Oaktree Specialty Lending Corporation

Welcome and thank you for joining Oak Tree Specialty Lending Corporation's first fiscal quarter 2023 conference call. Today's conference call is being recorded. At this time, all participants are in listen-only mode, but will be prompted for a question and answer session following the prepared remarks. Now, I would like to introduce Michael Musticio. Head of Investor Relations, who will host today's conference call. Mr. Mustichio, please go ahead.

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 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 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 expected synergies and savings associated with the merger with Oak Tree Strategic Income II, Inc., 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 in 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. Prior to my remarks, I would like to note that all per share amounts that we referenced on this call have been adjusted for the one for three reverse stock split that we implemented on January 23rd, 2023. Now turning to the results. We generated strong results in the fiscal first quarter as we identified compelling investments across the mix of both sponsor and non-sponsor deals. This robust origination activity enabled us to further capitalize on higher base rates and spreads driving profitability. First quarter adjusted NII was 61 cents per share, a 10% increase from the 55 cents earned in the prior quarter. The increase was driven primarily by higher total investment income that more than offset increased interest expense. Even as we grew, we remained highly selective maintaining our defensively positioned portfolio and strong credit quality. We again had no investments on non-accrual. We are mindful that in a rising rate environment, overall consumer spending and business investment tend to slow, creating the potential for a recession. As a result, we are proactively managing risks that may arise in our portfolio should the volatility persist. Given the strength of our earnings, our board increased our quarterly dividend by 2% to $0.55 per share. This marked the 11th consecutive quarterly increase, and our dividend is up more than 90% from its pre-pandemic level at the close of fiscal 2019. Looking more closely at our first quarter results, we reported NAV per share of $19.63, down from $20.38 for the prior quarter. This decrease primarily reflected the 42 cents special distribution paid by OCSL during the quarter, as well as unrealized depreciation related to price declines on certain public debt investments. In January, our portfolio experienced recovery in the prices of our quarter investments, and our NAV as of January 31 was estimated to be up approximately 1% to $19.83 per share. Turning to the portfolio, We originated $250 million of new investment commitments in the first quarter, more than double the level of the previous quarter. Of these, 85% were first lien loans. The weighted average yield on new debt investments was 13.1%, which compares favorably to the 9.9% yield on new originations in the September quarter, as we were able to identify and capitalize on investment opportunities with wider spreads in the December quarter. We received $104 million from paydowns, sales, and exits in the first quarter, as we continue to selectively reinvest proceeds into better risk-adjusted opportunities. Importantly, the pipeline is very robust in the current quarter. We are drawing upon the breadth of the Oaktree platform to source attractive deals with strong downside protections. Looking ahead, we expect substantial benefits from our merger with Oaktree Strategic Income II, Inc., or OSI II, which we closed in January. Our combined company has more than $3.3 billion of assets on a pro forma basis, resulting in an increase in first lien investment to 74%, creating greater scale and financial flexibility while maintaining our value-driven investment strategy. We expect the merger to be accretive over the near and long term through cost savings, which we expect will total approximately $1.6 million of cost and operational synergies annually. We also will benefit from reduced management fees for the next two years as Oak Tree, our manager, has agreed to waive $9 million of base management fees in total, $6 million in the first year, and $3 million in the second. Since the closing of the merger, our trading liquidity has improved, and we have been making enhancements to our capital structure. Together, we are in excellent financial shape with strong liquidity and capital levels, and we are well-positioned to continue delivering attractive returns to our shareholders. With that, I would like to turn the call over to Armin to provide more color on our portfolio activity and the market environment.