Q1 2022 Oaktree Specialty Lending Corp Earnings Call

Welcome and thank you for joining Oaktree specialty lending Corporation's first fiscal quarter 2022 conference call.

Speaker 1: Welcome and thank you for joining Oaktree Specialty Lending Corporation's first fiscal quarter 2022 conference call.

Speaker 1: Today's conference 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 Mestichio of Investor Relations, who will host today's conference call. Mr. Mestichio, you may begin.

Today's conference 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 <unk> of Investor Relations, who will host today's conference call. Mr. Mr. <unk> you may begin.

Speaker 1: 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.

Thank you.

And welcome to Oaktree 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 investors section of our website at Oaktree specialty lending dot com.

Speaker 1: Our speakers today are Armin Knosian, Chief Executive Officer and Chief Investment Officer, Matt Pendo, President, and Chris McCown, Chief Financial Officer and Treasurer.

Our speakers today are Armen, nosy, and Chief Executive Officer, and Chief Investment Officer, Matt <unk>, President and Chris Mccann, Chief Financial Officer, and Treasurer also joining us on the call today for the question and answer session is Matt Stuart the company's newly appointed Chief operating Officer are only took over for Matt <unk> last week.

Speaker 1: Also joining us on the call today for the question and answer session is Matt Stewart, the company's newly appointed Chief Operating Officer. The role he took over for Matt Pendle last week.

Speaker 1: 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, 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 FCC filings for a discussion of these factors in further detail. We undertake no duty to update or revise any forward-looking statements.

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 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 a discussion of these factors.

Other detail, we undertake no duty to update or revise any forward looking statements.

Speaker 1: I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any oak tree fund.

I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any oaktree funds.

Speaker 1: investors and others should note that Oak Tree Specialty Lending uses the investor section of its corporate website to announce the material information.

<unk> and others you note that Oaktree specialty lending uses the investors section of its corporate website to announce material information.

Speaker 1: 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.

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.

Speaker 2: Thank you, Mike, and welcome everyone. We appreciate your interest in and support of OCSL. We produce strong results in the first quarter and started our fiscal year with steady origination activity and solid credit quality. We again grew NAV and adjusted net investment income, supporting our seventh consecutive quarterly divining.

Thank you Mike and welcome everyone. We appreciate your interest in and support of CSL. We produced strong results in the first quarter and start our fiscal year with steady origination activity and solid credit quality. We again grew NAV and adjusted net investment income supporting our seventh consecutive quarterly dividend increase.

Speaker 2: We reported NAV per share of $7.34, up 1% from the prior quarter. The increase was primarily driven by unrealized gains in our portfolio, as well as undistributed net investment income and successful realizations of non-core positions.

We reported NAV per share of $7 34 up 1% from the prior quarter. The increase was primarily driven by unrealized gains in our portfolio as well as undistributed net investment income and successful realizations of non core positions.

Speaker 2: Adjusted net investor income per share was 17 cents for the quarter, compared with 16 cents for the prior quarter. This was driven by higher interest income and fee income, partially offset by increases in incentive fees and interest expense.

Adjusted net investment income per share was <unk> 17 cents for the quarter compared with 16% for the prior quarter. This was driven by higher interest income and fee income, partially offset by increases in incentive fees and interest expense.

This builds on the earnings power, we established in 2021, well, we achieved record annual adjusted net investment income under oak trees for years of management.

Speaker 2: This builds on the earnings power we established in 2021 when we achieved record annual adjusted net investment income under Oak Tree's four years of banding.

Speaker 2: Given the strength and consistency of our earnings, our board once again increased our quarterly dividend, lifting it by 3% to 16 cents per share. Our dividend is now up 68% from its pre-COVID level. Now turning to the portfolio, we originated $300 million of new investment commitments in the first quarter. Of these, 73% were first-ling loans and included 227 million in private transactions and 73 million in the new issue primary market.

Given the strength and consistency of our earnings our board once again increased our quarterly dividend lifting it by 3% to 16 <unk> per share our dividend is now up 68% from its pre COVID-19 level now turning to the portfolio, we originated $300 million of new investment commitments in the first quarter of <unk>.

These 73% were first lien loans and included 227 private transactions and $73 million in the new issue primary market the weighted average yield on new debt investments in the quarter was eight 1%.

Speaker 2: The weighted average yield on new debt investments in the quarter was 8.1%.

Capitalizing on the full breadth of the Oaktree platform as well as our teams experienced investing across multiple cycles. We expect continued strong origination activity even in the highly competitive environment. We are confident we can continue to leverage the platform and invested resources to find deals that are structured and priced favorably.

Speaker 2: Capitalizing on the full breadth of the Oaktree platform, as well as our team's experience investing across multiple cycles, we expect continued strong origination activity. Even in a highly competitive environment, we are confident we can continue to leverage the platform and investment resources to find deals that are structured and priced favorably.

Speaker 2: We received $235 million from prepayments, pay-down, and exits in the December quarter. This included exits and payoffs of $44 million of lower yielding investments. The average yield of investments that we exited was 7.5%

We received $235 million from prepayments pay down and exits in the December quarter. This included exiting payoffs of $44 million of lower yielding investments. The average yield of investments that we exited was seven 5%, notably our noncore portfolio declined by nearly $40 million and now stands at $95 million.

Speaker 2: Notably, our non-corp portfolio declined by nearly $40 million and now stands at $95 million, or just under 4% of the portfolio at fair value at the close of the quarter. We continue to selectively reinvest these proceeds into higher yielding attractive opportunities.

Or just under 4% of the portfolio at fair value at the close of the quarter.

We continue to selectively reinvest these proceeds into higher yielding attractive opportunities.

Speaker 2: Credit quality remains excellent, reflecting our sourcing capabilities and discipline approach to underwriting. We invest selectively across a wide range of opportunities, enabling us to identify attractive opportunities while minimizing risk. As with the prior quarter, we had no investments in honor of cruel at the close of the first quarter.

Credit quality remains excellent, reflecting our sourcing capabilities and disciplined approach to underwriting we invest selectively across a wide range of opportunities nadler gets to identify attractive opportunities while minimizing risk.

The prior quarter, we had no investments on nonaccrual at the close of the first quarter.

Speaker 2: With respect to the right side of our balance sheet, we have also identified additional opportunities to further enhance our borrowing flexibility and ensure we maintain ample liquidity to meet funding needs. During the quarter, we increased capacity on our credit facilities, increasing the size of our revolver to $1 billion from $950 million with the addition of a new bank. We also increased our low-cost Citibank facility to $200 million from $150 million.

With respect to the right side of our balance sheet. We've also identified additional opportunities to further enhance our borrowing flexibility and ensure we maintain ample liquidity liquidity to meet funding needs. During the quarter, we increased capacity on our credit facility, increasing the size of our revolver to $1 billion from $950 million with the addition of a new bank.

We also increased our low cost citibank facility to $200 million from $150 million.

Speaker 2: The weighted average interest rate on debt outstanding was 2.3% in the December quarter, down slightly from 2.4% the prior quarter.

The weighted average interest rate on debt outstanding was two 3% in the December quarter down slightly from two 4% the prior quarter.

Speaker 2: I would also like to share an important addition to our leadership team. Last week our board appointed Matthew Stewart as Chief Operating Officer of OCSL. I will continue in my role as President. Matt joined Oak Tree in 2017 and prior to this promotion served as a Senior Vice President Investment Professional on our Strategic Credit Team.

I would also like to share an important addition to our leadership team last week, our board appointed Matthew Stewart as Chief operating officer of Ocs L. I will continue in my role as President Matt joined Oaktree in 2017 and prior to this promotion served as the senior Vice President investment professional on our strategic credit team.

Speaker 2: Matt brings the wealth of experience and expertise to the role and we are confident he's well-suited for the job. Now I would like to turn the call over to Armin.

Matt brings a wealth of experience and expertise of the world and we are confident he is well suited for the job now I would like to turn the call over to arm.

Thanks, Matt and good day everyone.

Speaker 3: I'll begin with comments on the market environment and continue with some additional highlights from our fiscal first quarter.

I'll begin with comments on the market environment and continue with some additional highlights from our fiscal first quarter.

Speaker 3: Macroeconomic conditions held strong through the December quarter, supporting continued low default rates in the credit markets and overall strong credit quality.

Macroeconomic conditions held strong through the December quarter, supporting continued low default rates and the credit markets and overall strong credit quality.

Speaker 3: Supply chain disruptions and inflationary pressures, however, remain reasons for caution.

Supply chain disruptions and inflationary pressures, however remain reasons for caution.

Speaker 3: Pandemic induced supply constraints and labor shortages intersected with pent-up demand for a range of goods resulting in elevated prices and the highest level of inflation in the US since the 1980s

And then they can do supply constraints and labor shortages intersected with pent up demand for a range of goods, resulting in elevated prices in the highest level of inflation in the U S. Since the 19 eighties.

Speaker 3: Many economists expect inflationary pressures to persist through the first half of 2022. And the Federal Reserve has signaled that it will raise interest rates soon to tackle inflation and cool the economy before it will breathe.

Yeah.

Many economists expect inflationary pressures to persist through the first half of 2022 and the Federal reserve has signaled it will raise interest rates soon to tackle inflation and cool the economy before it overheats.

Speaker 3: Should rates climb this year, investors may look for value in floating rate asset classes, including private credit.

Should rates climbed as your investors may look for value and floating rate asset classes, including private credit.

Speaker 3: However, investors venturing into this market now must be especially selected because private equity firms, which in 2021 had record levels of available capital, are pushing up prices for companies in private markets as they deploy stockpiles of dry powder.

However, investors venturing into this market now must be especially selected because private equity firms, which in 2021 had record levels of available capital are pushing up prices for companies and private markets as they deploy stockpiles of dry powder.

Speaker 3: Beneath all of this, of course, is the ongoing pandemic. Like the Delta variant before it, the olma cron strain has spread rapidly throughout the United States and globally, forcing new travel restrictions in a number of countries around the world. Yours reminded all of us that the coronavirus remains a concern as we enter 2022. It's ultimate impact on both global demand and supply remains unknown. So we continue to believe it's important to view the current environment with caution and flexibility.

We need all of this of course is the ongoing pandemic like the Delta variants before it the omicron strain has spread rapidly throughout the United States and globally, forcing new travel restrictions in a number of countries around the world.

Minded all of us with the coronavirus remains a concern as we enter 2022.

Its ultimate impact on both global demand and supply remains unknown. So we continue to believe it is important to view the current environment with caution and flexibility.

Speaker 3: As we have seen in January , the equity and government related fixed income markets have experienced a good deal of all.

As we have seen in January the equity in government related fixed income markets have experienced a good deal of volatility.

Speaker 3: Investors are expressing a high degree of uncertainty regarding how forceful the Fed will be in returning to a more historically normalized monetary policy.

Investors are expressing a high degree of uncertainty regarding how forceful the fed will be returning to a more historically normalized monetary policy.

Speaker 3: If this volatility continues or increases, it raises the potential for some market dislocation in our investing.

If this volatility continues or increases it raises the potential for some market dislocation in our investing universe.

Speaker 3: If that is the case, we are well prepared to act. Oak Tree's roots are an opportunistic credit investing, and we have demonstrated time and again over the years our deep expertise in investing in these types of market environments.

That is the case, we were well prepared to act.

<unk> roots are in opportunistic credit investing and we have demonstrated time and again over the years, our deep expertise in investing in these types of market environments.

Speaker 3: As you may remember, in 2020, when the financial markets experienced significant dislocations as an initial response to the pandemic, OCSL made several investments that turned out to be quite profitable and accreted to many

As you May remember in 2020, when the financial markets experienced significant dislocations as an initial response to the pandemic Ocs all made several investments that turned out to be quite profitable and accretive to NAV.

Speaker 3: While we can't predict what the future holds, we can assure you that we are well prepared for all possible scenarios.

While we can't predict what the future holds we can assure you that we are well prepared for all possible scenarios.

Speaker 3: With all of that in mind, we maintain our focus on relative value and the best risk-adjusted returns. We capitalize on Oak Free scale to invest across multiple industries with a diversified group of issuers. And we leverage Oak Free's vast resources and capabilities to negotiate and structure customized private deals that provide downside.

With all of that in mind, we maintained our focus on relative value and the best risk adjusted returns, we capitalize on oaktree scale to invest across multiple industries with a diversified group of issuers and we leveraged <unk> vast resources and capabilities to negotiate and structure customized private deals that provide downside protection.

Speaker 3: In some cases, we are identifying opportunities in less traffic corners of the market by lending to non-sponsor owned

In some cases, we are identifying opportunities and less traffic corners of the market by lending to non sponsor owned businesses, but we also continue to assess the sponsor lending market teeming with trusted private equity firms with operational advantages and attractive industries.

Speaker 3: But we also continue to assess the sponsor on the market. Teaming with trusted private equity firms with operational advantages and attractiveness.

Speaker 3: We also continue to identify compelling borrowers in the life sciences and technology arena.

We also continue to identify compelling borrowers in the life Sciences and technology Arena.

Speaker 3: We view these sectors as long-term beneficiaries of the increasing importance of applied sciences and digital commerce.

We view these sectors as long term beneficiaries of the increasing importance of applied Sciences and digital commerce.

Speaker 3: In summary, we are actively but carefully putting capital to work on favorable terms. Ensuring that as we grow, we do so in ways that minimize risk while also generating solid returns for our shareholders.

In summary, we were actively but carefully putting capital to work on favorable terms, ensuring that as we grow we do so in ways that minimize risk while also generating solid returns for our shareholders.

Now turning to the overall portfolio.

Speaker 3: At the close of the first quarter, a portfolio was well diversified with $2.6 billion at fair value across 140.

At the close of the first quarter, our portfolio was well diversified with $2 6 billion at fair value across 140 companies.

Speaker 3: 87% of the portfolio was invested in sear secured loans. Importantly, first leans have grown to represent 70% of the portfolio up from 60% one year ago. Reflecting our conservative investment approach and emphasis on being at the top of the capital.

87% of the portfolio was invested in senior secured loans importantly, first liens have grown to represent 70% of the portfolio up from 60% one year ago, reflecting our conservative investment approach and emphasis on being at the top of the capital structure.

Speaker 3: Nearly 92% of our loans are floating rate, positioning us well if rates rise.

Nearly 92% of our loans are floating rate positioning us well if rates rise.

Speaker 3: median portfolio company, EBITDA, at December 31, it was approximately $105 million. As you know, we have been learning a larger more diversified businesses to lower risk and bolster credit quality.

Median portfolio company EBITDA at December 31 was approximately $105 million.

No we've been lending to larger more diversified businesses to lower risk and bolstered credit quality.

Moving on to investment activity.

Speaker 3: Although competition remained elevated, we leveraged the Oak Reef platform to originate $300 million of new investment commitments across 12 new and nine existing portfolio companies in the December quarter.

Although competition remains elevated we leveraged the <unk> platform to originate $300 million of new investment commitments across 12, new and nine existing portfolio companies in the December quarter.

Speaker 3: I'd like to share with you a couple of illustrative examples of the opportunities we are finding, beginning with measurable.

I'd like to share with you a couple of illustrative examples of the opportunities we are finding beginning with mesoblast.

Speaker 3: This biotech firm develops and commercializes allogenic cellular medicine in the United States and several other countries over

This biotech firm develops and Commercializes allogeneic cellular medicine in the United States and several other countries overseas.

Speaker 3: Mesoblast offers products addressing a wide spectrum medical condition, including in the areas of cardiovascular, spine orthopedic disorders, oncology, hematology, and inflammatory diseases.

Mesoblast offers products addressing a wide spectrum of medical condition, including in the areas of cardiovascular spine orthopedic disorders oncology hematology and inflammatory diseases.

Speaker 3: The company has currently collected royalties of multiple products and has a range of late-stage product candidates that give it a robust pipe.

The company is currently collecting royalties of multiple products and there's a range of late stage product candidates that give it a robust pipeline.

Speaker 3: O3 provided a $90 million sole commitment to support the company's continued growth activities. OCSL was allocated $11 million of this first-wing term loan at an attractively priced 9.75% yield.

Oaktree provided a $90 million sole commitment to support the company's continued growth activities Ocs always allocated $11 million of this first lien term loan at an attractively priced 975% yield.

Speaker 3: Another compelling investment for us in the first quarter was our loan to PF Supreme, one of the largest Planet Fitness franchises in the US, with 70 locations, primarily in New York and California.

Another compelling investment for us in the first quarter was our loan to PFS Supreme one of the largest planet fitness franchises in the U S. With 70 locations, primarily in New York and California.

Speaker 3: This is a sponsor back investment in a company that is instead only recovering from the shocks of the coronavirus and has seen its membership rebound close to pre-pandemic.

This is a sponsor backed investment in a company that had been steadily recovering from the shocks of the coronavirus and it has seen its membership rebound close to pre pandemic levels.

Speaker 3: The company sought worth flexible capital to fund its recovery and anticipated future growth. Oak Creek provided a $120 million commitment priced at a level of 7% in a first-lane term loan of which OCSL was allocated $30 million.

The company sought more flexible capital to fund its recovery and anticipated future growth Oaktree provided a $120 million commitment priced at LIBOR plus 7% in the first lien term loan of which ocs always allocated $30 million.

Speaker 3: Following this financing, the company is appropriately capitalized, even when considering the impact of the pandemic hat on its performance.

Following this financing the company is appropriately capitalized even when considering the impact of the pandemic had on its performance.

Speaker 3: Our origination activity remains healthy and gives us substantial momentum as we progress further into 2020.

Our origination activity remains healthy and gives us substantial momentum as we progress further into 2022.

Speaker 3: Finally, I also want to congratulate Matt Stewart on his new role within Oak Tree. He is a key contributor on our deep and talented...

Finally, I also want to congratulate Matt Stuart on his new role within Oaktree. He is a key contributor on our deep and talented team.

Speaker 3: Now I will turn the call over to Chris to discuss our financial results in more details.

Now I will turn the call over to Chris to discuss our financial results in more detail.

Speaker 4: Thank you, Armin. Hello, everyone. OCSL delivered another quarter of solid financial performance starting off fiscal year 2022 with strong women.

Thank you Armen Hello, everyone.

<unk> delivered another quarter of solid financial performance, starting off fiscal year 2022 with strong momentum.

Speaker 4: So the first quarter we reported a adjusted net investment income of $31.2 million for $17 per share, up from $29.1 million for $16 per share in the fourth quarter of 2021.

For the first quarter, we reported adjusted net investment income of $31 $2 million or <unk> 17 per share up from $29 1 million or <unk> 16 per share in the fourth quarter of 2021.

Speaker 4: The increase was the result of higher interest income generated from a larger average portfolio, combined with higher income from prepayment.

The increase was the result of higher interest income generated from a larger average portfolio combined with higher income from prepayments, partially offsetting this was higher interest expense and higher incentive fees.

Speaker 4: Partially offsetting this was higher interest expense and higher incentive fees.

Speaker 4: Net expenses for the first quarter totalled $29.3 million, up 1 million sequentially. The increase was mainly due to higher incendities driven by our continued strong financial performance, as well as higher interest expense due to an increase in borrowings in our larger investment portfolio.

Net expenses for the first quarter totaled $29 $3 million up $1 million sequentially.

Increase was mainly due to higher incentive fees driven by our continued strong financial performance as well as higher interest expense due to an increase in borrowings in our larger investment portfolio.

Speaker 4: We accrued $1.7 million part to incinerate these under GAP in the December quarter. As a reminder, while GAP requires us to take unrealized gains into account when accruing part to incinerate the expense each quarter, OCSL will only pay these incinerate these annually into the extent that it has realized gains that exceed realized and unrealized losses at fiscal year end. Turning to credit quality.

We accrued $1 $7 million of part two incentive fees under GAAP in the December quarter. As a reminder, while GAAP requires a stake unrealized gains into account when accruing part two incentive fee expense each quarter or CSL will only pay these incentive fees annually and to the extent that it has realized gains that exceed realized and unrealized.

Losses at fiscal year end.

Turning to credit quality, which continues to be excellent.

Speaker 4: As Matt mentioned, we had no investments on honor pool at quarter end as all of our portfolio companies made their scheduled interest payments. Now move...

As Matt mentioned, we had no investments on nonaccrual at quarter end is all of our portfolio companies made their scheduled interest payments.

Now moving to the balance sheet.

Speaker 4: OCSL's net leverage ratio at quarter range remained consistent with the September quarter at 0.95 times. Net leverage continues to be near the high end of our target range of 0.85 to one time.

You see yourselves net leverage ratio at quarter end remained consistent with the September quarter of zero point 95 times net.

Net leverage continues to be near the high end of our target range of zero point 85 to one times.

Speaker 4: As of December 31, total debt outstanding was $1.3 billion and had a weighted average interest rate of 2.3%. Unsecured debt represented 50% of the total debt at quarter end in line with the prior quarter.

As of December 31, total debt outstanding was $1 $3 billion and had a weighted average interest rate of two 3% unsecured debt represented 50% of the total debt at quarter end in line with the prior quarter.

Speaker 4: At quarter end, we had total liquidity of approximately $594 million including $44 million of cash and $550 million of undrawn capacity on our upsized credit facility.

At quarter end, we had total liquidity of approximately $594 million, including $44 million of cash and $550 million of undrawn capacity on our upsized credit facilities.

Speaker 4: unfunded commitments, excluding unfunded commitments to the joint ventures were $246 million with approximately $200 to $3 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.

Funding commitments, excluding unfunded commitments to the joint ventures were $246 million with approximately $200 million to $3 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.

Speaker 4: As Matt mentioned, we increased capacity on our credit facilities in the quarter, raising our revolver to $1 billion from $950 million and welcoming a new bank to our syndicate of 19 lenders. We also increased our city facility to $200 million from $150 million.

As Matt mentioned, we increased capacity on our credit facilities in the quarter, raising our revolver to $1 billion from $950 million and welcoming a new bank to our syndicate of 19 lenders. We also increased our city facility to $200 million from $150 million.

Speaker 4: We continue to maintain ample liquidity to meet our funding needs.

We continue to maintain ample liquidity to meet our funding needs.

Now turning to our two joint ventures.

Speaker 4: At quarter end, the Kemper JV had $393 million of assets invested in senior secured loans to 61 companies.

At quarter end, the Kemper JV had $393 million of assets invested in senior secured loans to 61 companies. This compared to 379 million of total assets invested in 55 companies last quarter.

Speaker 4: This compared to $3.79 million a total last that invested in 55 companies last quarter.

Speaker 4: As it grew as a result of new originations made during the quarter.

Assets grew as a result of new originations made during the quarter.

Speaker 4: The JV generated $2 million of cash interest income for OCSL in the quarter, and we also received a $450,000 dividend.

The JV generated $2 million of cash interest income for <unk> in the quarter and we also received a $450000 dividend.

Speaker 4: Leverage at the JV was 1.4 times the quarter end, comparable to the September quarter.

Leverage at the JV was one four times at quarter end comparable to the September quarter.

Speaker 4: The GLiP JV had $145 million of assets at December 31st. These consisted of senior secured loans to 44 companies. Leverage at the JV was 1.1 times a quarter.

The Glick JV had $145 million of assets at December 31st. These consisted of senior secured loans to 44 companies leverage at the JV was one one times at quarter end.

Speaker 4: OCSL's subordinated note in the cliff joint venture, totaling $56 million continues to be current.

CSL subordinated note the glick joint venture totaling $56 million continues to be current.

Speaker 4: During the quarter, we received 1.2 million of principal and interest payments on the note.

During the quarter, we received $1 2 million of principal and interest payments on the notes.

Speaker 4: In summary, we continue to be very pleased with our financial results and believe our diverse portfolio and flexible balance sheet positions us well for the future. Now I will turn the

In summary, we continue to be very pleased with our financial results and believe our diverse portfolio and flexible balance sheet positions us well for the future.

Now I will turn the call back to Matt.

Speaker 2: Thank you, Chris. Our strong financial results for the quarter enable us to generate an annualized return on adjusted net investor income of 9.5%. Higher than last fiscal year's quarterly average of just over nine.

Thank you, Chris our strong financial results for the quarter enabled us to generate an annualized return on adjusted net investment income of $9, 5% higher than last fiscal year's quarterly average of just over 9% we had been targeting row in the high single digits and we are now right, where we said we would be however.

Speaker 2: We have been targeting ROE in the high single digits and we are now right where we said we would be. However, we believe that we still have some room for improvement.

We believe that we still have some room for improvement we remain focused on positioning the portfolio for improved yield by rotating out of lower yielding investments and into higher yielding proprietary loans. We made good progress again, this quarter exiting $44 million of loans priced at or below LIBOR, plus four 5%, leaving only.

Speaker 2: We remain focused on position report folio for an improved deal by rotating at a lower yielding investment and into higher yielding for prior territory low.

<unk> 40 million left in the portfolio are new investments continue to come.

Speaker 2: on the books at attractive yields, which means there is more upside in yield on that portion of the portfolio that we expect to realize over time. And to the extent that we see additional incremental investment opportunities, we may look to exit loans that are priced below LIBOR plus 5.5% as a source of reinvestment capital.

On the books at attractive yields, which means there is more upside in yield on that portion of the portfolio that we expect to realize over time and.

And to the extent that we see additional incremental investment opportunities. We may look to exit loans that are priced below LIBOR plus five 5% as a source of investment capital as.

Speaker 2: As we've discussed before, another ongoing opportunity for us to increase ROE is to further optimize our joint ventures. We can accomplish this by selectively rotating out of lower-yielding investments into higher-yielding ones as well as increasing leverage at the JVs. We have capacity and will selectively grow these portfolios over time, which we believe will be a creative to ROE.

As we've discussed before another ongoing opportunity for us to increase our east to further optimize our joint ventures. We can accomplish this by selectively rotating out of lower yielding investments into higher yielding ones as well as increasing leverage at the JV, we have capacity and we'll selectively grow these portfolios over time, which we believe will be accretive to Roe.

Speaker 2: In conclusion, we are very pleased with our strong first quarter financial results. We are excited about our prospects for the remainder of the year and are optimistic that we will continue to be able to identify new attractive risk-adjusted investment opportunities, enabling us to deliver improved returns to our shareholders.

In conclusion, we are very pleased with our strong first quarter financial results. We are excited about our prospects for the remainder of the year and are optimistic that we will continue to be able to identify attractive risk adjusted investment opportunities, enabling us to deliver improved returns to our shareholders. Thank you for joining us on today's call and for your continued interest in <unk>.

Speaker 2: Thank you for joining us on today's call and for your continued interest in OCSL. With that, we are happy to take your questions. Operator, please open the line.

So with that we're happy to take your questions. Operator, please open the lines.

Speaker 1: Thank you. We will now begin the question and answer session. To ask a question, press star then one on a touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key.

Thank you we will now begin the question and answer session to ask a question Press Star then one on a touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Speaker 1: If you want to remove yourself from the question Q, press star then Q. We will pause momentarily to assemble our roster.

If you'd like to remove yourself from the question queue Press Star then two we will pause momentarily to assemble our roster.

Speaker 1: And the first question comes from Kevin Foltz with JMP Securities. Please go ahead.

And the first question comes from Kevin <unk> with JMP Securities. Please go ahead.

Good morning, and thank you for taking my questions.

Speaker 5: Armand, we always appreciate your insight on what you're seeing in the market, both in the sponsors side and the non-sponsor side where you like to play. Could you give us a high level overview of the option that you're currently seeing as well as a competitive environment available to the last few quarters?

And we always appreciate your insight on what you're seeing in the market. Both on the sponsor side in the non sponsor side, where you'd like to clay could you give us a high level overview of the opportunities you're currently seeing as well as the competitive environment relative to the last few quarters.

Speaker 3: Sure, and thanks for the question. I wouldn't say much has changed in the fourth calendar quarter versus.

Sure.

For the question I wouldn't say much has changed in the fourth calendar quarter versus how.

Speaker 3: much of 2021. I think there continues to be a fair bit of competition.

Much of 2021, I think there continues to be a fair bit of competition amongst our peers are focusing on the sponsor oriented lending product and direct lending gen.

Speaker 3: amongst our peers, focusing on the sponsor, oriented lending product and direct lending, generally speaking, spreads and legal terms.

Generally speaking spreads in legal terms have.

Speaker 3: have been pretty consistent over the quarter.

I've been pretty consistent in it.

And over the over the quarter.

Speaker 3: I wouldn't say there's been a tremendous amount of incremental pressure on spreads and legal protections, but it continues to be highly competitive and weaker in terms of coupons and and covenants than what we were accustomed to three or five years ago.

I wouldn't say, there's been a tremendous amount of incremental pressure.

On spreads and legal protections, but it continues to be highly competitive and weaker in terms of coupons and.

And covenants than what we were accustomed to you know 345 years ago. So.

Speaker 3: Um, so I wouldn't say there's anything really tremendous on, um, you know, happening in, in that part of the market. Um, you know, we are watching.

So I wouldn't say, there's anything really tremendous on.

Happening in that part of the market.

Speaker 3: this very closely because, you know, in the month of January and in the month of November of last year, there was some volatility in the publicly traded below-investment-grade markets.

We are watching.

Very closely because you know in the month of January and in the month of November of last year. There was some volatility in the publicly traded below investment grade markets. We.

Speaker 3: We saw some spread widening in high yield bonds for a period of time. We saw last week in fact some spread widening in high yield bonds. So a lot of that is

We saw some spread widening in high yield bonds for a period of time, we saw last week in fact, some spread widening in high yield bonds. So a lot of that is.

Speaker 3: initially at least driven by, or the price movement is initially driven by a duration oriented trade or duration oriented risk around rising rates.

Initially at least driven by Oh, the price movement is initially driven by our duration oriented trade or duration oriented risk around rising rates, but.

Speaker 3: But we are noticing some spread widening occurring in the publicly traded markets, especially in high yield bonds. And so we're a little bit cautious as to whether that will manifest itself eventually into broadly syndicated loans and direct lending. So, yeah, as you know, we are looking across.

But we are noticing some spread widening occurring in the publicly traded markets, especially in high yield bonds and.

So we're a little bit cautious as to whether that will.

Manifests itself eventually into broadly syndicated loans and direct lending. So yeah. As you know we are we are looking across the different securities and investment opportunities that are appropriate for ocs, all including publicly traded debt and and really considering on a relative value basis, where the best risk adjusted returns.

Speaker 3: the different securities and investment opportunities that are appropriate for OCSL, including publicly traded debt, and really considering on a relative value basis where the best risk adjusted returns are. And so being able to look broadly like that, we are measuring how attracted direct lending markets are against some other opportunities that we see across the board. But specifically relating to your question about direct lending as compared to itself over the last 12 months, I wouldn't say that there's...

Sure.

And so being able to look broadly like that we are measuring how attractive direct lending markets are against some other opportunities that we see across the board, but specifically relating to your question about direct lending as compared to itself over the last 12 months I wouldn't say that there's been.

And.

Speaker 3: a more rationalization of the market. I think the competition remains strong, but I would say that coupons and legal protections have been relatively consistent for the last couple.

Hum.

A more rationalization of the market I think the competition remains strong, but but I would say that you know coupons and legal protections have been relatively consistent for the last couple of quarters.

Speaker 5: Great. That's really helpful, Keller. And then just a question relating to interest rate sensitivity. Could you provide the weighted average LIBOR floor for floating rate investment?

Great. That's really helpful color and then just a question relating to interest rate sensitivity could you provide the weighted average LIBOR floor for floating rate investments.

Speaker 3: I would probably need to get back to you. I don't know if Matt or Chris have that, but you know, our typically our live or fours are between 50 and a hundred basis points and really closer to a hundred basis points. And we generally a live or fours on most if not all of our floating rate investments, but I don't know Matt Stewart or Chris, if you have that information handy.

Good I, probably need to get back to you I don't know, if Matt or Chris have that but no. Our typically our LIBOR floors are between 50, and 100 basis points and really closer to 100 basis points and we generally have LIBOR floors on most if not all of our floating rate investments, but I don't know, Matt Stuart or Chris If you have that information handy.

Speaker 6: Yeah, around 80% of our loans either have LIBOR floors of 1% or 75 bits, and the balance is scattered throughout and even up to 1.5%. All of our loans or all of our assets do have LIBOR floors in some form, whether it's zero or up to 1.5 on the high end, but 80% of our portfolio is around 75 or 1%. Okay, got it. And all the...

Yeah around 80% of our loans either have LIBOR floors of 1% or 75 bps and the balance is scattered throughout and even up to one 5%.

Over all of our loan all of our assets do have LIBOR floors in some form.

Whether it zero or up to one and a half on the high end, but 80% of our portfolio is around 75 or 1%.

Okay got it and I'll leave it there congratulations on the quarter.

Thank you.

Speaker 1: The next question comes from Kyle Joseph with Jeffries. Please go ahead.

The next question comes from Kyle Joseph with Jefferies. Please go ahead.

Speaker 7: Hey, good morning guys. Thanks for having me on and taking my questions. Just a quick modeling question in terms of the interest income accretion related to the merger. How long should we expect that to kind of impact results and should we kind of expect a diminishing amount in that line item going forward?

Hey, good morning, guys. Thanks for having me on in and taking my questions.

Just a quick modeling question in terms of the interest income accretion related to the merger.

How long should we expect that to kind of impact.

Results and should we kind of expect a diminishing amount.

And that line item going forward.

Speaker 4: It's Chris here. You know, it's going to continue to impact results, you know, for probably another couple of years of assets continue to roll off the books. You may have noticed maybe a little bit of a bigger decline quarter on quarter in that in that adjustment. And that's that's really a function of the fact that we had some of some of the names that repaid last quarter came with a lot of OID acceleration on a on a non-GAAP basis.

Hey, it's Chris here.

That's going to continue to impact results for.

Probably another couple of years of assets continued to roll off the books.

You may have noticed a maybe a little bit of a bigger decline quarter on quarter in that in that adjustment.

And that's really a function of the fact that we had some of the some of the names that repaid last quarter came with a lot of OID acceleration on it on a non-GAAP basis.

Speaker 4: Excuse me, on a gap basis, rather. So, as those rolled off, we see the number decreasing. So, we do expect we'll continue to trend down, but it's going to be with us for a little while longer. And we'll certainly continue to present those adjusted numbers to help strip out that noise.

Excuse me on a GAAP basis rather.

So as those rolled off we've seen the number decreasing so we do expect it will continue to trend down, but it's going to be with us for a little while longer and we'll certainly continue to present those adjusted numbers help strip out that noise.

Speaker 7: Yep, appreciate that. And then probably for Arm and her mat, obviously credit performance has been very, very strong, but can you give us a high level sense in terms of what you're seeing from portfolio companies, fully recognizing that it's a very diversified portfolio, but any sort of impacts from either rage or raw material inflation on EBITDA growth or EBITDA margins at the portfolio level.

Yeah appreciate that and then probably for.

Our men or Matt.

Obviously credit performance has been very very strong, but you know can you give us a high level of sense in terms of what you're seeing from portfolio companies fully recognizing you guys have very diversified portfolio, but you know any sort of impacts from either rate wage or raw material inflation on EBITDA growth or EBITDA margins at the <unk>.

Portfolio level.

Speaker 3: Sure, this is Armin. I think big picture, I think supply chain disruptions are real.

Sure. This is Arvind I think big picture I think supply chain disruptions are real.

Speaker 3: Um, and that's been true for several quarters. I didn't really see a meaningful improvement in the. In the 4th calendar quarter. I would say it was kind of marginal improvement in terms of the sort of.

And that's been true for several quarters, I Didnt really see a meaningful improvement in the.

In the fourth calendar quarter.

I would say it was kind of marginal improvement in terms of D.

Speaker 3: getting rid of those supply chain roadblocks.

Sort of.

Getting rid of those.

The supply chain roadblocks.

Speaker 3: The supply chain issues have caused two issues. One is...

The supply chain issues have caused two issues one is.

Speaker 3: a reduction in revenues or reduction in unit sales of certain goods that are produced that need to have components shipped from overseas. There are definitely some issues around shipping that are delaying shipments of needed products.

A reduction in revenues.

A reduction in unit sales of certain goods and that are that are produced that need to have components shipped from overseas. There are there's definitely some issues around shipping that are delaying.

Delaying shipments of needed products. So units unit sales are down that doesn't necessarily mean revenues are down because price increases have been pass through generally in a in a variety of different products that we have seen a pickup in demand amongst consumers for the better part of last few years.

Speaker 3: So unit, unit sailor down, that doesn't necessarily mean revenues are down because price increases have been passed through generally in, in, in a variety of different products that we've seen a pickup and demand amongst consumers for the better part of the last two years.

Speaker 3: But with higher energy prices, with higher commodity prices, and supply chain issues, we have seen, generally speaking, cost increases as well, that are being passed through on a lag basis generally across a variety of industries. So it hasn't really caused a meaning for...

But with higher energy prices with higher commodity prices and supply chain issues. We have seen generally speaking cost increases as well that are now being labs, who are being passed through on a lag basis generally.

Across a variety of industries. So it hasn't really caused a meaningful performance issue.

Speaker 3: But, you know, again, the unit sales reduction or the fact that unit sales haven't been able to keep up with demand.

But you know again, the unit sales reduction or the or the or the fact that unit sales haven't been able to keep up with demand.

Speaker 3: It's a little bit problematic for some of these businesses.

A little bit problematic for some of these for some of these businesses but.

Speaker 3: but I would say generally speaking in our portfolio in late 2021 versus late 2020, businesses are generally doing better year over year despite these issues, despite the inflation and despite the supply chain disruption.

But I would say generally speaking in our portfolio.

In late 2021 versus late 2020.

Listeners are generally doing better year over year. Despite these issues, despite the inflation and despite the supply chain.

Speaker 3: And I wouldn't say that many businesses are back to 2019 levels, but they are somewhere in between. I'm pretty much all of them are somewhere in between, you know, 2020 performance and 2021 performance.

Disruptions and I wouldn't say that many businesses are back to 2019 levels, but they are somewhere in between all of them pretty much all of them are somewhere in between.

<unk> 'twenty performance in 2021 performance and showing some indication that 2022 it.

Depending on the industry will be close to recovery in the 2019.

2019 comparison, you know I'll give you. One example, we did a lot.

And to a new company this quarter called PFS, Ukraine, which is a planet fitness franchisee. It is a little bit of a reopening trade obviously.

That business, even prior to our investment had recovered to about 80, 485% of its membership subscription base in comparison to the 2019 levels. So that's just one data point for you that we're heading in the right direction, but we're not out of the woods at this time.

Speaker 3: So that's just one data point for you that, you know, we're heading in the right direction, but we're not out of the woods at this time.

Got it great color. Thanks, a lot for answering my questions.

Speaker 8: The next question comes from Ryan Lynch with KVW. Please go ahead. Good morning guys and thanks for taking my questions. First one I had, you gave some good commentary about market conditions, but I wanted to drill down on a little bit further was just how are you guys seeing you know market act.

No problem. Thank you.

Speaker 1: The next question comes from Ryan Lynch with KVW. Please go ahead. .

The next question comes from Ryan Lynch with Katie Debbie. Please go ahead.

Hey, good morning, guys and thanks for taking my questions.

Speaker 8: First one I had, you gave some good commentary about market conditions, but I wanted to drill down on a little bit further was just how are you guys seeing, you know,

First one I had you gave some good commentary about market conditions, but I wanted to drill down on a little bit further was just how are you guys seeing.

Speaker 8: Market activity shaping up in the first month and what is kind of your outlook from a market activity standpoint as far as Deal volumes go just because

<unk> market.

Market activity shaping up in the first month and what is kind of your outlook and from a market activity standpoint as far as deal volumes go just because.

Speaker 8: 2021 was such a unique year where we saw such kind of a flood of of increased origination and deal activity and the back half of the year. I just wanted to proceed any spill over in the early month of

2021 was such a unique year, where we saw such kind of a flood of increase origination and deal activity in the <unk>.

Back half of the year I'm, just wondering if we're seeing any spillover into the early months of Bob.

Speaker 8: 2022 and kind of what is your outlook for the next year maybe call the first half of 2022?

2022, and kind of what is your outlook.

For the next maybe call it the first half of 2022.

Speaker 3: Sure. This is Armin. It's a good question. I don't think one month is enough to really do any sort of meaningful trend on deal activity.

Sure.

It's a it's a good question I don't think one month is enough to really reduce any sort of meaningful trend on deal activity.

Speaker 3: But a little bit of a feeling or concern that I have about the electivity for this year, especially as it pertains to squalter activity, with the rise and rate.

But I'm a little bit of.

A feeling or concern that I have about deal activity for this year.

Especially as it pertains to sponsor activity.

With the rise in rates, we have seen a contraction in valuation multiples generally even for companies that are not lever. If you just look at the equity market.

Speaker 3: We have seen a contraction in valuation multiples generally, even for companies that are not levered. If you just look at the equity market, there is a general downward trend in valuation multiples. And that should cause a pause in a-

There is a general downward trend in valuation multiples.

And that.

Should cause a pause in LBO sponsor activity for new deals.

Speaker 3: You know, as as multiple decline sellers are unwilling to sell because they, you know, they kind of remember what their valuation multiples were six or 12 months ago. And then even private equity firms that bought a company, you know, three years ago at 12 times the DDA may not be willing to sell that company or an interest in that company to another private equity firm at 10 times the DDA or 9 times the DDA.

Hum.

As multiples decline.

Sellers are unwilling to sell because they kind of remember what their valuation multiples were six or 12 months ago.

And then even private equity firms that bought a company three years ago at 12 times EBITDA.

<unk> may not be willing to sell that company or an interest in that company to another private equity firm at 10 times EBITDA or nine times EBITDA. So I would expect that private equity firms will.

Speaker 3: So I would expect that private equity firms will, you know, take a pause on, on deal volume as valuation multiples become more reflected in deal terms.

Take a pause on deal volume as valuation multiples become more reflected in deal terms.

Speaker 3: But I think one month or two soon to make such an assessment. It's just more of a market prediction than something that I would think is at this point really reflected in deal flow. We are.

But I think one month, it's too soon to make such an assessment. It's just more of a it's more of a market predictions and then something that I would think is at this point really reflected in deal flow.

Speaker 3: a lot of volume, we could definitely invest capital very rapidly. In sponsor deals, we are seeing non-sponsor deal activity as well. We're quite busy, especially in our life sciences area right now. So we're not seeing our type of deal volume really take a hit so far this year.

<unk> seen a lot of volume we could definitely.

No.

Best capital very rapidly.

In sponsor deals we are seeing non sponsor deal activity as well, we're quite busy, especially in our life Sciences area right now so.

We're not seeing our type of deal volume really take a hit so far this year.

Speaker 3: But, you know, we are cautious. We're cautious because of what we're seeing in the markets. We're cautious because of what we're seeing in the publicly traded fixed income areas. And so we're going to be very vigilant and look for opportunities to, you know, once it drops again.

But you know we are cautious where we're cautious because of what we're seeing in the markets. We're cautious because what we're seeing in the publicly traded fixed income areas and so we're going to be very vigilant and look for opportunities to once again.

Speaker 3: or drive NAV if it presents itself at some point in the next 12 or 24 month.

It'll drive N a V. If it presents itself at some point in the next 12 or 24 months.

Speaker 8: Okay, that's a helpful color. And yeah, you guys feel slow. It is a little bit, I would say you need to you guys do some more kind of off the run type of transactions and non-sponsors. So you guys are going to, I think a good spot, even private equity sponsor, deal flow, close down a little bit.

Okay.

Helpful color on how you guys feel slow it is.

A little bit I would say you meet you guys do some some more kind of off the run.

Type of transactions and non sponsored so you guys are I.

I think a good spot, even though private equity sponsored deal flow was down a little bit.

Speaker 8: On that point, you guys are now at the upper end of your leverage target range. Yeah, I think you guys have made a pretty clear, in the past, unless it's changed recently, that you guys don't see that really shifting anywhere. So what are the goals then for OCSL throughout 2022, given that you guys are kind of...

On that point you guys are now at the upper end your leverage target range. I think you guys have made a pretty clear you know in the past unless it's changed recently that you guys don't see that really shifting anywhere. So what are the gold band four for Ocs Al you know throughout 2022, given that you guys are kind of at your targeted <unk>.

Speaker 8: at your target leverage range? How are you guys looking to manage the portfolio? How are you guys looking to manage growth?

<unk> range. How are you guys looking to manage the portfolio. How are you guys looking to manage growth.

Speaker 2: Durant's Matt Pendo. I think in terms of the first question on leverage range, we're comfortable with the range.

Hey, Ryan Smith panned out.

I think I think in terms of.

First question on leverage range.

We're comfortable with that range.

Speaker 2: with the higher end and been so the last few quarters. But I think for us, it appears we're at the lower end and we like being at lower levels and having just more flexibility and drive power if there's opportunities present itself. So we're comfortable on the lever side. We have a...

With the higher end has been over the last few quarters, but.

I think versus our peers, where we're at the lower end and we like being a lower leverage than having just more flexibility and dry powder, if there's opportunities present itself.

So we're comfortable on the liver side, we obviously.

Speaker 2: I think you have very good access to the capital markets and a bunch of very several advantages to work well. I think in terms of what this means.

I think you have very good access to the capital markets.

And there's been a bunch of several debt financings has worked well.

In terms of what this means for the portfolio growth.

Speaker 2: the portfolio growth, you know, it's a little bit as we talked about kind of ROE and our levers there, it's rotating out of the lower yielding assets, we still have some there. And, you know, we talked about like LIBOR plus 450, LIBOR plus 550. So there's still the opportunities of accretion from rotating out of the lower yielding to the higher yielding, which we've been doing, and there's more to do there.

It's a little bit as we talk about the kind of ROE V and our.

Our leverage there.

Rotating out of lower yielding assets, we still have some there.

And.

I'm talking about like LIBOR minus LIBOR, plus 450, LIBOR 550, so there's still the.

The opportunities of accretion from rotating out of lower yielding to higher yielding loans, which we've been doing and he has more to do there.

Speaker 2: We've got a lot of benefits out of the merger with OCSI, but I think...

We've got a lot of benefits out of the merger with Oce is high but I think there's probably some more to do there just in terms of kind of scale and diversification.

Speaker 2: There's probably some more to do there just in terms of kind of scale and diversification.

Speaker 2: You know, there's a little bit more to do on the JV front in terms of little levers there. But it's really just kind of more of the same. Maybe it's a little boring, but I think there's a lot to do if we just get to keep doing what we're doing on kind of the portfolio rotation. And that's our...

You know, there's there's a little bit more to do on the on the JV front.

In terms of.

Average there.

But it's really it's really just kind of more of the same.

You know, maybe a little boring, but I think theres a lot to do if we just kind of keep doing what we're doing on on kind of portfolio rotation.

And that's that's.

That's our focus.

Speaker 8: Okay, next time, I appreciate the time today.

Okay.

Makes sense.

At the time today.

Speaker 1: Again, if you'd like to ask a question, put star than one to join the queue. The next question comes from Melissa Weddle with JP Morgan. Please go ahead.

Again, if you'd like to ask a question press Star then one to join the queue.

The next question comes from Melissa Wedel with JP Morgan. Please go ahead.

Speaker 9: Good morning. Appreciate you taking my questions today. With hoping we could touch on the weighted average yield of new investment starting recorder, trying to sort of understand the context of that, given sort of a 50 basis point decline in yield quarter of recorder with.

Good morning, appreciate you taking my questions today.

I was hoping we could touch on the weighted average yield on new investments during the quarter trying to sort of understand the context of that Kevin.

Sort of a 50 basis point decline.

In Europe quarter over quarter with.

Speaker 9: a little bit less first lean in the mix this quarter versus last. So I'm looking at that right. Does that sort of imply that that was really all spread compression?

A little bit less first lien in the mix this quarter versus ly now I'm looking at that rate.

Does that sort of imply that that was really all spread compression.

Mount Stewart do you want to take that question.

Speaker 6: Yeah, that's part of what it was. We did have a couple second leans in the portfolio, which refinanced down, which we stayed in, which did result in some...

Yeah. That's that's part of what it was we did have a couple on second liens in the portfolio, which refinance down which we stayed in.

Which did result in some.

Speaker 6: impression on our yield as well. We are seeing deals still in line with what we had been producing.

Compression on our yield as well we will we are seeing deals still in line with what we had been producing.

Speaker 6: The last couple quarters, I know we are down 50 basis points and almost not a point from where we were two quarters ago, but we are still seeing

The last couple of quarters I'm I know, we are down 50 basis points and almost down a point from where we were two quarters ago, but we are still seeing.

Speaker 6: yields kind of in that mid-Aprian range. And we do expect to continue to originate as arm and noted before we are seeing opportunities in the life, science, space, knowledge, space. So I wouldn't point to one data point out a quarter. Some of that is timing and some of those refines, and I mentioned, but we are seeing some spread compression and some yield is the market environment is getting more competitive out there.

Yields kind of in that mid eight range and we do it we do expect to continue to originate as Armen noted before we are seeing opportunities in the life Science space Mountain view space. So I wouldn't point to one data point on a quarter.

Some of that is timing and some of those refunds I mentioned, but we are seeing some spread compression and some yield as the market environment is getting.

Getting more competitive out there.

Speaker 2: Yeah, let's imagine if you go back to like the 331-21 quarter there the yield on New Commodore was 8.2% so You know, we'll have quarters where it will move and you know in that range

Yeah listen okay.

If you go back to like the.

$331 21 quarter, there the yield on new commitments was eight 2% so yes.

We will have quarters, where it will move in in that range.

Sure Okay.

Speaker 9: So I'm to take it then that that's really sort of similar to the March quarter of 21 where there's a dip down and then sort of a rebound back up or even looking at sort of the new bus nurse this quarter is a bit more of a blip. I'll be it in a still competitive environment.

So.

I can take it then that that's really sort of similar to the March quarter of 'twenty, one where there is a dip down and then sort of a rebound back up are you looking at sort of the email.

New investments this quarter is a bit more of a blip.

Albeit NFL competitive environment.

Speaker 3: Yeah, I think that's it. That's the Xarmine. Yeah, I would say that's fair. I wouldn't say we have a...

Yes, I think Thats got assortment.

Yeah, I would I would say that's fair, it's I wouldn't say we have a such.

Speaker 3: such a great number of data points in any given quarter to call it a statistically significant set to make such an assessment that this is the new norm. You know, in our pipeline that we're looking at, it's all over the place.

Such a great number of data points in any given quarter to call. It a statistically significant set to make such an assessment that this is the new norm.

And our pipeline that we're looking at it's all over the place.

Speaker 3: You know, there are deals that are significantly north of 8.1 and 8.5%. And there are some situations below it. So I just don't, I think it's hard to make any sort of directional assessment based on what...

There are deals that are significantly north of $8 one at eight 5%.

There are some situations below it so.

I just don't I think it's hard to make any sort of directional assessment based on one quarter.

Speaker 9: Okay, very nice. Follow a question on the issue related to the leverage position at the end of the quarter. I know in the past, you guys have certainly liked to take advantage of all of the looks.

Okay fair enough and follow up question on <unk>.

The issue related to the leverage position.

Position at the end of the quarter.

I know in the past you guys have certainly like to take advantage of volatility.

Speaker 9: And he's also been willing to sort of hold a lot of dry powder or some amount of dry powder, I'll say. Ready to deploy if that's the case and or many talked about potential volatility that could come from uncertainty around that action.

We've also been willing to sort of hold a lot of dry powder.

Some amount of dry powder, all day and ready to deploy if that's the case and army and you talked about.

Potential volatility that could come.

Come from uncertainty around fed action.

Speaker 9: Given that potential uncertainty and possible volatility at some point, but you're positioned at the high end of leverage, does that indicate, should we read into that at all? That's sort of an assessment on your part of the likelihood of volatility in the market at this point.

Given that potential uncertainty and possible volatility at some point and that you are positioned at the high end of leverage does that indicate you should we read into that at all.

Sort of an assessment on your part as the likelihood.

Volatility in the market at this point.

Speaker 3: Yeah, this is our mid. It's hard to predict both the timing and scale of any level of volatility. We are at the high end of our lovers target, but we still have assets that are low yielding and able to be turned into cash pretty quickly if we saw the opportunity to buy or originate deeply this kind of assets. Yeah.

Okay.

Yes.

It's hard to predict both the timing and scale of any level of volatility.

We are at the high end of our leverage target, but we do have we still have assets that are low yielding and sort of.

Able to be turned into cash pretty quickly if we saw the opportunity to buy or originates deeply discounted assets.

Speaker 3: We aren't moving our leverage target.

We arent moving our leverage target, we could potentially see a situation where in a quarter, we have the opportunity to buy assets and increase leverage above our target.

Speaker 3: We could potentially see a situation we're in a quarter, we have the opportunity to buy assets and increase leverage above our target temporarily. But we don't see such...

Temporarily.

But.

We don't see we don't see such depth of volatility at this time.

Speaker 3: depth of volatility at this time to do anything to extreme. We recognize the fact also that we are trading an av or above nav, and if we did see the opportunity to make such investments, we could potentially look for equity if we saw a crack.

To do anything too extreme.

We recognize the fact also that we are you know trading.

And at or above NAV, and if we did see the opportunity to make such investments.

Could potentially.

Look for equity if we if we saw cracks.

Speaker 3: in the market that would open up a big opportunity to do so. And with oak trees background and depth in looking for those opportunities, both privately negotiated and public, I think that we are very well situated and have the credibility to move with great conviction when that occurs.

In the market that would open up a big opportunity to do so.

And and you know with oak trees background.

And in depth and in looking for those opportunities both privately negotiated in public.

I think that we are very well situated and have the credibility to.

You know move.

With great conviction when that when that occurs and I.

Speaker 3: I would expect that we would do so if that materializes. But I don't have this...

I would expect that we would do so if that if that materializes, but.

I don't.

Speaker 3: deep expectation at this moment in time that There's gonna be this you know distressed opportunity anywhere near what the what the pandemic brought about But it does seem at least in January that there is a you know repricing or resetting of appropriate market Spreads and yields on fixed rate instrument

Don't have that.

Deep expectation at this moment in time that that theres going to be this distressed.

Distressed opportunity anywhere near what the what the pandemic brought about.

But it does seem at least in January that there is a repricing or resetting of appropriate market.

Spreads and yields on fixed rate instruments.

Speaker 3: It is not amounting to a distressed or a distressed opportunity or an implication that defaults will pick up. It's more of a reprising.

There it is not a mount amounting to a distressed or a.

A distressed opportunity or an implication that default will pick up in GOR of a repricing.

Speaker 3: and there could be some total return opportunities there at the right time. It's just not there at the moment, but we will manage our liquidity over the course of several quarters to take advantage of those opportunities if they present themselves.

And there could be some total return opportunities there at the right time, it's just not there at the moment, but we will manage our liquidity over the course of several quarters to take advantage of those opportunities if they present themselves.

Speaker 3: But I wouldn't read into our leverage level today as an implication that we do not see certain cracks potentially developing in the markets.

And but I wouldn't read into our leverage levels. Today has an implication that we don't that we do not see.

Certain cracks potentially developing in the markets.

That's very helpful. Thanks, so much.

Thank you.

Speaker 1: Again, we still have time for questions, so if you'd like to ask a question, press Star more than one to join the queue.

Again, we still have time for questions. So if you'd like to ask a question Press Star then one to join the queue.

Okay.

Yes.

Okay.

Speaker 1: It looks like we have no further questions, so this concludes our question and answers session. Mr. Misfitiel.

And it looks like we have no further questions. So this concludes our question and answer session. Mr. Mr. Gill.

Speaker 1: Great, thanks Tom and thank you all for joining us on today's earnings conference call. A replay of this call will be available for 30 days on OCSL's website in the Investor section.

Great. Thanks, Tom and thank you all for joining us on today's earnings conference call. A replay of this call will be available for 30 days on <unk> website in the investors section.

Speaker 1: or by dialing 877-344-7529 for U.S. collars or 1-412-317-0088 for non-US collars, with the replay access code 3546-944 beginning approximately one hour after this broadcast.

Or by dialing 870, 734, 475 to nine for U S callers or 141 to 3170088 for non U S callers with the replay access code 3546944, beginning approximately.

One hour after this broadcast.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded.

Thank you for attending today's presentation you may now disconnect.

Speaker 10: you

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Speaker 10: I.

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Speaker 1: Welcome and thank you for joining Oak Tree specialty lending corporations First fiscal quarter 2022 conference call.

Welcome and thank you for joining Oaktree specialty lending Corporation's first fiscal quarter 2022 conference call.

Speaker 1: Today's conference 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 Mispicio of Investor Relations, the will host today's conference now, Mr. Mispicio, you may begin.

Today's conference 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 <unk> of Investor Relations, who will host today's conference call. Mr. Mr. Gilles you may begin.

Speaker 1: 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 investors section of our website at oattreespecialtylending.com.

Thank you operator, and welcome to Oaktree 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 investors section of our website at Oaktree specialty lending dot com.

Speaker 1: Our speakers today are Armand Pinotian, Chief Executive Officer and Chief Investment Officer Matt Pendo, President and Chris Mcount, Chief Financial Officer and Treasurer.

Our speakers today are Armen, nosy, and Chief Executive Officer, and Chief Investment Officer, Matt Penndot, President and Chris Mccown, Chief Financial Officer, and Treasurer also joining us on the call today for the question and answer session isn't that Stuart the company's newly appointed Chief operating officer role he took over from that Penn deal last week.

Speaker 1: Also joining us on the call today for the question and answer session is Matt Stewart. The company's newly appointed chief operating officer. The role we took over from Matt Pendel last week.

Speaker 1: Before we begin, I want to remind you that comments on today's call include forward-looking statements reflecting our current views of their spec two, among other things, 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 the discussion of these factors in further detail. We undertake no duty to update or revise any forward-looking statements.

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 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 a discussion of these factors in further detail, we undertake no duty to update or revise any forward looking statements.

Speaker 1: I'd also like to remind you that nothing on this call constitutes an offer to sell or a source of citation up an offer to purchase any interest in any oak tree fund.

I'd also like to remind you that nothing on this call constitutes an offer to sell or a source mutation of an offer to purchase any interest in any oaktree funds.

Speaker 1: Investors and others, she knows that Oak Tree specialty lending uses the Investors section of its corporate website to announce material information.

<unk> and others you note that Oaktree specialty lending uses the investors section of its corporate website to announce material information.

Speaker 1: 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.

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.

Speaker 2: Thank you, Mike, and welcome everyone. We appreciate your interest in and support of OCSL. We produce strong results in the first quarter and started our fiscal year with steady origination activity and solid credit quality. We again grew NAV and adjusted net investment income supporting our seventh consecutive quarterly divinning.

Thank you Mike and welcome everyone. We appreciate your interest in and support of CSL. We produced strong results in the first quarter and started our fiscal year with steady origination activity and solid credit quality. We again grew NAV and adjusted net investment income supporting our seventh consecutive quarterly dividend increase.

Speaker 2: We reported a NAV per share of $7.34 of 1% from the prior quarter. The increase was primarily driven by unrealized gains in our portfolio, as well as undistributed net investment income and successful realizations of non-core positions.

We reported NAV per share of $7 34 up.

1% from the prior quarter. The increase was primarily driven by unrealized gains in our portfolio as well as undistributed net investment income and successful realizations of non core positions.

Speaker 2: Adjusted net investor income per share was 17 cents for the quarter, compared with 16 cents for the prior quarter. This was driven by higher interest income and fee income, partially offset by increases in incentive fees and interest expense.

Adjusted net investment income per share was <unk> 17 for the quarter compared with 16% for the prior quarter. This was driven by higher interest income and fee income, partially offset by increases in incentive fees and interest expense.

Speaker 2: This builds on the earnings power we established in 2021 when we achieved record annual adjusted net investment income under Oak trees four years of bad.

This builds on the earnings power, we established in 2021, when we achieved record annual adjusted net investment income under oak trees for years of management.

Speaker 2: Given the strength and consistency of our earnings, our board once again increased our quarterly dividend, lifting it by 3% to 16 cents per share. Our dividend is now up 68% from its pre-COVID level. Now turning to the portfolio, we originated $300 million of new investment commitments in the first quarter. Of these, 73% were first-lane loans and included 227 million in private transactions and 73 million in the new issue primary market.

Given the strength and consistency of our earnings our board once again increased our quarterly dividend lifting it by 3% to 16 <unk> per share our dividend is now up 68% from its pre COVID-19 level.

Now turning to the portfolio, we originated $300 million of new investment commitments in the first quarter.

73% were first lien loans and included $227 million in private transactions and $73 million in the new issue primary market.

Speaker 2: The way to average yield a new debt investment in the quarter was 8.1%.

The weighted average yield on new debt investments in the quarter was eight 1%.

Speaker 2: Capitalizing on the full breadth of the Oak Creek platform, as well as our teams' experience investing across multiple cycles, we expect continued strong origination activity. Even in a highly competitive environment, we are confident we can continue to leverage the platform and invest in resources to find deals that are structured and priced favorably.

Capitalizing on the full breadth of the Oaktree platform as well as our teams experience investing across multiple cycles. We expect continued strong origination activity even in a highly competitive environment. We are confident we can continue to leverage the platform.

And invested resources to find deals that are structured and priced favorably.

Speaker 2: We received $235 million from prepayments, paid down, and exits in the December quarter. This included exits and payoffs of $44 million of lower yielding investment. The average yielding investment that we exited was $7.5

We received $235 million from prepayments pay down and exits in the December quarter. This included exiting payoffs of $44 million of lower yielding investments. The average you'll have investments that we exited was seven 5%, notably our noncore portfolio declined by nearly $40 million and now stands at $95 million.

Speaker 2: Notably, our non-corp portfolio declined by nearly $40 million and now stands at $95 million, or just under 4% of the portfolio at fair value at the close of the quarter. We continue to selectively reinvest these proceeds into higher yielding attractive opportunities.

Just under 4% of the portfolio at fair value at the close of the quarter.

We continue to selectively reinvest these proceeds into higher yielding attractive opportunities.

Speaker 2: Credit quality remains excellent, reflecting our sourcing capabilities and discipline approach to underwriting. We invest selectively across a wide range of opportunities, enabling us to identify attractive opportunities while minimizing risk. As with the prior quarter, we had no investments in honor crew at the close of the first course.

Quality remains excellent, reflecting our sourcing capabilities and disciplined approach to underwriting we invest selectively across a wide range of opportunities nadler gets to identify attractive opportunities while minimizing risk.

That's what the prior quarter, we had no investments on nonaccrual at the close of the first quarter.

Speaker 2: With respect to the right side of our balance sheet, we've also identified additional opportunities to further enhance our borrowing flexibility and ensure we maintain apple equity, who liquidity to meet funding needs. During the quarter, we increased capacity on our credit facilities, increasing the size of our revolver to $1 billion from $950 million with the addition of a new bank. We also increased our low cost city bank facility to $200 million from $150 million.

With respect to the right side of our balance sheet. We've also identified additional opportunities to further enhance our borrowing flexibility and ensure we maintain ample liquidity liquidity to meet funding needs. During the quarter, we increased capacity on our credit facilities, increasing the size of our revolver to $1 billion from $950 million with the addition of a new <unk>.

Bank, we also increased our low cost Citibank facility to $200 million from 150 led.

Speaker 2: The weighted average interest rate on debt outstanding was 2.3% in the December quarter, down slightly from 2.4% the prior quarter.

The weighted average interest rate on debt outstanding was two 3% in the December quarter down slightly from two 4% the prior quarter.

Speaker 2: I would also like to share an important addition to our leadership team. Last week, a board appointed Matthew Stewart as chief operating officer of OCSL. I will continue in my role as president. Matt joined Oak Tree in 2017 and prior to this promotion and served as a senior vice president and investment professional on our strategic credit team.

I would also like to share an important addition to our leadership team last week, our board appointed Matthew Stewart as Chief operating officer of Ocs L. I will continue in my role as President Matt joined Oaktree in 2017 and prior to this promotion served as the senior Vice President investment professional on our strategic credit team.

Speaker 2: Matt brings the wealth of experience and expertise to the role and we are confident he's well-suited for the job. Now I would like to turn the call over to Armin.

Matt brings a wealth of experience and expertise of the world and we are confident he is well suited for the job now I would like to turn the call over to arm.

Thanks, Matt and good day everyone.

Speaker 3: I'll begin with comments on the market environment and continue with some additional highlights from our fiscal first quarter.

I'll begin with comments on the market environment and continue with some additional highlights from our fiscal first quarter.

Speaker 3: Macroeconomic conditions help strong through the December quarter, supporting continued low-defall rates in the credit markets and overall strong credit quality.

Macroeconomic conditions held strong through the December quarter, supporting continued low default rates and the credit markets and overall strong credit quality.

Speaker 3: Supply chain disruption and inflationary pressures, however, remain reasons for caution.

Supply chain disruptions and inflationary pressures, however remain reasons for caution.

Speaker 3: Handemic induced supply constraints and labor shortages intersected with pent-up demand for a range of goods resulting in elevated prices and the highest level of inflation in the US since the 1980s

And then they can do supply constraints and labor shortages intersected with pent up demand for a range of goods, resulting in elevated prices in the highest level of inflation in the U S. Since the 19 eighties.

Speaker 3: Many economists expect inflationary pressures to persist through the first half of 2022. And the Federal Reserve has signaled that it will raise interest rates soon to tackle inflation and cool the economy before it will breathe.

Many economists expect inflationary pressures to persist through the first half of 2022 and the Federal reserve has signaled it will raise interest rates soon to tackle inflation and cool the economy before it overheats.

Speaker 3: Should rates climb this year, investors may look for value in floating rate asset classes, including private credit.

Should rates climbed as your investors may look for value and floating rate asset classes, including private credit hour.

Speaker 3: However, investors venturing into this market now must be especially selected because private equity firms, which in 2021 had record levels of available capital, are pushing up prices for companies and private markets as they deploy stockpiles of dry powder.

However, investors venturing into this market now must be especially selected because private equity firms, which in 2021 had record levels of available capital are pushing up prices for companies and private markets as they deploy stockpiles of dry powder.

Speaker 3: Beneath all of this, of course, is the ongoing pandemic. Like the Delta variant before it, the Omicron strain has spread rapidly throughout the United States and globally, forcing new travel restrictions in a number of countries around the world. You're reminded all of us that the coronavirus remains a concern as we enter 2022. It's also been impact on both global demand and supply remains unknown. So we continue to believe it's important to view the current environment with caution and flexibility.

We need to all of this of course is the ongoing pandemic like the Delta variant before at the old the crime strain has spread rapidly throughout the United States and globally, forcing new travel restrictions in a number of countries around the world.

Here's reminded all of us, but the coronavirus remains a concern as we enter 2020 to its ultimate impact on both global demand and supply remains unknown. So we continue to believe it is important to view the current environment with caution and flexibility.

Speaker 3: As we have seen in January , the equity and government related fixed income markets have experienced a good deal of all.

As we have seen in January the equity in government related fixed income markets have experienced a good deal of volatility.

Speaker 3: Investors are expressing a high degree of uncertainty regarding how forceful the Fed will be in returning to a more historically normalized monetary policy.

Investors are expressing a high degree of uncertainty regarding how forceful the fed will be returning to a more historically normalized monetary policy.

Speaker 3: If this volatility continues or increases, it raises the potential for some market dislocation in our investing unit.

If this volatility continues or increases.

Raises the potential for some market dislocation in our investing universe.

Speaker 3: If that is the case, we are well prepared to act. Oak phisoreads are an opportunistic credit investing, and we have demonstrated time and again, over the years, our deep expertise in investing in these types of market and market.

That is the case, we are well prepared to act.

<unk> roots are in opportunistic credit investing and we have demonstrated time and again over the years, our deep expertise in investing in these types of market environments.

Speaker 3: As you may remember, in 2020, when the financial markets experienced significant dislocations as an initial response to the pandemic, OCS made several investments that turned out to be quite profitable and accreted to NAV.

As you May remember in 2020, when the financial markets experienced significant dislocations as an initial response to the pandemic <unk> made several investments that turned out to be quite profitable and accretive to NAV.

Speaker 3: While we can't predict what the future holds, we can assure you that we are well prepared for all possible scenarios.

While we can't predict what the future holds we can assure you that we are well prepared for all possible scenarios.

Speaker 3: With all of that in mind, we maintain our focus on relative value and the best risk-adjustive returns. We capitalize on Oak Free scale to invest across multiple industries with a diversified group of issuers. And we leverage Oak Free's vast resources and capabilities to negotiate and structure customized private deals that provide downside.

With all of that in mind, we maintained our focus on relative value and the best risk adjusted returns, we capitalize on oaktree scale to invest across multiple industries with a diversified group of issuers and we leveraged <unk> vast resources and capabilities to negotiate and structure customized private deals that provide downside protection.

Speaker 3: In some cases, we are identifying opportunities in less traffic corners of the market by lending to non-sponsor owned

In some cases, we are identifying opportunities and less traffic corners of the market by lending to non sponsor owned businesses, but we also continue to set the sponsor lending market teeming with trusted private equity firms with operational advantages and attractive industries.

Speaker 3: But we also continue to assess the sponsor on the market, teaming with trusted private equity firms with operational advantages and attractive interests.

Speaker 3: We also continue to identify compelling borrowers in the life sciences and technology arena.

We also continue to identify compelling borrowers in the life Sciences and technology arena as well.

Speaker 3: We view these sectors as long-term beneficiaries of the increasing importance of applied sciences and digital comb.

View these sectors as long term beneficiaries of the increasing importance of applied Sciences and digital commerce.

Speaker 3: In summary, we are actively but carefully putting capital to work on favorable terms. Ensuring that as we grow, we do so in ways that minimize risk while also generating solid returns for our shareholders.

In summary, we are actively but carefully putting capital to work on favorable terms, ensuring that as we grow we do so in ways that minimize risk while also generating solid returns for our shareholders.

Now turning to the overall portfolio.

Speaker 3: At the close of the first quarter, a portfolio was well diversified with $2.6 billion at fair value across 140.

At the close of the first quarter, our portfolio was well diversified with $2 6 billion at fair value across 140 companies.

Speaker 3: 87% of the portfolio was invested in senior secured loans. Importantly, first leans have grown to represent 70% of the portfolio up from 60% one year ago. Reflecting our conservative investment approach and emphasis on being at the top of the capital.

87% of the portfolio was invested in senior secured loans importantly, first liens have grown to represent 70% of the portfolio up from 60% one year ago, reflecting our conservative investment approach and emphasis on being at the top of the capital structure.

Speaker 3: Nearly 92% of our loans are floating rate, positioning us well if rates work.

Nearly 92% of our loans are floating rate positioning us well if rates rise.

Speaker 3: median portfolio company EBITDA at December 31, it was approximately $105 million. As you know, we have been learning a larger more diversified businesses to lower risk and bolster credit quality.

Median portfolio company EBITDA at December 31 was approximately $105 million as you know we've been lending to larger more diversified businesses to lower risk and bolstered credit quality.

Moving on to investment activity.

Speaker 11: Although competition remained elevated, we leveraged the Oak Reef platform to originate $300 million of new investment commitments across 12 new and nine existing portfolio companies in the December quarter.

Although competition remains elevated we leveraged the <unk> platform to originate $300 million of new investment commitments across 12, new and nine existing portfolio companies in the December quarter.

Speaker 11: I'd like to share with you a couple of the most straight up examples of the opportunities we are finding beginning with mezob.

Like to share with you a couple of illustrative examples of the opportunities we are finding beginning with mesoblast.

Speaker 11: This biotech firm develops and commercializes allogenic cellular medicine in the United States and several other countries over.

This biotech firm develops and Commercializes allogeneic cellular medicine in the United States and several other countries overseas.

Speaker 11: Mesoblast offers products addressing a wide spectrum medical condition, including in the areas of cardiovascular, spine orthopedic disorders, oncology, hematology, and inflammatory diseases.

As of last offers products addressing a wide spectrum of medical condition, including in the areas of cardiovascular spine orthopedic disorders oncology hematology and inflammatory diseases.

Speaker 11: The company has currently collected royalties on multiple products and has a range of late-stage product candidates that give it a robust pipe.

The company is currently collecting royalties of multiple product and there's a range of late stage product candidates that give it a robust pipeline.

Speaker 11: Oak Tree provided a $90 million sole commitment to support the company's continued growth act.

Oaktree provided a $90 million sole commitment to support the company's continued growth activities or CSL was allocated $11 million of this first lien term loan at an attractively priced 975% yield.

Speaker 11: OCSL has allocated $11 million of this first-wing term loan at an attractively priced 9.75% yield.

Speaker 11: Another compelling investment for us in the first quarter was our loan to PF Supreme, one of the largest plan of fitness franchises in the U.S. With 70 locations, primarily in New York and California.

Another compelling investment for us in the first quarter was our loan to PFS Supreme one of the largest planet fitness franchises in the U S. With 70 locations, primarily in New York and California.

Speaker 11: This is a sponsor back investment in a company that is instead only recovering from the shocks of the coronavirus and has seen its membership rebound close to pre-pandemic

This is a sponsor backed investment in a company that had been steadily recovering from the shocks of the Corona virus and it has seen its membership rebound close to pre pandemic levels.

Speaker 11: The company sought more flexible capital to fund its recovery and anticipated future growth. Oak Creek provided a $120 million commitment priced at LiveWorth was 7% in a first-lane term loan of which OCSL was allocated $30 million.

The company sought more flexible capital to fund its recovery and anticipated future growth Oaktree provided a $120 million commitment priced at LIBOR plus 7% in the first lien term loan of which <unk> was allocated $30 million.

Speaker 11: Following this financing, the company is appropriately capitalized, even when considering the impact of the pandemic hat on its performance.

Following this financing the company is appropriately capitalized even when considering the impact of the pandemic had on its performance.

Speaker 11: Our origination activity remains healthy and gives us substantial momentum as we progress further into 2020.

Our origination activity remains healthy and gives us substantial momentum as we progressed further into 2022.

Speaker 11: Finally, I also want to congratulate Matt Stewart on his new role within Oak Tree. He has a key contributor on our deep and talligment.

Finally, I also want to congratulate Matt Stuart on his new role within Oaktree. He is a key contributor on our deep and talented team.

Speaker 11: Now I will turn the call over to Chris to discuss our financial results in more details.

Now I will turn the call over to Chris to discuss our financial results in more detail.

Speaker 4: Thank you, Armin. Hello, everyone. OCSL delivered another quarter of solid financial performance, starting off fiscal year 2022 with strong women.

Thank you Armen Hello, everyone.

<unk> delivered another quarter of solid financial performance, starting off fiscal year 2022 with strong momentum.

Speaker 4: For the first quarter, we reported a adjusted net investment income of $31.2 million for 17 cents per share, up from 29.1 million for 16 cents per share in the fourth quarter of 2021.

For the first quarter, we reported adjusted net investment income of $31 2 million or <unk> 17 per share up from $29 1 million or <unk> 16 per share in the fourth quarter of 2021.

Speaker 4: The increase with the result of higher interest income generated from a larger average portfolio combined with higher income from prepayments.

The increase was the result of higher interest income generated from a larger average portfolio combined with higher income from prepayments, partially offsetting this was higher interest expense and higher incentive fees.

Speaker 4: partially offsetting this with higher interest expense and higher incentive fees.

Speaker 4: Net expenses for the first quarter totaled $29.3 million, up 1 million sequentially. The increase was mainly due to higher and thinnest fees driven by our continued strong financial performance, as well as higher interest expense due to an increase in borrowings in our larger investment portfolio.

Net expenses for the first quarter totaled $29 $3 million up $1 million sequentially.

Increase was mainly due to higher incentive fees driven by our continued strong financial performance as well as higher interest expense due to an increase in borrowings in our larger investment portfolio.

Speaker 4: We accrued $1.7 million of part two incentives under GAP in the December quarter. As a reminder, while GAP requires us to take unrealized gains into account when accruing part two incentive to the expense each quarter, OCSL will only pay these incentives annually into the extent that it has realized gains that exceed realized and unrealized losses at fiscal year end. Turning to credit quality.

We accrued $1 $7 million of part two incentive fees under GAAP in the December quarter. As a reminder, while GAAP requires a stake unrealized gains into account when accruing part two incentive fee expense each quarter CSL will only pay these incentive fees annually and to the extent that it has realized gains that exceed realized and unrealized losses.

At fiscal year end.

Turning to credit quality, which continues to be excellent.

Speaker 4: As Matt mentioned, we had no investments on non-acool at quarter end as all of our portfolio companies made their scheduled interest payments. Now,

As Matt mentioned, we had no investments on nonaccrual at quarter end as all of our portfolio companies made their scheduled interest payments.

Speaker 4: OCSL's net leverage ratio at quarter range remained consistent with the September quarter at 0.95 times. Net leverage continues to be near the high end of our target range of 0.85 to one time.

Now moving to the balance sheet.

With yourself net leverage ratio at quarter end remained consistent with the September quarter at Zero point 95 times net leverage continues to be near the high end our target range of 0.85 to one times.

Speaker 4: As of December 31, total debt outstanding was $1.3 billion and had a weighted average interest rate of 2.3%. Unscured debt represented 50% of the total debt at quarter end in line with the prior quarter.

As of December 31, total debt outstanding was $1 $3 billion and had a weighted average interest rate of two 3% unsecured debt represented 50% of the total debt at quarter end in line with the prior quarter.

Speaker 4: At quarter end, we had total liquidity of approximately $594 million, including 44 million of cash and 550 million of undrawn capacity on our upsized credit facility.

At quarter end, we had total liquidity of approximately $594 million, including $44 million of cash and $550 million of undrawn capacity on our upsized credit facilities.

Speaker 4: unfunded commitments, excluding unfunded commitments to the joint ventures were $246 million with the approximately $200 to $3 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.

Pundits commitments, excluding unfunded commitments to the joint ventures were $246 million with approximately $203 million of this amount eligible to be drawn immediately as the remaining amount is subject to certain milestones must be met by portfolio companies.

Speaker 4: As Matt mentioned, we increased capacity on our credit facilities in the quarter, raising our revolver to $1 billion from $950 million and welcoming a new bank to our syndicate of 19 lenders. We also increased our city facility to $200 million from $150 million.

As Matt mentioned, we increased capacity on our credit facilities in the quarter, raising our revolver to $1 billion from $950 million and welcoming a new bank to our syndicate of 19 lenders.

We also increased our city facility to $200 million from $150 million.

Speaker 4: We continue to maintain ample liquidity to meet our funding needs. Now turning towards

We continue to maintain ample liquidity to meet our funding needs.

Now turning to our two joint ventures.

Speaker 4: At quarter end, the Kemper JV had $393 million of assets invested in senior secured loans to 61 companies.

At quarter end, the Kemper JV had $393 million of assets invested in senior secured loans to 61 companies.

Speaker 4: This compared to $399 million total assets invested in 55 companies last quarter.

This compared to 379 million of total assets invested in 55 companies last quarter.

Speaker 4: As this crew has resulted in new originations made during the quarter.

Assets grew as a result of new originations made during the quarter.

Speaker 4: The JV generated $2 million of cash interest income for OCSL in the quarter, and we also received a $450,000 dividend.

<unk> generated $2 million of cash interest income for O N E. S. L. In the quarter and we also received a $450000 dividend leverage at the JV was one four times at quarter end comparable to the September quarter.

Speaker 4: Leverage at the JV was 1.4 times the quarter end, comparable to the September quarter.

Speaker 4: The Glitz J.B. had $145 million of assets at December 31st. These consisted of senior secured loans to 44 companies. Levered to the J.B. was 1.1 times at quarter-end.

The Glick JV had $145 million of assets at December 31. These consisted of senior secured loans to 44 companies.

Average at the JV was one one times at quarter end.

Speaker 4: OCSL subordinated note in the Glitz Joint Venture, totaling $56 million continues to be current.

Both DSL subordinated note the glick joint venture totaling $56 million continues to be current during.

Speaker 4: During the quarter, we received 1.2 million of principal and interest payments on the note.

During the quarter, we received $1 2 million of principal and interest payments on the notes.

Speaker 4: In summary, we continue to be very pleased with our financial result and believe our diverse portfolio and flexible balance sheet positioned to swell for the future. Now I will turn the

In summary, we continue to be very pleased with our financial results and believe our diverse portfolio and flexible balance sheet positions us well for the future.

Now I will turn the call back to Matt.

Speaker 2: Thank you, Chris. Our strong financial results for the quarter enable us to generate an annualized return on adjusted net investor income of 9.5%. Higher than last fiscal year's quarterly average of just over nine.

Thank you, Chris our strong financial results for the quarter enabled us to generate an annualized return on adjusted net investment income of $9, 5% higher than last fiscal year's quarterly average of just over 9% we had been targeting row in the high single digits and we are now right, where we said we would be however.

Speaker 2: We have been targeting ROE in the high single digits and we are now right where we said we would be. However, we believe that we still have some room for improvement.

We believe that we still have some room for improvement we remain focused on positioning the portfolio for improved yield by rotating out of lower yielding investments and into higher yielding proprietary loans. We made good progress again, this quarter exiting $44 million of loans priced at or below LIBOR, plus four 5%, leaving only.

Speaker 2: We remain focused on position report for an improved deal by rotating at a lower yielding investment and into higher yielding for prior territory law.

Speaker 2: We made good progress again this quarter, exiting $44 million of loans priced at or below LIBOR Plus 4.5%, leaving only $40 million left in the portfolio.

<unk> 40 million left in the portfolio are new investments continued to come.

Speaker 2: on the books of the track of yields, which means there is more upside in yield on that portion of the portfolio that we expect to realize over time. And to the extent that we see additional incremental investor opportunities, we may look to exit loans that are priced below liboard plus 5.5% as a source of investment capital.

On the books at attractive yields, which means there is more upside in yield on that portion of the portfolio that we expect to realize over time.

And to the extent that we see additional incremental investment opportunities. We may look to exit loans that are priced below LIBOR plus five 5% as a source of reinvestment capital.

Speaker 2: As we've discussed before, another ongoing opportunity for us to increase our EES to further optimize their joint ventures. We can accomplish this by selectively rotating out of low yielding investments into higher yielding ones, as well as increasing leverage at the JVs. We have capacity and we'll select the grollies for those over time, which believe will be a creative to our EES.

We've discussed before another ongoing opportunity for us to increase our east to further optimize our joint ventures. We can accomplish this by selectively rotating out of lower yielding investments into higher yielding ones as well as increasing leverage at the JV.

We have capacity and we'll selectively grow these portfolios over time, which you believe will be accretive to Roe.

Speaker 2: In conclusion, we are very pleased with our strong first quarter financial results. We are excited about our prospects for the remainder of the year and our optimistic that we will continue to be able to identify new attractive risk adjusted in the best of opportunities, enabling us to deliver improved returns to our shareholders.

In conclusion, we are very pleased with our strong first quarter financial results. We are excited about our prospects for the remainder of the year and are optimistic that we will continue to be able to identify attractive risk adjusted investment opportunities, enabling us to deliver improved returns to our shareholders.

Speaker 2: Thank you for joining us on days call for your continued interest in OCSL. With that, we're happy to take your questions. Operator, please open the line. Thank you.

Thank you for joining us on today's call and for your continued interest in <unk> with that we're happy to take your questions. Operator, Please open the lines.

Speaker 1: Thank you. We will now begin the question and answer session. To ask a question, press star then one on a touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key.

Thank you we will now begin the question and answer session to ask a question Press Star then one on a touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

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Speaker 1: And the first question comes from Kevin Fultz with JMP Securities. Please go ahead. Good morning.

And the first question comes from Kevin <unk> with JMP Securities. Please go ahead.

Good morning, and thank you for taking my questions.

Speaker 5: Armand, we always appreciate your insight on what you're seeing in the market, both from the sponsors side and the non-sponsor side where you like to play. Could you get with the high level overview of the option that you're currently seeing as well as a competitive environment relative to the last few quarters?

We always appreciate your insight on what Youre seeing in the market both on the sponsor side or the non sponsor side, where you'd like to clay could you give us a high level overview of the opportunities you're currently seeing as well as the competitive environment relative to the last few quarters.

Speaker 3: Sure, and thanks for the question. I wouldn't say much has changed in the fourth calendar quarter versus...

Sure and thanks for the question.

I wouldn't say much has changed in the fourth calendar quarter versus.

Speaker 11: much of 2021, I think there continues to be a fair bit of competition.

Much of 2021, I think there continues to be a fair bit of competition amongst our peers focusing around the sponsor oriented lending product and direct lending.

Speaker 3: amongst our peers, focusing on the sponsor-oriented lending product and direct lending. Generally speaking, spread than legal terms.

Generally speaking spreads in legal terms.

Speaker 11: have been pretty consistent in over the quarter.

I've been pretty consistent in.

And over the over the quarter.

Speaker 11: I wouldn't say there's been a tremendous amount of incremental pressure on spreads and legal protections, but it continues to be highly competitive and weaker in terms of coupons and covenants than what we were accustomed to three, four, five years ago.

Wouldn't say, there's been a tremendous amount of incremental pressure on spreads and legal protections, but it continues to be highly competitive and weaker in terms of coupons and.

And covenants than what we were accustomed to 345 years ago.

Speaker 3: So I wouldn't say there's anything really tremendous on, you know, happening in that part of the market. You know, we are watching...

I wouldn't say there's anything.

Really tremendous on happening in that part of the market.

Speaker 11: This very closely because in the month of January and in the month of November of last year, there was some volatility in the publicly traded below investment grade market.

We are watching.

This very closely because you know in the month of January and in the month of November of last year. There was some volatility in the publicly traded below investment grade markets.

Speaker 3: We saw some spread widening and hyalurbons for a period of time. We saw last week in fact some spread widening and hyalurbons. So a lot of that is

We saw some spread widening in high yield bonds for a period of time, we saw last week in fact, some spread widening in high yield bonds. So a lot of that is.

Speaker 11: initially at least driven by, or the price movement is initially driven by a duration oriented trade or duration oriented risk around rising rates.

Initially at least driven by Oh, the price movement is initially driven by our duration oriented trade or duration oriented risk around rising rates.

Speaker 11: But we are noticing some spread widening occurring in the publicly traded markets, especially in high yield bonds. And so we're a little bit cautious as to whether that will manifest itself eventually into broadly syndicated loans and direct lending. So, as you know, we are looking across.

But we are noticing some spread widening occurring in the publicly traded markets, especially in high yield bonds and so we're a little bit cautious as to whether that will.

Manifests itself eventually into broadly syndicated loans and direct lending so yeah as you know.

Speaker 11: the different securities and investment opportunities that are appropriate for the CFL, including publicly traded debt, and really considering on a relative value basis where the best risk adjusted returns are. And so being able to look broadly like that, we are measuring how attracted direct lending markets are against some other opportunities that we see across the board. But specifically relating to your question about direct lending as compared to itself.

We are looking across the different securities and investment opportunities that are appropriate for CSL, including publicly traded debt and and really considering on a relative value basis, where the best risk adjusted returns are.

And so being able to look broadly like that we are measuring how attractive direct lending markets are against some other opportunities that we see across the board, but specifically relating to your question about direct lending as compared to itself over the last 12 months I Wouldnt say that theres been.

Speaker 3: over the last 12 months, I wouldn't say that there's been

<unk>.

Speaker 3: a more rationalization of the market. I think the competition remains strong, but I would say that coupons and legal protections have been relatively consistent for the last couple.

You know a more rationalization of the market I think the competition remains strong, but but I would say that you know coupons and legal protections have been relatively consistent for the last couple of quarters.

Speaker 5: Great, that's really helpful color. And then just a question relating to interest rate sensitivity, could you provide the weighted average library floor for floating or investment?

Great. That's really helpful color and then just a question relating to interest rate sensitivity could you provide the weighted average LIBOR floor for floating rate investments.

Speaker 3: I would probably need to get back to you. I don't know if Matt or Chris have that, but you know, our typically our live or fours are between 50 and 100 basis points and really closer to 100 basis points. And we generally have live or fours on most if not all of our floating rate of investments, but I don't know Matt Stewart or Chris, if you have that information handy.

I would I'd.

Pardon me if you get back to you I don't know, if Matt or Chris have that but no. Our typically our LIBOR floors are between 50, and 100 basis points and really closer to 100 basis points and we generally have LIBOR floors on most if not all of our floating rate investments, but I don't know, Matt Stuart or Chris If you have that information handy.

Speaker 6: Yeah, around 80% of our loans either have lieboard floors of 1% or 75 bips and the balance is scattered throughout and even up to 1.5%. Over all of our loans or over assets do have lieboard floors in some form, whether zero or up to 1.5 on the high end, but 80% of our portfolio is around 75 or 1%. .

Yeah around 80% of our loans either have LIBOR floors of 1% or 75 bps and the balance is scattered throughout and even up to one 5%.

Over all hard loan all of our assets do have LIBOR floors in some form.

Whether it's zero or one and a half on the high end, but 80% of our portfolio is around 75 or 1%.

Okay got it and I'll leave it there congratulations on the quarter.

Thank you.

Speaker 1: The next question comes from Kyle Joseph with Jeffries. Please go ahead.

The next question comes from Kyle Joseph with Jefferies. Please go ahead.

Speaker 7: Hey, good morning guys. Thanks for having me on and taking my questions. Just a quick modeling question in terms of the interest income accretion related to the merger. How long should we expect that to kind of impact results and should we kind of expect a diminishing amount in that line item going forward?

Hey, good morning, guys. Thanks for having me on in and taking my questions. Just quick modeling question in terms of the interest income accretion related to the merger.

How long should we expect that to kind of impact.

Results and should we kind of expect a diminishing amount.

And that line item going forward.

Speaker 4: It's Chris here. You know, it's going to continue to impact results, you know, for probably another couple of years of assets, continue to roll off the books. You may have noticed maybe a little bit of a bigger decline quarter on quarter in that adjustment. And that's really a function of the fact that we had some of some of the names that repaid last quarter came with a lot of OID acceleration on a non-gab basis.

Hey, it's Chris here.

It's going to continue to impact results.

For probably another couple of years of assets continued to roll off the books.

You may have noticed maybe a little bit of a bigger decline quarter on quarter in that in that adjustment.

And that's really a function of the fact that we had some of the some of the names that repaid last quarter came with a lot of OID acceleration on it on a non-GAAP basis.

Speaker 4: increasing on a gap basis rather. So as those rolled off, we see the number decreasing. So we do expect we'll continue to trend down, but it's gonna be with us for a little while longer and we'll certainly continue to present those adjusted numbers to help strip out that number.

Excuse me on a GAAP basis rather.

So as those rolled off we see the number decreasing so we do expect it will continue to trend down, but it's going to be with us for a little while longer and we'll certainly continue to present those adjusted numbers helped strip out that noise.

Speaker 7: Yep, appreciate that. And then probably for Arm and her mat, obviously credit performance has been very, very strong, but can you give us a high level sense in terms of what you're seeing from portfolio companies, fully recognizing that you guys have very diversified portfolio, but any sort of impacts from either rage or raw material inflation on EBITDA growth or EBITDA margins at the portfolio level.

Yes, I appreciate that and then probably for.

Our men or Matt.

Obviously credit performance has been very very strong, but you know can you give us a high level of sense in terms of what you're seeing from portfolio companies fully recognizing you guys have very diversified portfolio, but you know any sort of impacts from either rate wage of raw material inflation on EBITDA growth or EBITDA margins that it does.

Portfolio level.

Speaker 3: Sure, this is Armin. I think big picture, I think supply chain disruptions are real.

Sure. This is Arvind I think big picture I think supply chain disruptions are real.

Speaker 3: And that's been true for several quarters. I didn't really see a meaningful improvement in the fourth calendar quarter. I would say it was kind of marginal improvement in terms of the, you know, deep sort of.

And that's been true for several quarters, I Didnt really see a meaningful improvement in the.

In the fourth calendar quarter.

I would say it was kind of marginal improvement in terms of.

Speaker 3: getting rid of those supply chain roadblocks.

Sort of.

Getting rid of those.

Speaker 3: The supply chain issues have caused two issues. One is

The supply chain roadblocks.

The supply chain issues.

Caused two issues one is.

Speaker 11: a reduction in revenues or reduction in unit sales of certain goods that are produced that need to have components shipped from overseas. There are definitely some issues around shipping that are delaying shipments of needed product.

A reduction in revenues or a reduction in unit sales of certain goods and that are that are produced that need to have components shipped from overseas.

There are theres definitely some issues around shipping that is delaying.

Speaker 3: So unit, unit sailder down, that doesn't necessarily mean revenues are down because price increases have been passed through generally in, in, in a variety of different products that we've seen a pickup and demand amongst consumers for the better part of the last two years.

Delaying shipments of needed products. So units unit sales are down that doesn't necessarily mean revenues are down because price increases have been pass through generally in a in a variety of different products that we have seen a pickup in demand amongst consumers for the better part of the last few years.

Speaker 11: But with higher energy prices, with higher commodity prices, and supply chain issues, we have seen, generally speaking, cost increases as well, that are being lagged through, or being passed through on a lag basis, generally, across a variety of industries. So it hasn't really caused a meaningful...

But with higher energy prices with higher commodity prices and supply chain issues. We have seen generally speaking cost increases as well that are now being labs, who are being passed through on a lag basis generally.

Across a variety of industries. So it hasnt really caused a meaningful performance issue.

Speaker 11: But again, the unit sales reduction or the fact that unit sales haven't been able to keep up with demand.

But you know again the unit sales reduction.

Or the fact that unit sales haven't been able to keep up with demand.

Speaker 11: It's a little bit problematic for some of these businesses.

There's a little bit problematic for some of these for some of these businesses.

Speaker 3: But I would say generally speaking in our portfolio in late 2021 versus late 2020, businesses are generally doing better year over year despite these issues, despite the inflation and despite the supply chain disruption.

But I would say generally speaking in our portfolio.

In late 2021 versus late 2020.

Businesses are generally doing better year over year. Despite these issues, despite the inflation and despite the supply chain disruptions.

Speaker 3: And I wouldn't say that many businesses are back to 2019 levels, but they are somewhere in between. I'm pretty much all of them are somewhere in between, 2020 performance and 2021 performance.

And.

I wouldn't say that many businesses are back to 2019 levels, but they are somewhere in between and pretty much all of them are somewhere in between 2020 performance in 2021 performance and showing some indication that 2022.

Depending on the industry will be close to recovery in the 2019 with a 2019 comparison, yeah I'll give you. One example, we did lend to a new company. This quarter called PFS, you pretty much of a planet fitness franchisee. It is a little bit of a reopening traded obviously.

Speaker 7: We did lend to a new company, this quarter called PFC Prem, which is the Planet Fitness franchisee. It is a little bit of a reopening trade, obviously. And that business even prior to our investment had recovered to about 85% of its membership description base in comparison to 2019 levels. So that's just one data point for you that, we're heading in the right direction that we're not out of the woods at this time. Got it, great color, thanks a lot for answering my questions.

That business, even prior to our investment had recovered to about 80, 485% of its membership subscription base in comparison to the 2019 levels. So that's just one data point for you that we're heading in the right direction, but we're not out of the woods at this time.

Speaker 11: So that's just one data point for you that, you know, we're heading in the right direction that we're not out of the woods at this time.

Got it great color. Thanks, a lot for answering my questions.

No problem. Thank you.

Speaker 1: The next question comes from Ryan Lynch with KVW. Please go ahead. The next question comes from Ryan Lynch with KVW. Please go ahead.

The next question comes from Ryan Lynch with kidney Debbie. Please go ahead.

Hey, good morning, guys and thanks for taking my questions.

Speaker 8: First one I had, you gave you know some good commentary about market conditions, but I wanted to drill down on a little bit further was just how are you guys seeing, you know,

First one I had you gave some good commentary about market conditions, but I wanted to drill down on a little bit further was just how are you guys seeing.

Speaker 8: Market activity shaping up in the first month and what is kind of your outlook from a market activity standpoint as far as Deal volumes go just because

Market activity.

<unk> not been in the first month and what is kind of your outlook from from a market activity standpoint as far as deal volumes go just because.

Speaker 8: 2021 was such a unique year where we saw such kind of a lot of of increased origination and deal activity in the back half of the year. I just wanted to proceed any spill over in the early month above.

2021 was such a unique year, where we saw such kind of a flood of increased origination and deal activity.

Back half of the year I'm, just wondering if we're seeing any spillover into the early month of Bob.

Speaker 8: 2022 and kind of what is your outlook for the next, you've made the call for first half of 2022.

2022, and kind of what is your outlook.

For the next maybe call it the first half of 2022.

Speaker 11: Sure. You know, this is Armin. It's a good question. I don't think one month is enough to really to do any sort of meaningful trend on deal activity. But a little bit of a feeling or concern that I have about deal activity for this year, especially as it pertains to sponsor activity. With the rise and rate.

Sure. This is urban it's a it's a good question I don't think one month is enough to really reduce any sort of meaningful trend on deal activity.

But I'm a little bit of.

Have a feeling or concern that I have about deal activity for this year.

Especially as it pertains to sponsor activity.

Speaker 11: We have seen a contraction in valuation multiples generally, even for companies that are not levered. If you just look at the equity market, there is a general downward trend in valuation multiples. And that should cause a pause in LBO-

With the rise in rates, we have seen a contraction in valuation multiples generally even for companies that are not lever. If you just look at the equity market.

There is a general downward trend in valuation multiples.

And that.

Should cause a pause in LBO sponsor activity for new deals.

Speaker 3: as multiple decline, sellers are unwilling to sell, because they kind of remember what their valuation multiples were six or 12 months ago. And then even private equity firms that bought a company three years ago at 12 times EBITDA may not be willing to sell that company or an interest in that company to another private equity firm at 10 times EBITDA or nine times EBITDA.

<unk>.

As multiples decline.

Sellers are unwilling to sell because they know they kind of remember what their valuation multiples were six or 12 months ago.

And then even private equity firms that bought a company three years ago at 12 times EBITDA.

May not be willing to sell that company or an interest in that company to another private equity firm at 10 times EBITDA or nine times EBITDA. So I would expect that private equity firms will.

Speaker 3: So I would expect that private equity firms will, you know, take a pause on, on deal volume as valuation multiples become more reflected in deal terms.

Take a pause on deal volume as valuation multiples become more reflected in deal terms.

Speaker 3: But I think one month or two soon .

But I think one month, it's too soon to make such an assessment. That's just more of a it's more of a market predictions and then something that I would think is at this point really reflected in and deal flow.

Speaker 3: A lot of volume, we could definitely, you know, invest capital very rapidly. In, in sponsor deals, we are seeing non-sponsored deal activity as well. We're quite busy, especially in our life sciences area right now. So, you know, we're not seeing our type of deal volume really take a hit so far this year.

We are seeing a lot of volume we could definitely.

Invest capital very rapidly.

In sponsor deals we are seeing non sponsor deal activity as well, we're quite busy, especially in our life Sciences area right now so.

We're not seeing our type of deal volume really take a hit so far this year.

Speaker 11: But we are cautious. We're cautious because of what we're seeing in the markets, we're cautious because of what we're seeing in the public- with traded fixed income areas. And so we're going to be very vigilant and look for opportunities to once again drive NAV if it presents itself at some point in the next 12 or 24 months.

But you know we are cautious we're cautious because of what we're seeing in the markets. We're cautious because what we're seeing in the publicly traded fixed income areas and so we're going to be.

Vigilant and look for opportunities to once again.

Drive NAV if it presents itself at some point in the next 12 or 24 months.

Speaker 8: Okay, that's a helpful color. And yeah, you guys feel slow. It's a little bit, I would say you need to you guys do some more, kind of off the run, type of transactions and non-sponsors. So you guys are, I think, a good spot. You know, even private equity sponsor, deal flow, close down a little bit.

Okay. That's helpful color and you guys feel slow it is a little bit I would say you guys do some some more kind of off the run type.

Type of transactions and non sponsored.

I think a good spot even if private equity sponsored deal flow slows down a little bit.

Speaker 8: On that point, you guys are now at the upper end of your leverage target range. Yeah, I think you guys have made a pretty clear, in the past, unless it's changed recently, that you guys don't see that really shifting anywhere. So what are the goals then for OCSL throughout 2022, given that you guys are kind of at your target leverage range? How are you guys looking to manage the portfolio? How are you guys looking to manage growth?

On that point you guys are now at the upper end your leverage target range. I think you guys have made a pretty clear you know in the past unless it's changed recently that you guys don't see that really shifting anywhere. So what are the gold band four for Ocs Al you know throughout 2022, given that you guys are kind of at your targeted <unk>.

Average range. How are you guys looking to manage the portfolio. How are you guys looking to manage growth.

Speaker 2: Durant's Matt Pendo. I think in terms of getting first question on leverage range, we're comfortable with the range.

Hey, Ryan Smith panned out.

I think I think in terms of getting.

First question on leverage range.

We're comfortable with that range.

Speaker 4: you know, with the higher end and bin-celled and last few quarters, but, you know, I think, forces up here is where we're at the lower end, and we like being in the lower levers and having just more flexibility and drive power if there's opportunities present itself. So, you know, we're comfortable on the lever side.

With the higher than it's been over the last few quarters, but.

I think versus our peers, where we're at the lower end and we like being a lower leverage than having just more flexibility and dry powder, if there's opportunities present itself. So we.

We're comfortable on the leverage side, we obviously.

Speaker 2: I think you have very good access to the capital markets and there's been a bunch of very several debt-dance into the work well. I think in terms of what this means.

We have very good access to the capital markets.

And I've got a bunch of several debt financings has worked well I think in terms of what this means for.

Speaker 2: The portfolio growth, you know, it's a little bit as we talk about kind of RLE and our lovers there, it's rotating out of the lower yielding assets. We still have some there. And, you know, we talk about like, Liver Plus 450, Liver Plus 550. So, there's still the opportunities of accretion from rotating out of the lower yielding to the higher yielding along which we've been doing and we use more to do there.

The portfolio growth, it's a little bit as we talk about the kind of ROE and our leverage there.

<unk> out of the lower yielding assets, we still have some there.

And.

I'm talking about like LIBOR minus LIBOR, plus 450, LIBOR 550, so there is still.

The opportunities of accretion from rotating out of lower yielding into higher yielding loans, which we've been doing and he has more to do there.

Speaker 2: We've got a lot of benefits out of the merger with OCSI, but I think...

We've got a lot of benefits out of the merger with Oce is high but I think there's probably some more to do there just in terms of kind of scale and diversification.

Speaker 2: There's probably some more to do there, just in terms of kind of scale and diversification. You know, there's a little bit more to do on the JV front, in terms of little leverage there. But it's really just kind of more of the same. And maybe it's a little boring, but I think there's a lot to do if we just kind of keep doing what we're doing on kind of the portfolio rotation. And that's, you know, that's our,

You know, there's there's a little bit more to do on the on the JV front.

In terms of a little leverage there.

But it's really it's really just kind of more of the same and maybe its maybe a little boring, but I think theres a lot to do if we just kind of keep doing what we're doing on on kind of portfolio rotation.

And that's that's.

That's our focus.

Speaker 8: Okay, next sentence. I appreciate the time for that.

Okay.

Makes sense appreciate the time today.

Speaker 1: Again, if you'd like to ask a question, put star than one to join the queue. The next question comes from Melissa Weddle with JP Morgan. Please go ahead.

Again, if you'd like to ask a question press Star then one to join the queue.

And your next question comes from Melissa Wedel with JP Morgan. Please go ahead.

Speaker 9: Good morning. Appreciate you taking my questions today. But hoping we could touch on the weighted average yield of new investment stirring recorder, trying to sort of understand the context of that, given sort of a 50 basis point decline in yield quarter of recorder with.

Good morning, appreciate you taking my questions today.

I was hoping we could touch on the weighted average yield new investments during the quarter trying to sort of understand the context of that Kevin.

That 50 basis point decline.

Speaker 9: a little bit less first lean in the mix this quarter versus last. So I'm looking at that right. Does that sort of imply that that was really all spread compression?

Quarter over quarter with.

A little bit less first lien in the next this quarter versus black now I'm looking at that rate.

Does that sort of imply that that was really all spread compression.

Mount Stewart do you want to take that question.

Speaker 6: Yeah, that's part of what it was. We did have a couple second leans in the portfolio, which we financed down, which we stayed in, which did result in some...

Yeah. That's that's part of what it was we did have a couple second liens in the portfolio, which refinanced down which we stayed in.

Which did result in some.

Speaker 6: pressure on our yield as well. We are seeing deals still in line with what we had been producing.

Compression on our yield as well we will we are seeing deals still in line with what we had been producing.

Speaker 6: The last couple quarters, I know we are down 50 basis points and almost not a point from where we were two quarters ago, but we are still seeing.

The last couple of quarters I know, we are down 50 basis points.

Most down a point from where we were two quarters ago, but we are still seeing.

Speaker 6: yields kind of in that mid-Aint range. And we do expect to continue to originate as arm and go to before we are seeing opportunities in the life science space, knowledge space. So I wouldn't point to one data point out a quarter. You know, some of that is timing and some of those refines that I mentioned. But we are seeing some spread compression and some yield is the market environment is getting more competitive out there.

Yields kind of in that mid eight range and we do it.

We do expect to continue to originate as Armen noted before we are seeing opportunities in the life Science space Mountain view space. So.

I wouldn't point to one data point out of quarter.

Some of that is timing and some of those refis I mentioned, but we are seeing some spread compression and some yield as the market environment is.

Getting more competitive out there.

Speaker 2: Yeah, listen back. Okay. If you go back to like the 331-21 quarter, there the yield on New Commodore was 8.2%. So, you know, you will have quarters where it will move and you don't get in that range.

Yeah listen okay.

<unk>.

If you go back to like the.

$331 21 quarter, there the yield on new commitments was eight 2%.

Yeah.

We will have quarters, where it will move and get a hit.

In that range.

Sure Okay.

Speaker 9: So I'm to take it then that that's really sort of similar to the March quarter of 21 where there's a dip down and then sort of a rebound back after you looking at sort of the new investments this quarter is a bit more of a blip. I'll be in a still competitive environment.

Sure.

So it is.

It could take it then that that's really sort of similar to the first quarter 'twenty, one where there is a dip down and then sort of arena that cap rate are you looking at sort of the.

Our new investments this quarter is a bit more of a blip.

Albeit NFL competitive environment.

Speaker 3: Yeah, I think this is the disarmament. I would, yeah, I would say that's fair. It's, I wouldn't say we have a...

Yes, I think that's gonna assortment I would yeah I would I would say that's fair, it's I wouldn't say we have a.

Speaker 3: such a great number of data points in any given quarter to call it a statistically significant set to make such an assessment that this is the new norm. You know, in our pipeline that we're looking at, it's all over the place.

That's such a great number of data points in any given quarter to call. It a statistically significant set to make such an assessment that this is the new norm.

And our pipeline that we're looking at it's.

Speaker 11: that are deals that are significantly north of 8.1 and 8.5%. And there are some situations below it. So I just don't, I think it's hard to make any sort of directional assessment based on what-

All over the place.

There are deals that are significantly north of $8. One at eight 5% and there are some situations below it so.

I just don't I think it's hard to make any sort of directional assessment based on one quarter.

Speaker 9: Okay, very nice. Follow a question on the issue related to the leverage position at the end of the quarter. I know in the past, you guys have certainly liked to take advantage of all of the list.

Okay fair enough.

And a follow up question on <unk>.

The issue related to the leverage.

Position at the end of the quarter.

I know in the past you guys have certainly like to take advantage of falling away.

Speaker 9: And he's also been willing to sort of hold a lot of dry powder or some amount of dry powder, I'll say. Ready to deploy if that's the case and or many talked about potential volatility that could come from uncertainty around fed action.

<unk> also been willing to sort of hold a lot of dry powder.

Some amount of dry powder, all day and ready to deploy if that's the case and you talked about potential.

Potential volatility that could come from uncertainty around fed action.

Speaker 9: Given that potential uncertainty and possible volatility at some point that you're positioned at the high end of leverage does that indicate should we read and stat it all that's sort of an assessment on your part of the likelihood of volatility in the market at this point.

Given the potential uncertainty and possible volatility at some point that you are positioned at the high end of leverage does that indicate should we read into that at all but that's sort of an assessment on your part as the likelihood.

The volatility in the market at this point.

Speaker 3: Yeah, this is our minute. It's hard to predict both the timing and scale of any level of volatility. We are at the high end of our lovers target, but we still have assets that are low yielding and able to be turned into cash pretty quickly if we saw the opportunity to buy or originate deeply discounted assets.

Okay.

But yes.

It's hard to predict both the timing and scale of any level of volatility.

We are at the high end of our leverage target, but we do have we still have assets that are low yielding and sort of.

Able to be turned into cash pretty quickly if we saw the opportunity to buy or originate deeply discounted assets.

Speaker 3: We aren't moving our leverage target.

We are moving our leverage target.

Speaker 11: We could potentially see a situation we're in a quarter. We have the opportunity to buy assets and increase leverage above our target temporarily. But we don't see such...

We could potentially see a situation where in a quarter, we have the opportunity to buy assets and increase leverage above our target.

Temporarily.

But.

We don't see we don't see such depth of volatility at this time.

Speaker 11: depth of volatility at this time to do anything too extreme. We recognize the fact also that we are trading an av or above nav, and if we did see the opportunity to make such investments, we could potentially look for equity if we saw a crack.

To do anything too extreme.

We recognize the fact also that we are trading.

And at or above NAV, and if we did see the opportunity to make such investments.

Could potentially.

Look for equity if we if we saw cracks.

Speaker 3: in the market that would open up a big opportunity to do so. And with oak trees background and depth in looking for those opportunities both privately negotiated and public, I think that we are very well situated and have the credibility to move with great conviction when that occurs.

In the market that would open up a big opportunity to do so.

And and.

With oak trees background.

And in depth and in looking for those opportunities both privately negotiated in public.

I think that we are very well situated and have the credibility to.

Move.

With great conviction when that when that occurs and I and.

Speaker 3: I would expect that we would do so if that materializes, but I don't have this

I would expect that we would do so if that if that materializes, but I.

I don't I don't.

Don't have that.

Deep expectation at this moment in time that that theres going to be.

Distressed opportunity anywhere near what the what the pandemic brought about.

But it does seem at least in January that there is a repricing or resetting of appropriate market.

Spreads and yields on fixed rate instruments.

Speaker 3: It is not amounting to a distressed or a distressed opportunity or an implication that defaults will pick up. It's more of a reprising.

There it is not a mount amounting to a distressed or.

A distressed opportunity or an implication that default will pick up more of a repricing.

Speaker 3: and there could be some total return opportunities there at the right time. It's just not there at the moment, but we will manage our liquidity over the courses several quarters to take advantage of those opportunities that they present themselves.

And there could be some total return opportunities there at the right time. It is just not there at the moment, but we will manage our liquidity over the course of several quarters to take advantage of those opportunities if they present themselves.

Speaker 3: But I wouldn't read into our leverage level today as an implication that we do not see certain cracks potentially developing in the markets.

And but I wouldn't read into our leverage levels today has an implication that we that we do not see.

Certain cracks potentially developing in the markets.

That's very helpful. Thanks, so much.

Thank you.

Speaker 1: Again, we still have time for questions, so if you'd like to ask a question, press Star or then one to join the queue.

Again, we still have time for questions. So if you'd like to ask a question Press Star then one to join the queue.

Yeah.

Yes.

Okay.

Speaker 1: It looks like we have no further questions, so this concludes our question and answers session. Mr. Mistikiel.

And it looks like we have no further questions. So this concludes our question and answer session. Mr. Mr. Teo.

Speaker 1: Great, thanks Tom and thank you all for joining us on today's earnings conference call. A replay of this call will be available for 30 days on OCSL's website in the Investor section.

Great. Thanks, Tom and thank you all for joining us on today's earnings conference 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 141 to three one.

Speaker 1: or by dialing 877-344-7529 for U.S. collars or 1-412-317-0088 for non-US collars, with the replay access code 3546-944 beginning approximately one hour after this broadcast.

70088 for non U S callers with the replay access code 3546944, beginning approximately one hour after this broadcast.

Okay.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded thank.

Thank you for attending today's presentation you may now disconnect.