Oaktree Specialty Lending Corporation

Welcome, and thank you for joining Oak Tree Specialty Lending Corporation's fourth fiscal quarter and year-end 2023 conference call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode, but will be prompted for a question-and-answer session following the prepared remarks. Now, I would like to introduce Michael Mosticio, Head of Investor Relations, who will host today's conference call. Mr. Mosticio, please 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. Joining us on the call today are Armin Pinozian, Chief Executive Officer and Chief Investment Officer, Matt Pendo, President, Chris McCown, Chief Financial Officer and Treasurer, and 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 funds. 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 of its 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 generated strong fourth quarter and full year results. supported by attractive new deployment activity, elevated repayments, tailwinds from higher interest rates, as well as the completion of our merger with Oak Tree Strategic Income II, Inc., or OSI II, in January. Full year, fiscal 2023, adjusted NII was $2.47 per share, up from $2.12 for fiscal 2022. These results reflect 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, combined with wider spreads on new investments, and bolstered by synergies from the OSI 2 merger. We delivered our highest annual level of adjusted net investment income under Oak Tree's management, building upon the momentum we have generated since taking over management of the company six years ago. Based on the ongoing strength of our earnings, our board approved the quarterly dividend of $0.55 per share, which was consistent with the prior few quarterly distributions. Our board also declared a special distribution of $0.07 per share in an effort to pay out substantially all taxable income for the year and minimize the possibility of paying excise tax. Now, looking at our fiscal fourth quarter results, adjusted net investment income per share was $0.62 for the quarter. consistent with the prior quarter. We reported NAV per share of $19.63 of 5 cents per share from the prior quarter. The quarterly increase was mainly the result of earnings in excess of our quarterly dividend and steady marks in our portfolio. Our investment activity was lighter in the fourth quarter at $87 million of new investment commitments. Armin will provide more detail, but in summary, the relatively modest origination total for the fourth quarter reflected the seasonal summer slowdown in our market as well as our highly selective approach to investing amid the uncertainty in the current economic environment. That said, we continue to see a steady stream of opportunities and overall deal flow is healthy as we move into our new fiscal year. Despite the more muted quarter, we had solid originations in full year 2023 as we leveraged the Oaktree platform to originate over $700 million of new investment commitments representing about 25% of the portfolio today. This is particularly noteworthy given these assets were originated during one of the most attractive environments for private credit that we've experienced in recent memory, driven by higher interest rates resulting in attractive deal characteristics such as lower leverage and loan devalues, better terms, and wider spreads. On the repayment front, We received $364 million from pay downs and exits in the fourth quarter. While market activity has been generally slower given higher interest rates and fewer M&A transactions, we continue to receive steady levels of repayments, including in some of our junior debt positions. And we have also been opportunistically selling out of public debt investments. In total, about 30% of our portfolio turned over in fiscal year 2023. We believe this is attributable to our differentiated portfolio of private loans, and we have also been opportunistically selling some of our public debt based on the recent strength in the credit markets. Over the course of the fiscal year, our portfolio turnover has resulted in a positive shift in our investment composition. We've seen our first lane investments increase from 71% as of September 30, 2022, to 76% as of September 30, 2023. At the same time, we've experienced a decline in second-lead investments, which decreased from 16% to 10% over the same period. This shift underscores our emphasis on improving the risk-return profile of our portfolio and aligning our investments with the ever-evolving market conditions. Credit quality improved modestly during the quarter and remained solid overall. with four investments and non-recrual status at quarter end, representing just 1.8% of the portfolio at fair value and 2.4% of the portfolio at cost. As I noted earlier, the merger with OSI2 continues to positively impact our business. We have been realizing the benefits of scale gained from the transaction remain on track to achieve $1.4 million worth of operating expense synergies on an annual basis. We've also been working to further bolster OCSL's capital structure post-merger. In the June 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 without an increase to the spread that we borrow at of 200 basis points over SOFR. We also consolidated the credit facility acquired from OSI2 with our existing Citibank facility and pushed out the maturity by two years to 2027. Most recently, in August, we successfully issued $300 million in senior notes due in 2029. Together, these transactions improved our funding profile by boosting our unsecured borrowings to 57% and investment capacity to over $1 billion, which allows us to pursue continued growth in the years ahead. With that, I would like to turn the call over to Armin to provide more color on our portfolio activity and the market environment.