Q4 2021 Oaktree Specialty Lending Corp Earnings Call
Welcome and thank you for joining Oaktree specialty lending Corporation's first fiscal quarter and full year 2021 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 almost touching over Investor Relations, who will host today's health is call. What's your votes did you maybe get you operator and welcome to Oaktree specialty lending Corporation's fourth fiscal quarter and full year 2021 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 Oaktree specialty lending dot com.
Our speakers today are army.
Chief Executive Officer, and Chief investment Officer at panned out President and Chief operating Officer.
And now Carlisle, Chief Financial Officer and Treasurer.
Also joining us on today's call for the question and answer session is Chris Mccown, the company's current assistant treasurer, who will be taking over the CFO and treasurer positions from now next month.
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 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.
Please refer to our SEC filings for a discussion of these factors in further detail, we undertake no duty to update or revise any forward looking statements.
I'd 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 Oaktree fund.
There's another should note that oaktree specialty lending uses the investors 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 thank you to everyone for joining this call the fourth quarter completed a strong fiscal year for Ocs L. We generated solid financial results and investment performance that was highlighted by robust origination activity and pristine credit quality, we again grew NAV and meaningfully increased.
Our dividend fully.
All year 2021 adjusted net investment income per share was 64 cents up from 51 cents for fiscal 2020, driven by higher adjusted investment income, reflecting our larger investment portfolio as.
As well as higher prepayment fees and OID acceleration on some of our investments made in the wake of the pandemic importantly, this marked our highest annual level of adjusted net investment income under Oaktree management and represents the tremendous progress we have made since taking over management of the company four years ago as well as the realization of.
Jeez, when the merger with <unk>, which closed earlier this year.
Given the strength and consistency of our earnings our board increased our quarterly dividend by 7% to 15 and a half cents per share. This was the sixth consecutive quarterly increase and it represented a 41% increase from a year earlier, our dividend is now up 63% from its pre COVID-19 level.
We reported NAV per share of $7 28, tenths of 1% from the prior quarter and up 12% for the full year. The quarterly increase reflected the continued price appreciation on certain debt and equity investments and for the annual increase successful realizations contributed as well.
Importantly, our NAV continues to exceed its pre COVID-19 high and was up more than 10% from the end of calendar 2019.
Had another strong year origination during full year 2021, we leveraged oaktree is credit platform to generate nearly $1 2 billion of new investment commitments. Many of our new originations have been in the form of directly originated investments, where we co invested alongside other oaktree funds. These new originations in the aggregate were attractively.
Priced at approximately eight 6%, which exceeded the yield on investments that were exited in the year by approximately 2%. This ongoing shift in our portfolio towards higher yielding proprietary investments has led to improved debt portfolio yield which increased to eight 7% at year end from eight 3% one year ago.
Importantly, this all occurred against the backdrop of LIBOR remaining at all time lows throughout the fiscal year.
Credit quality remains very strong it's a testament to our disciplined underwriting and risk controlled approach to investing as with the prior quarter. We had no investments on non accrual at the close of the fourth quarter and noncore investments represented just 5% of the portfolio at fair value at quarter end.
Our fiscal year and I also wanted to iterate some of the key improvements we've made to our capital structure since the closing of the merger with Oh CSI in March these changes enhance our flexibility and meaningfully lowered our cost of debt capital and May wish.
We had $350 million of senior notes at a two 7% coupon, which we subsequently swapped to floating rate at LIBOR, plus 166% to better match, the floating rate nature of our underlying investment portfolio.
We also amended our syndicated credit facility, increasing the size to $950 million from $800 million and extending maturity by two years to May 2026. Additionally, we retired a higher cost credit facility acquired for most CSI and we amended the city facility to reduce costs in some of our lower <unk>.
<unk> quoted loans by <unk>.
Taking these steps we proactively reduced our weighted average interest rate on debt outstanding to two 4% down 30 basis points from two 7% in last year's fourth quarter.
We also improved our funding profile, but more than doubling our unsecured borrowings outstanding and boosted our borrowing capacity by more than $300 million.
Finally, we received a strong vote of support from our investment advisor Oaktree, who purchased two 3% of outstanding shares from our largest shareholder in September.
Along with their management team and directors now on three 1% of Oc S. L shares, which we believe further strengthens the alignment between us and our advisor.
Before turning the call over to Armen I wanted to remind you that Mel has announced he will step down as CFO and treasurer of Oc S. L. At the end of November so assume another senior management role within Oaktree, we thank bill for his financial stewardship over the last four years of course wish him well in his new position Christmas.
Chris Mccown imagine director at Oaktree will become Oh C. S L CFO and treasurer effective upon Bill's resignation, Chris currently serves as the Ocs as assistant Treasurer has worked closely with Mel since we took over management of the company in 2017.
This is very well suited and prepared to step into his new role and he will do so at a time when we are exceptionally well positioned for fiscal 2022, now I would like to turn the call over to Armen.
Thanks, Matt and Hello, everyone.
I'll begin with comments on the market environment and continue with some additional highlights from our fiscal fourth quarter.
Mark it's held up well in the September quarter supported by economic growth and expectations for continued expansion. This resulted in further spread compression and continued low default rates and the credit markets.
However, as we cautioned last quarter inflation pressures in the economy Merit careful examination.
Inflation is currently running above 6% in both food and energy costs are rapidly rising.
That's where gas prices for example have doubled in 2021 and oil was up more than 50%.
Inflation is very difficult to predict and many market participants believe it will prove short lived with the events of the past year and a half have been unprecedented in both impact and government reaction before 2020, the world had never purposefully shut down a significant percentage of its economy, and then tried to restart it.
No one knows how long it will take for bottlenecks in the supply chain to fully open up and for the labor force to be reconstituted.
As such inflationary pressures may persist this could forced the fed to increase interest rates faster than investors. Currently expect so we believe it's important to view inflation and the current environment carefully and with objectively.
With that in mind, we were focusing on finding good relative value and are investing where we believe the best risk adjusted returns are.
We are utilizing the full scope of oaktree scale and resources to uncover and invest across a wide array of industries to a diversified group of issuers.
Leveraging <unk> ability to negotiate and structure customized private deals that we believe provide downside risk protection and we're finding opportunities and less congested areas of the market by lending to non sponsor owned businesses.
As we've highlighted on past calls we also continue to identify compelling opportunities among companies in life Sciences and technology sectors that are poised for long term growth as the global economy becomes increasingly driven by applied Sciences and digital Commerce. We also continue to evaluate opportunities in the sponsor lending market.
During with select private equity firms that we think have subject matter expertise in particular industries and sectors.
Altogether, we are judiciously deploying capital on favorable terms and in a risk controlled manner to further grow our portfolio and generate strong returns for our shareholders.
Now turning to the overall portfolio.
At the end of the fourth quarter, our portfolio was well diversified with $2 6 billion at fair value across 138 companies.
87% of the portfolio was invested in senior secured loans, including 69% in first liens.
Median portfolio company EBITDA as of September 30 was approximately $106 million, reflecting our preference of lending to larger more diversified businesses, which we believe reduces risk and has contributed to our consistently solid credit quality.
Moving on to investment activity.
While the market remains competitive we leveraged the oaktree platform to originate $385 million of new investment commitments across 14, new and six existing portfolio companies in the quarter.
Of these 91% were first lien loans and included $304 million in private transactions and $79 million in the new issue primary market.
Our investment in Rumble on is a compelling example of the unique opportunities. We are finding in the non sponsored area of the market Rumble or there's an omnichannel platform that operates the largest network of power sports dealerships in the U S and an e-commerce marketplace that aggregates and distributes pre owned power sports and motor vehicles to and from.
Consumers and dealers.
E Commerce business is the only online marketplace capable of facilitating consumer to consumer sales in the power sports sector.
And it is rapidly growing its omni channel offering by expanding its dealership footprint.
We provided a $240 million first lien commitment to support the company's continued growth activities.
Oh, it was allocated $54 million at an attractively priced LIBOR, plus 825 basis points as well as warrants in the company.
With respect to repayments, we received $202 million from Paydowns and exits in the fourth quarter.
This amount included payoffs in practice sales of lower yielding investments, which we were able to selectively reinvest into our higher yielding originations this quarter.
The weighted average yield on our new debt investment commitments for the quarter was eight 6%, which exceeded the six 4% average yield of investments that we exited.
This helped to further increase the yield on our debt portfolio, which grew by 30 basis points to eight 7% at year end from eight 4% in the prior quarter.
Looking ahead, our pipeline remains robust as we are evaluating a range of interesting investment opportunities that we believe present, an attractive risk reward.
Our strong balance sheet and liquidity position us well to take advantage of attractive opportunities.
Finally, I also want to wish Bill all the best in his new role within Oaktree and congratulate Chris on his promotion to CFO.
Chris is a key contributor on a deep and talented team and we are confident that he will maintain our tradition of providing you with high quality financial reporting and transparency now I will turn the call over to Mel to discuss our financial results in more detail.
Thank you Arvind.
We appreciate your kind words.
I've been fortunate to have worked with a great team here ever since <unk> took over the management of the company and strongly believe that Oh CSL will be in very capable hands with Christian account at the helm as CFO.
I've known and worked with Chris for 10 years, and I'm very confident that he is the right person for the job.
Before I turn to our financial results I'd like to take a moment to remind you of the several non-GAAP measures we put in place to make the companies post merger financial results easier to understand and more comparable to our results prior to the merger.
These non-GAAP measures are intended to remove the impact of the income accretion as well as any net realized and unrealized gains or losses arising solely from the merger accounting adjustments.
More information about these supplemental disclosures can be found in our earnings release and slide presentation.
Now turning to our financial results.
Oh CSL delivered another quarter of solid financial performance, which also contributed to exceptionally strong full year results.
For the fourth quarter of fiscal year 2021 we reported adjusted net investment income of $29 1 million.
<unk> 15 cents per share down modestly from $33 7 million or <unk> 19 per share in the third quarter.
The decline was the result of much lower prepayment fees and OID income in the fourth quarter.
Primarily driven by $7 million in such fees last quarter in connection with the payoff of our loan to William Morris endeavor.
Partially offsetting this decline was higher interest income as the earnings power of the portfolio has grown as a result of the larger investment portfolio and increased yield.
Net expenses for the fourth quarter totaled $28 3 million.
Down <unk> 8 million sequentially.
The decrease was mainly due to lower incentive fees.
Offset by higher base management fees and interest expense.
Driven by an increase in borrowings and our larger investment portfolio.
For the fiscal year 2021, we accrued $17 6 million of part two incentive fees under GAAP based on the very strong portfolio performance, we delivered as.
As a reminder, osha self paced part two incentive fees annually and to the extent that it has realized gains that exceed realized and unrealized losses at fiscal year end.
Based on realized gains the actual amount of those fees payable for full year 2021 was $8 8 million.
According to the calculations under the investment Advisory agreement.
Turning to credit quality, which continues to be excellent as Matt mentioned, we had no investments on nonaccrual at quarter end and all of our portfolio companies made their scheduled interest payments.
Now moving to the balance sheet.
Well, it's yourselves net leverage ratio increased to.
<unk> 95 times from seven nine times at June 30th.
Reflecting the strong investment originations that we made during the quarter.
Net leverage is now near the high end of our target range of eight five times to one point in time 1.0 touch.
At September 30, total debt outstanding was $1 3 billion and had a weighted average interest rate of two 4%.
Unsecured debt represented 51% of total debt at year end up from 42% at the beginning of the year.
Following the 2027 note offering.
At year end, we had total liquidity of approximately $500 million, including $29 million of cash and $470 million of undrawn capacity on our credit facilities.
Unfunded commitments, excluding unfunded commitments to new joint ventures.
$216 million with approximately $154 million of this amount eligible to be drawn immediately as the remaining amount is subject to certain milestones that must be met by portfolio companies.
Now turning to our two joint ventures.
The Kemper JV had $379 million of assets invested in senior secured loans to 55 companies.
This compared to $387 million of total assets invested in 57 companies last quarter.
Assets decreased mainly due to portfolio payoffs and sales of lower yielding investments.
The JV generated $2 million of cash interest income for ocs sell during the quarter and we also received a $450000 dividend.
Leverage at the JV was one four times at year end comparable.
Comparable to the June quarter.
The Glick JV, you had $141 million of assets as of September 30.
These consisted of senior secured loans to 37 companies.
Leverage at the JV was one one times at year end.
Relatively unchanged from last quarter.
Oh CSL subordinated note in the Glick joint venture.
Totaling $56 million continues to be current and we received $1 2 million of principal and interest payments on the notes during the fourth fiscal quarter.
In summary, we're very pleased with our financial results for the quarter and full years.
And we continue to believe our diverse portfolio and flexible balance sheet positions us well for the future.
Now I will turn the call back to Matt.
Thank you Mel we finished a very strong year in L. E. S. L generating a return on adjusted net investment income per share of 10% and adjusted earnings per share of 19%.
Also grew NAV by 12% and increased our dividend by 41% over the course of the year declaring annual dividends of 55 per share. Our current 15 in one half cent dividend rate represents an attractive eight 5% yield on book value on an annualized basis.
We believe this strong financial performance is directly correlated to the values that oaktree brings to Ocs L and what differentiates us from our peers, our ability to grow NAV and dividend since taking over management and over the course of the pandemic has been exceptional NAV is up over 10% from its pre pandemic high in December 2019.
We also have increased our dividend for six consecutive quarters and has grown by 63% from its pre pandemic run rate.
Taken together Oh C. S. L has generated an attractive 12% annualized return on equity since December 31, 2017, including a 20% return over the past year alone.
We're proud of this accomplishment as it demonstrates the power of the Oaktree platform and our ability to deliver superior investment performance, both in parents of market strength and distress.
That said, we continue to see opportunities to further increase returns over time.
We remain focused on positioning the portfolio for an improved yield by rotating out of lower yielding investments and into higher yielding proprietary loan.
We made good progress in this fiscal year exiting $168 million of these types of investments at.
At year end $83 million of senior secured loans priced at or below LIBOR plus four 5% remained in the portfolio.
<unk> approximately $55 million of loans that we acquired in the Ocs I merger.
Our new investments during the year came in at attractive yields which means there is more improvement in yield on that portion of the portfolio. Then we expect to that we expect to realize over time.
Another opportunity for us to increase our ROE is to further optimize both of our joint ventures.
We can accomplish this by selectively rotating out of lower yielding investments into higher yielding one as well as increasing leverage at the JV.
We have ample capacity at both of these vehicles and we will judiciously grow these portfolios, which we believe will also be accretive to ROE over time.
In conclusion, we are very pleased with our strong fourth quarter and full year results.
<unk> are excited about our future prospects and are optimistic that we will continue to be able to identify low risk adjusted investment opportunities and deliver attractive returns to our shareholders. Thank you for joining us on today's call for your continued interest in Oce S. L with that we're happy to take your questions. Operator, Please open the line.
Thank you we will now begin the question and answer session.
To ask a question you May press star going along as much fun for them.
If youre using a speakerphone please pick up your handset before pressing the cheese.
To withdraw your question. Please press Star then two.
Today's first question comes from Devin Ryan of JMP Securities. Please go ahead.
Great. Good afternoon, everyone. So first question here just around.
Portfolio leverage and it's a really nice quarter for capital deployment.
Nice step up in leverage.
Nine five times I know you're kind of at the upper end of the eight five times to one on.
On your target range, just given the current deal, making environment and and how strong credit quality has been in the portfolio. How are you guys thinking about that that upper band of one times and.
Potentially.
Where that could go what would drive kind of the upper band higher from here.
Thanks, Devin it's armen.
So we feel pretty comfortable with the range still a 0.85 to one we did have some very strong originations in the quarter, but what is hard to predict quarter to quarter, our pace of repayments.
We still also have a nice amount of lower yielding publicly traded.
Or that we can rotate into higher yielding origination that we knock.
Knock on wood have been finding a good amount of so we don't feel compelled to raise that upper end of the target range and we think we could operate within it.
And still.
They'll be.
Be able to continue to originate pretty attractive debt.
For the portfolio.
Okay great.
And then just a follow up it sounds like you've got to go more on the sponsor side, but can you just made.
That's what you're seeing in sponsor versus non sponsor both in terms of just opportunity set in pricing as well.
Sure I mean, we're obviously, we're pretty active in both areas.
With sponsors we tend to focus on.
Some very large sponsors that have deep subject matter expertise in particular verticals.
We like that because of.
Two things one you know you kind of want to ride along with a sponsor that does have a have a secret sauce in execution, but to a lot of the sponsors that we do business with are really support their businesses with strong equity checks they view them as platforms for growth.
In several instances, we have gotten more than a 50% equity check as well as covenants in those deals. So we we we like doing business with with really really strong sponsors and when possible when we see that type of deal flow.
We're very interested in executing it but I would say by and large in the market in terms of sponsor deal flow. It's very competitive I think theres been a lot of AUM that's been raised.
Certainly in the last year, and a happen and as well as the last three or four or five years that are.
Chasing after a lot of similar deals. So I think there one can say that there's a there's a lot of cash sitting on the sidelines a lot of cash and not enough deals.
Certainly would be a description of the sponsor market.
And so what we're trying to do is go to places, where maybe others are trafficking in as much areas, where our underwriting our understanding of these businesses through cycles because of sort of oak trees DNA as the more opportunistic lender having covered many different types of industries through several cycles.
We're able to leverage that market our reputation of ours to get pretty attractive deal flow. That's frankly, just less efficient or less competitive and we're finding that in the non sponsor area I'm in my prepared remarks, I mentioned Rumble on that's just one example of.
Non sponsored deal flow, that's a very well structured.
Pretty lightly levered.
And it has even some upside potential in it when.
When we see those types of deals we're very interested in running hard at them. Obviously, we do see a lot of deals in both sponsor and non sponsor.
And that's part of our interest in expanding the funnel of potential deal flow that we that we see however, we're executing on less than 5% of the deal flow that we are seeing so it's it's it's job number one to make sure from a sourcing perspective, we are seeing as much deal flow as possible, but it's.
It's very close job number two to make sure that we're selecting.
All the best credit and all the appropriate structuring that we can put in place to defend against the downside and participate in the upside when possible.
Okay terrific, that's great color, Thanks, Aman I'll leave it there.
Ladies and gentlemen, as a reminder, if you'd like.
Ask a question. Please press Star then one.
Our next question comes from Ryan Lynch to VW. Please go ahead.
Yeah.
Hey, Thanks for taking my questions guys.
My first one just has to do with I was looking at slide number six in your deck and out of the 385 million of new commitments and it looks like 345 million were new portfolio companies.
That seems to be a different cohort than what most other bdcs. We've seen report where there's a heavy focus on our existing portfolio of company. So you guys are kind of bucking that trend, but at least in this current quarter. So are there any takeaways, we should be thinking about when we see something like that.
Hum.
This is arvind Ryan thanks for the question.
Look I mean, we respond to the deals that we're able to source I think a couple of things I would mention first of all we are working.
Than we ever have across the Oaktree platform. So that includes.
Sponsor oriented lending that we that we've been doing for 20 years as part of our mezzanine fund that includes working with our opportunities fun.
Which is a lot of dry powder.
It was very very active in 2020 in 2021.
So.
The deal flow that Youre seeing this quarter include several deals across multiple oaktree.
Managed accounts.
And I think that.
What what is what it is not indicative above is chasing spa.
Sponsor deals at ever tighter spreads than ever.
<unk> legal documents that dramatically definitely not what we're doing and that's probably why you're seeing other bdcs are spending more time with existing portfolio companies, where there maybe upsizing of refinancing themselves out.
They know those businesses. They know those sponsors they would rather kind of stick with what they know and even if even if the pricing is tightening by 50 basis points that feels a little bit more comfortable than maybe chasing the incremental new deal.
At ever tighter spreads in and worsening legal docs, so but for US if you look at our.
If you look at our origination in the quarter, it's a fair bit of non sponsor deal flow.
The sponsor deals that we have in there are.
Are not new LBO, so, sometimes youre able to get better pricing in a situation where a sponsor is looking for expansion capital rather than original LBO financing. So we.
It's it's blocking and tackling I wouldn't say thematically, there's anything in particular that we did but we continue to like life Sciences. We originated a couple of deals in life Sciences in the quarter, we worked with our opportunities funds on a few deals as well across a variety of different industries, including an.
And airport concessionaire.
That has a little bit of a recovery story of post Covid recovery story is still embedded in our potential performance.
So it's just making sure that we're seeing as much deal flow across the platform as possible, while continuing to dig even deeper in life Sciences and on that point I would say you know 2020 was a banner year for us in life Sciences firm wide.
And it's shaping up that 2021 on a calendar basis not on a physical basis, but on a calendar basis 2021 will be as busy if not busier for our direct lending franchise in life Sciences, just because as we've done as we've done more deals.
Led to further market penetration for our life Sciences businesses, and we're finding great risk adjusted returns there as well as strong legal protections. So we like that area and are continuing to mine it for some great opportunities.
Gotcha. Thanks.
Any color on your overall thoughts on.
You guys are exploring right now I had a question on the senior loan fund and you guys. Obviously have two of them, but just just the senior loan fund.
That first one.
It looks like you generated cash and interest income of about $2 million and you guys received a $500000 dividend payment from that I'm. Just curious can you kind of walk through what is the philosophy. It looks like you guys are retaining capital in that vehicle.
As always retain some level of the income within <unk> will it remain at this sort of proportional level or even if the income does that increase the overall JV is.
Generating within the JV could that distribution rise more proportional for the earnings power at that JV.
Yeah.
And again, I I don't want to predict.
What sort of distributions, we take out of the Jv's, but.
Historically I'd make a few comments one is we have very good relationships with our JV partners, we think they add value to CSL.
Second historically, when we have retained capital in the JV that has really been to solidify the capital structure of those jv's rather than I know.
Put them in a position of risk so and I think between strong portfolio performance as well as capital structure management and retention of some of those dividends those JV are in pretty good shape.
At this point.
And we'll we'll evaluate and present to our board every quarter our recommendations as to the distributions, we may or may not be able to make out of the JV is but we feel good about the way. They are situated now and we'll you know on a quarter by quarter basis evaluate whether it makes sense to retain capital within them.
To either grow them or delever them or to take distributions as dividends for Oc yourself, but that's all I could say I really can't provide forward looking guidance on that no I understood.
One question last one of the 83 million of lower yielding loans that you guys have on your books today.
Are those all liquid loans that you could sort of.
Rotate out of.
That's within your control or are those are any of those private illiquid assets.
Those are pretty much all liquid tradable securities.
In the broadly syndicated market. So we could we could execute sales on those at any time you know there's a there's a few weeks of kind of settlement that usually occurs but but it's something that we've been able to manage very very closely as a source of cash.
Okay.
I appreciate the clarification.
That's all the time are those are all my questions I appreciate the time today.
Thank you.
Yeah.
Thank you and once again, if you would like to ask a question. Please press Star then one.
Question will come from Bryce Rowe from Humpty Group. Please go ahead.
Thanks, Good a good have good afternoon.
Wanted to maybe follow up on Ryan's question questioning there around the Jv's.
And you guys had talked about.
Optimizing our balance sheet leverage at the JV for you know for a couple of quarters now.
And even within the BDC, we saw a nice uptick in net balance sheet leverage.
Here here in the third quarter it looked like the JV balance sheet leverage was roughly the same quarter over quarter.
So kind of curious how.
How that kind of juxtapose that against what you're seeing within the BDC.
Any opportunities too.
Continue to rotate out of some of the lower yielding investments within the within the joint ventures. It looks like that was relatively stable quarter over quarter as well. So just just wanted to get a little little conversation around what's happening within the joint ventures from our you know from us.
And investment perspective, being able to rotate out and maybe put put money to work at higher yields within the J D.
Yeah, It's a good question and.
We are at all times looking to optimize the portfolios within the JV for both risk and return.
So when possible we are making rotations.
Within the JV.
So it just it's going to be kind of case specific and.
And really dependent on what the market gives us, especially in the new issue broadly syndicated market.
We do have.
Very built out trading desk at Oaktree, we do have.
Our broadly syndicated loan business and CLO management so.
We are trafficking in the broadly syndicated market both on a secondary and primary basis every day and and when possible. We are trading around within the JV and also within.
The BDC itself.
To optimize return without really taking too.
Too much incremental risk or any incremental risk, we really would like to at all times maintain our risk level that at.
At very manageable levels, and look for inefficient pricing and either the privately negotiated transaction market or in the public markets.
But I you know I don't think there's anything programmatic that I could really comment on but you should know that we are.
Always attempting to.
To maximize the return within the JV.
I'm not sure if there was if I if there if I'm really answering your question or if there's something more specific that you wanted though.
Yeah.
I think that I mean, I think that covers it pretty well.
The question is around you know seeing some level of.
Rotation away from some of the lower yielding investments within the actual bdc's balance sheet.
Seeing that there's those investments that have lower yields come down within the BDC, but but stable there at the they're at the JV and just kind of curious y O.
Why we wouldn't have seen some rotation out.
Within the JV versus.
The BDC I think I think you answered it yeah I mean, we're trying to do it and then the JV I mean, the I think the relevant point of comparison would be well what is the broadly syndicated market, especially the new issue part of the broadly syndicated market offering offer averages.
And I would just say that.
It's probably.
I mean, it's more this is more anecdotal, but as I think about a lot of the new issue that we've been seeing coming to market.
I would say 80% of it is probably not of the level of return that would make sense for the jv's and so we are there.
There might be strong credits, but we're really looking to optimize risk and return rather than just risk or just return and so it's it's it's you know.
Day to day, we see all the new deals, we see secondary market trading patterns.
But we're not seeing a wholesale opportunity to turn over the portfolio in a way that would be accretive in both risk and return to CSL.
Okay.
Okay. Good color, maybe shifting to the right side of the balance sheet now that you're obviously using a bit more of the revolver.
Just curious how youre, how youre thinking about.
Capital structure do you think we will.
We see some more more tapping of unsecured or are you are you pretty comfortable with where the capital structure sits.
September 30.
Matt or Mel do you want to.
Take a crack at that question.
Sure.
It's Matt Thanks, Bryce I mean, I think we're pretty comfortable with with with.
The right side of the balance sheet between the river.
<unk> in the unsecured notes and.
The mix between secured and unsecured and a liability profile in terms of maturities in pricing. So I think I wouldn't see a lot of changes there and we're pretty.
Comfortable we've been able to decrease our funding.
Funding costs.
So it seems like it's in pretty good shape that being said we continue continue to look at the markets and we'll continue to look at the bank market as well as the <unk>.
Milk market in.
It just makes sense, whereas as optimized as possible, but it's in pretty good shape right now.
Okay.
That's good color and then maybe one can piggyback question for for Mel.
Solid uptick in the provision for income taxes here in the press release, maybe I missed it.
Within the commentary, but just curious what's driving the increase in tax provision there.
Okay.
Thanks Bryce.
This is an opportunity for Chris to join the Q&A, Chris you want to take that one.
Yeah sure happy to.
<unk>.
It's really driven by a larger tax distributions from Dominion.
So you'll see kind of a corresponding increase in the dividend income quarter on quarter.
So I think the kind of the way to think about that is to look at the dividend income and then.
Two.
Deduct out that above the line provision for income tax to think about it.
Net dividend amount.
Okay, that's great.
That's it for me thank you.
Thank you and once again, if you would like to ask a question. Please press Star then one.
Ladies and gentlemen, this concludes our Q&A session I would like to turn the conference back over to management for any closing remarks.
Thank you and thank you all for joining us on today's call. A replay of this call will be available for 30 days on <unk> website in the investors section or by dialing 870, 734 475 to nine for U S callers or.
One for 123170088 for non U S callers with the replay access code 10160823, beginning.
Beginning approximately one hour after this broadcast.
And thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Welcome and thank you for joining Oaktree specialty lending Corporation's first fiscal quarter and full year 2021 conference call.
Today's conference call is being recorded.
At this time all participants are in a listen only mode.
Will be prompted for a question and answer session. Following the prepared remarks.
Now I would like to introduce Michael most of Investor Relations, who will host today's conference call. Mr. Votes did you you may begin you operator, and welcome to Oaktree specialty lending Corporation's fourth fiscal quarter and full year 2021 conference call our earnings release, which we issued this morning and the accompanying slide presentation.
Dentation can be accessed on the investors section of our website at Oaktree specialty lending dot com.
Our speakers today are <unk>, Chief Executive Officer, and Chief Investment Officer, Matt panned out President and Chief operating Officer.
And now Carlisle, Chief Financial Officer and Treasurer.
Also joining us on today's call for the question and answer session, Chris Mccown. The Companys current assistant Treasurer, who will be taking over the CFO and treasurer positions from now next month.
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 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.
Please refer to our SEC filings further Scott.