertake no duty to update or revise any forward-looking statements. I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Oak Tree Fund. Investors and others should note that Oak Tree Specialty Lending uses the investor section of its corporate website to announce material information. The company encourages investors, the media, and others to review the information that it shares on its website. With that, I would now like to turn the call over to Matt.

Thank you, Mike, and welcome everyone to our first quarter earnings conference call. We appreciate your interest in and support of OCSL and we hope everyone listening as well. We are off to an excellent start to fiscal year 2021. OCSL delivered solid results for the quarter. with earnings, origination activity, and credit quality all strong. We reported NAV per share of $6.85 of 5% from the prior quarter. This increase reflected both gains from the realization of a non-core investment that was previously a non-accrual as well as ongoing price recovery in our liquid debt investment, which has continued since the market sell-off in March. In fact, As a result of our portfolio's strong credit quality and performance since then, our NAV as of December 31 is 3.6% higher than it was one year ago. Adjusted net investment income per share for the quarter was $0.14, as compared with $0.17 for the prior quarter. The decrease was primarily due to lower investment income compared to the previous quarter, where we generated exceptionally strong interest income in the form of May call interest and OID accelerations from the repayment of our investment in New Star Logistics. Excluding this amount, which contributed approximately 4 cents to adjusted NII last quarter, earnings would have been up as a result of the portfolio's continued growth and increasing yield. Based on our consistent performance and our expectations for continued strong earnings, our board increased our quarterly dividend by 9% to 12 cents per share, the third consecutive quarter with the dividend increase. This amount represents a 26% increase from the dividend level one year ago. We had another strong quarter of originations where we originated $286 million of new investment commitments. Of these new commitments, nearly 70% were first lien loans and included $181 million in private transactions, $84 million in the new issue primary market, and $22 million in secondary market purchases. We received $161 million from paydowns and exits in the quarter, including $23 million from our exit of addmentum, a non-corp position that was previously a non-accrual. The weighted average yield on our new debt investments in the quarter was 8.7%, which compares favorably to the average yield of 7.8% on investments which we fully exited. Leverage declined 2.70 times net of cash from 0.74 times at September 30, driven primarily by the timing of new investment fundings. Approximately $100 million of first quarter originations did not settle in December. If they had settled by quarter end, leverage would have been approximately 0.8 times. Most of these investments have been funded in January. As we actively identify opportunities, we also remain focused on sourcing directly originated private credit opportunities. We have continued to augment our sourcing efforts by making several key hires, and our pipeline of private investments is robust. That noted, we are approaching these new investments cautiously, given the uncertain economic backdrop and recent exuberance from other market participants that has driven pricing and terms to pre-pandemic levels. With that in mind, credit quality remains a top priority and a key component of OCSL's foundation. We had no new non-accruals in the quarter, and we have only one portfolio company with a fair value of $500,000 on non-accrual status, which represents three basis points of the total portfolio at fair value. We continue to make good progress in monetizing non-core holdings during the quarter, exiting two positions. Non-core investments now represent $125 million, or only about 8% of the portfolio at fair value. Before I turn it over to Armin, I wanted to update you on the planned merger of OCSL and Oak Tree Strategic Income Corporation. As we discussed in our last call, we expect this will create a larger, more scaled BDC with increased trading liquidity, potentially broadening our institutional shareholder base and may improve access to lower cost sources of debt. We also anticipate that it will drive NII accretion over both the near and long term. We are confident that now is the right time to move forward with this merger. Both portfolios have strong credit quality, and our transition out of non-core assets that we've been working on since 2017 is nearly complete. The registration statement has been declared effective, the proxy solicitation process has begun, and the merger is on track to close by the end of the current quarter, with our shareholders and OCSI shareholders scheduled to vote on the transaction on March 15th. We encourage all shareholders to review the proxy materials and vote your shares accordingly. Overall, we are very pleased with our quarterly results, and we are confident that the scale that OCSL will have post-merger will help drive further benefits for our shareholders. With that, I will now turn the call over to Armen.