Oaktree Specialty Lending Corporation

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

Thank you, Operator, and welcome to Oak Tree Specialty Lending Corporation's second fiscal quarter conference call. Our earnings release, which we issued this morning, and the accompanying slide presentation can be accessed on the Investors 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 action results could differ materially from those implied or expressed in the forward-looking statements. Please refer to our SEC filing 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 for your interest and support of OCSL. We appreciate your participation on this call. We produced strong results in our fiscal second quarter, driven by selective but steady origination activity at attractive yields and the benefits of higher base rates on our predominantly folding rate portfolio. Folding rate loans made up 88% of our portfolio, enabling OCSL to capitalize on rising interest rates. We also further advanced our strategy of rotating out of public debt investments and redeploying capital into attractive and higher yielding private credit opportunities. Second quarter adjusted NII with 62 cents per share, up a penny from the prior quarter. The increase was driven primarily by higher total investment income that offset increased interest expense. We reported NAV per share of $19.66, up slightly from $19.63 for the prior quarter. The increase reflected net investment income in excess of our 55 cents per share quarterly dividend and was offset by a modest decline in the value of certain investments. Given the strong overall earnings, our board maintained our quarterly dividend at 55 cents per share. As a reminder, this is nearly double our pre-pandemic quarterly run rate of 28 and a half cents. We did move two investments onto non-accrual status during the second quarter. So in each case, the challenges involved company specific issues that we believe do not indicate broader credit events within our portfolio. In each of these situations, Oaktree is the senior lender in a control position and we took small markdowns on these assets during the quarter as we expect resolutions in the near term. The non-accruals represented 2.5% and 2.4% of the debt portfolio at cost and fair value, respectively. Our overall portfolio is solid, and in the case of non-accruals, we will draw upon our long history of working through special situations to arrive at successful outcomes on behalf of our shareholders. Armand will address this specifics of these investments in a few moments. Our investment activity for the second quarter was strong, with $124 million of new investment commitments. Of these commitments, 96% were private direct lending opportunities and 100% were first lien, reflecting our emphasis on being at the top of the capital structure. The weighted average yield on new originations was attractive at 11.9%. Additionally, We received $162 million from pay down and exits in the quarter, including approximately $38 million lower yielding public investments. We also received a payoff on our investment in Immucor, a transplant and transfusion diagnostics company. Our position included a $23 million second lien term loan and a $9 million first lien term loan, which was repaid at a slight premium to PAR. While we expect market activity to slow due to higher interest rates and fewer refinancings, we continue to receive steady levels of paydowns, particularly in our non-sponsored portfolio. Importantly, as we previously announced, we successfully closed our merger with OSIQ in January, and we believe the combination will result in significant benefits for the combined company and substantial long-term value for our shareholders. With more than $3.3 billion of assets, the combined company has more financial flexibility and greater scale while adhering to our value-driven investment strategy. We also anticipate realizing operational synergies as well as interest expense savings from streamlining our capital structure. In addition, we are benefiting from reduced management fees for the next two years as Oaktree, 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 year. In total, we have a strong balance sheet with robust levels of liquidity, and we are well positioned to continue delivering attractive returns to our shareholders. With that, I'd like to turn the call over to Armin to provide more on our portfolio activity and insight into the market environment.