Oaktree Specialty Lending Corporation

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

Thank you, operator, and welcome to Oak Tree Specialty Lending Corporation's third 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 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 third quarter, bolstered by robust origination activity and attractive yields and the positive impact of higher base rates on our predominantly floating rate portfolio. Combined with the cost synergies arising from the recently closed merger with OSI2, we generated strong earnings on behalf of our shareholders. Third quarter adjusted NAI was 62 cents per share, in line with the prior quarter. This was supported primarily by higher total investment income and lower operating expenses, partly offset by increased interest expense, as well as higher management and incentive fees. We reported NAV per share of $19.58, down slightly from $19.66 for the prior quarter. The decrease reflected a modest decline in the value of certain debt investments and was offset by net investment income in excess of a 55 cent per share quarterly dividend. 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 dividend run rate of 28.5 cents. Our investment activity in the third quarter was strong. with $251 million of new investment commitments, more than double the level of the prior quarter. Of the new originations, nearly 90% were private direct lending opportunities and 90% were first lien loans, reflecting our emphasis on being at the top of the capital structure. The weighted average yield on new originations was attractive at 12.6%. Paydowns and exits in the quarter were also strong. as we received $261 million of proceeds. While broader market activity has been slower given higher interest rates and fewer refinancings, we continue to receive steady levels of paydowns and have also been opportunistically excelling out of lower yielding public credit investments. Importantly, the third quarter marked our first full quarter realizing synergies following the merger with OSI II. We are pleased to be on track to achieve $1.4 million worth of operating expense synergies on an annualized basis. We've also been focused on streamlining our capital structure, leveraging OCSL's greater scale to improve our financial flexibility. During the quarter, we increased the size of our syndicated credit facility to $1.2 billion from $1.0 billion and extended the maturity by two years to 2028. We also consolidated a credit facility acquired from OSI2 with our existing Citibank facility and pushed out the maturity by two years to 2027. We appreciate our banking partners' support and their confidence in Oaktree as a manager. These improvements further strengthen our funding options and enhance our ability to capitalize on new investment opportunities. Altogether, our strong balance sheet puts OCSL in excellent shape to continue delivering attractive returns to our shareholders. Before I turn the call over to Armin, on behalf of the team, I wanted to congratulate him on being selected as co-CEO of Oaktree, along with Bob O'Leary, beginning the first quarter of calendar 2024. Well deserved, Armin.