Oaktree Specialty Lending Corporation

Good day and welcome. Thank you for joining the Oak Tree Specialty Lending Corporation's fourth physical quarter year and year-end 2022 conference call. Today's conference call is being recorded, and at this time, all participants are in listen-only mode, but will be prompted for a question-and-answer session following today's prepared remarks. Now, I would like to introduce Michael Mosicchio, Head of Investor Relations, who will host today's conference call. Mr. Mosicchio, you may begin.

Thank you, operator, and welcome to Oak Tree Specialty Lending Corporation's fourth fiscal quarter and year-end 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 Pinozian, Chief Executive Officer and Chief Investment Officer, Matt Pendo, President, and Chris McCown, Chief Financial Officer and Treasurer. Also joining us on the call today for the question and answer session is Matt Stewart, our Chief Operating Officer. 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 closing of the merger with Oak Tree Strategic Income II, Inc., 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 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.

Thanks, Mike, and welcome, everyone. Thank you to all on the call for your interest in and support of OCSL. We finished our fiscal year with strong momentum. driven by increasing asset yields, productive origination activity, and excellent credit quality. Full year fiscal 2022 adjusted NAI was 71 cents per share, up from 64 cents for fiscal 2021. These results reflect the growth in the earnings power of our portfolio over the course of the year, driven by higher interest income from our predominantly floating rate portfolio, continued portfolio repositioning and optimization, and ongoing credit stability. Importantly, this marked our highest annual level of adjusted net investment income under Oak Tree's management and represents the tremendous progress we have made since taking over management of the company five years ago. Importantly, we are well positioned for the year ahead as rising interest rates have bolstered the earnings power of our portfolio. Eighty-six percent of our loans are floating rate, and we expect our interest income will continue to rise in tandem with increasing base rates. Given the strength and consistency of our earnings, as well as the potential for continued solid results, our Board increased our quarterly dividend by 6% to 18 cents per share. This was the 10th consecutive quarterly increase, and it represented a 16% increase from the distribution we announced a year earlier. Notably, our dividend is up nearly 90% from its pre-pandemic level at the close of fiscal 2019. Our board also declared a special distribution of 14 cents per share, primarily as a result of increased taxable income derived from our foreign exchange hedge positions, as well as certain taxable equity gains. Turning to our fourth quarter results, adjusted net investment income per share was 18 cents for the quarter, compared with 17 cents for the prior quarter. We reported NAV per share of $6.79, down 1.5% from the prior quarter and down 6.7% from a year earlier. The quarterly decrease primarily reflected credit spread widening on debt investments and unrealized losses on certain equity investments, partially offset by undistributed net investment income. Looking more closely at the portfolio, we originated $97 million of new investment commitments in the fourth quarter. Most of these were private placement transactions to a diverse group of companies, and the yield on new debt investments was 9.9%. We received $146 million from paydown and exits in the fourth quarter. This included exits and paydowns of lower yielding investments as light gains to their previous fair value. We continue to selectively reinvest proceeds into higher yielding attractive opportunities. Given our experience across multiple cycles, and our ability to draw upon the breadth of the Oak Tree platform, our origination activity continues to be strong in the current quarter. And while credit markets have experienced one of the most challenging years on record, we are finding some of the most attractive opportunities we've seen in a long time. Credit quality remains pristine. We continue to have no investments and non-accrual. This reflects the breadth of our sourcing and a disciplined and prudent approach to investing selectively across a wide range of opportunities. As we end the fiscal year, I also want to touch on our entry into a merger agreement with Oak Tree Strategic Income II, Inc., or OSI II, which was announced in September. We believe this transaction represents a compelling opportunity for shareholders of both OCSL and OSI II. We expect it would create a larger, more scaled BDC with just over $3 billion in total assets, increase our trading liquidity, and should improve our access to the debt capital markets. We also anticipate that it will create efficiencies and cost savings to drive NAI accretion over both the near and long term. Importantly, consummation of the merge remains on track. On October 24th, we filed the registration statement on form N14, which is currently under review by the SEC. Once the registration statement is declared effective, we will schedule the OCSL and OSI2 shareholder meetings and begin mailing materials to shareholders. We expect the transaction will close in the first calendar quarter of 2023, so that the shareholder approval and satisfaction of other closing conditions as outlined in the merger agreement. And finally, this year our proxy statement will include a proposal which, if approved by the shareholders and implemented by the board, would result in an amendment to our certificate of incorporation to affect the reverse stock split of our standing shares of common stock at a ratio of one for three. We believe that this will benefit OCSL shareholders as we'll bring our stock price more in line with our BDC peer group and OSI 2's NAV per share. We look forward to receiving your approval for this proposal, as well as the OSI 2 merger. With that, I would like to turn the call over to Armin to provide more color on our portfolio activity in the market environment.