Oaktree Specialty Lending Corporation Q2 2023 Earnings Call

May 4, 2023

Welcome and thank you for joining Oaktree specialty lending.

Liberation second fiscal quarter 2023 conference call.

Today's conference call is being recorded.

At this time all participants are in a listen only mode.

You will be prompted for a question and answer session. Following the prepared remarks.

Now I would like to introduce Michael <unk> head of Investor Relations, who will host today's conference call. Mr. Mr. Charron, you may begin.

You, operator, and welcome to Oaktree specialty lending Corporation's second fiscal quarter Conference call our earnings release, which we issued this morning and the accompanying slide presentation can be accessed on the investors section of our website at Oaktree specialty lending dot com or.

Our speakers today are army and avian Chief Executive Officer, and Chief Investment Officer, Matt <unk>, President and Chris <unk>, Chief Financial Officer and Treasurer.

Joining us on the call for the question and answer session is Matt Stuart our Chief operating officer.

Before we begin I want to remind you that comments on today's call include forward looking statements, reflecting our current views with respect to among other things the expected synergies and savings associated with the merger with Oaktree strategic income to Inc. The ability to realize the anticipated benefits of the merger and our future operating results and financial performance.

Our actual results could differ materially from those implied or expressed in the forward looking statements. Please refer to our SEC filings for discussion of these factors in further detail, we undertake no duty to update or revise any forward looking statements.

I'd also like to remind you that nothing on this call constitutes an offer to sell or so.

Expectation of an offer to purchase any interest in any oaktree funds.

Investors and others should note that Oaktree specialty lending uses the investors section of its corporate website to announce material information the company encourages investors the media and others to review the information that it shares on its website with that I would now like to turn the call over to Matt.

Thanks, Mike and welcome everyone. Thank you for your interest and support of Ocs L. We appreciate your participation on this call.

We produced strong results in our fiscal second quarter, driven by selective but steady origination activity at attractive deal and the benefit of higher base rate in a predominantly floating rate portfolio.

Loans made up 88% of our portfolio, enabling or CSL to capitalize on rising interest rate.

We also further advanced our strategy of rotating out of public debt investments and redeploying capital into attractive and higher yielding private credit opportunity.

Second quarter adjusted NII was <unk> 62 per share up a penny from the prior quarter.

The increase was driven primarily by higher total investment income that offset increased interest expense.

We reported NAV per share of $19.66.

Slightly from $19 63 for the prior quarter to.

The increase reflected net investment income in excess of <unk> 55 per share quarterly dividend and was offset by a modest decline in the value of certain investments.

Given the strong overall earnings our board maintained our quarterly dividend at <unk> 55 per share.

As a reminder, this is nearly double our pre pandemic quarterly run rate of $28.05.

We did move two investments on non accrual status during the second quarter. So.

So in each case the challenges involved company specific issues that we believe do not indicate broader credit events within our portfolio.

In each of these situations Oaktree is the senior lender and a control position and we took small markdowns on these assets during the quarter as we expect resolution in the near term.

The non accruals represented two 5% and two 4% of the debt portfolio at cost and fair value respectively.

Our overall portfolio is solid and in the case of non accruals, we will draw upon our long history of working through special situations to arrive at successful outcomes on behalf of our shareholders armored will address the specifics of these investments in a few moments.

Our investment activity for the second quarter was strong with $124 million of new investment commitments.

Are these commitments, 96% were private direct lending opportunities and 100% were first lien, reflecting our emphasis on being at the top of the capital structure. The weighted average yield on new originations was attractive at 11, 9%.

Additionally, we received 100 to.

$162 million from Paydowns and exits in the quarter.

Including approximately $38 million lower yielding public investments.

Also received a payout on our investment in.

Immucor.

<unk> and transfusion diagnostics company.

Position included a $23 million second lien term loan and a $9 million first lien term loan, which was repaid at a slight premium to par.

While we expect market activity to slow due to higher interest rates and fewer refinancings, we continued to receive steady levels of pay downs, particularly in our non sponsor portfolio.

Shortly as we previously announced we successfully closed our merger with <unk> in January and we believe the combination will result in significant benefits for the combined company and substantial long term value for our shareholders.

With more than $3 $3 billion of assets. The combined company is more financial flexibility and greater scale, while adhering to our value driven investment strategy.

We also anticipate realizing operational synergies as well as interest expense savings from streamlining our capital structure and.

In addition, we are benefiting from reduced management fee for the next two years and Oaktree. Our manager has agreed to a $9 million of base management fees in total.

Late in the first year and $3 million in the second year.

In total we have a strong balance sheet with robust levels of liquidity and we are well positioned to continue delivering attractive returns to our shareholders.

With that I'd like to turn the call over to <unk> to provide more on our portfolio activity and insight into the market environment.

Thanks, Matt and good day, everyone I'll begin with a review of the market environment.

The federal reserves interest rate hike campaign to tamp down inflation has begun to have its intended effect with tapering consumer prices that reached 40 year highs.

However, inflation remains elevated and higher rates are putting downward pressure on loan demand, causing businesses to start to scale back on expansion plans in ways that could slow the economy enough to lead to a recession this year.

Top of all that the recent failures of Silicon Valley Bank signature Bank and first Republic, along with the emergency sale of credit Suisse in Europe could further tightened financial conditions, even if the fed seizes interest rate hikes.

According to fed data banks have already tightened their lending standards since the failures.

It is important to monitor because U S regional and community banks are major providers of capital, which could meaningfully weigh on economic activity, while we aren't predicting a severe recession or a material failure of the banking system. We think the events of the past quarter suggests that market volatility will continue and thus prudent credit investors have available capital will be well.

Positioned this creates potential growth catalyst for <unk>, we believe private credit funds may have significant impossibly long lasting opportunities to fill the lending gaps, resulting from the banks' inability to meet demand.

Ultimately, we believe the fallout from all of this will likely benefit those private lenders such as oak trees that have sufficient scale to provide debt financing for large scale transactions that are facing the types of problems that can result from blocks due diligence.

But I was CFO , we have experienced across all market cycles, and with strong capital and a long term perspective, the conviction needed to withstand short term volatility and continue to invest and generate strong returns for our shareholders.

Our focus on relative value, coupled with our ability to negotiate and structure customized deals that provide downside protection allows us to invest across multiple markets and issuers with the ability to withstand the impact of a potentially deteriorating economic environment.

The successful completion of our OSI to merger and the greater scale. It created gives us a timely advantage.

From where we sit today, we're confident in our abilities to further deploy capital on favorable terms and generate consistently strong returns for our shareholders.

Now turning to the overall portfolio.

At the close of the March quarter, our portfolio was well diversified with $3 2 billion at fair value across $160 companies up from 146, a year earlier.

We continue to emphasize larger more diversified businesses that are better positioned to weather downturns or market turbulence.

Median portfolio company EBITDA as of March 31 was approximately $133 million.

Up slightly from $128 million in the prior quarter.

Leveraging our portfolio of companies was relatively steady at five one times well below overall middle market leverage levels.

The portfolio's weighted average interest coverage based on trailing 12 month performance declined slightly to two four times from two five times in the prior quarter due to rising base rates.

Turning now to our origination activity or $124 million of new investment commitments were spread over six new and three existing portfolio companies in the quarter.

Let's look at a couple of representative examples first oaktree originated a $160 million commitment to finance the merger of woodcraft and paradigm precision leading suppliers of machine and fabricated aerospace components and assemblies based in Connecticut to.

<unk> private equity sponsors sought to merge the two companies together to create a leading aviation engine components manufacturer, which would serve top companies such as GE and Rolls Royce among others.

This was a complex situation, where extensive aerospace industry knowledge and flexible investment approach allowed us to provide a solution to the sponsors $12 million of this deal was allocated to <unk> below those price favorably at sofa, plus 700 basis points with strong downside protection.

<unk> originated a $100 million commitment of Harrow health, a commercial stage biotech company with a current market cap of approximately $750 million <unk>.

<unk> was allocated 11 million the company was seeking capital to fund its growth strategy by leveraging its unique positioning within the ophthalmology compounding space. This first lien deal was priced at sofa, plus 650 basis points with call protection and companies. We also received awards, which could provide upside in Gen <unk>.

<unk> future capital gains looking.

Looking ahead, our pipeline remains robust as we are evaluating a range of interesting investment opportunities that we believe present, an attractive risk reward.

Turning to credit quality as Matt mentioned, we moved two investments on non accrual during the quarter.

The first is an investment that we made into Cy <unk> materials science and advanced materials Sciences company that.

That is invested in new technology to the packaging and containment of biological drugs and molecular diagnostics. The company made a significant investment to build up production capacity for the Covid vaccine and as the global supply glut of Covid vaccines and as the pandemic, we seeded the company needed to pivot its business and reconfigured facilities for non COVID-19 demand.

Which is still strong, but all from peak levels.

The best way for the company to rightsize its capital structure, which included several charges junior to our first lien term loan with sewer reorganization.

We committed approximately $60 million of dip financing. In addition to its initial $205 million loan to provide stability to expedited restructuring while the company continues operations in north and it's normal course of business.

Let's see as those total investment was marked at $50 million.

Peter and or approximately 88% of par.

We believe that we are well covered on the term loan candidate given the collateral of the state of the art U S based manufacturing facility and proprietary IP of their unique packaging technology, which is an appeal to a wide variety of customers. We believe that <unk> is well positioned for long term success.

The second non accrual event included an investment that we made in conjunction with Oaktree real estate group in early 2021 to a luxury residential condominium developer in the San Francisco market.

While we have received material repayments on our initial investments as units were sold over the course of the last two years. The recent rise in mortgage rates and the challenging environment for the technology industry is weighed on sentiment and the San Francisco market and a significantly pressured condo sales.

In February we did not extend our loan to the borrower and we have been in discussions about a modification of extension terms to facilitate the sale of the building by the sponsor.

We believe that we are well covered on the loan and we put it on non accrual status as the sponsor is working to sell the properties <unk> total investment was marked at $23 million at quarter end were approximately 98% of par.

Once again as Matt noted in both of these instances the challenges involved company specific issues that we believe do not indicate broader credit issues within our portfolio and we expect to resolve each situation in the near term.

In summary, our strong liquidity position and experience across various cycles, coupled with the breadth of the oaktree platform position <unk> very well for the second half of fiscal 2023.

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

Thank you Armen before.

Before discussing our financial results I would like to address the GAAP accounting related to our merger with OSI to Jimmy.

<unk> to our previous merger with CSI, the fair value consideration paid to acquire OSI to as determined under GAAP was based on <unk> stock price at the time of the merger.

This resulted in the purchase price premium at <unk> was trading at a premium to NAV, which was allocated to the acquired OSI to assets based on their fair market value.

<unk> sales initiatives initial cost basis for the assets equaled their fair value at the time of the merger plus the purchase premium.

Upon re marking the assets back to their fair values. Following the merger completion, both CSL recognized a onetime unrealized loss equal to the purchase price premium of $27 million.

This onetime loss was a noncash event.

Going forward each credit investment acquired from OSI to amortize from its new cost basis to par over its remaining life.

We have updated our non-GAAP measures to exclude the impact of the income accretion as well as any gains or losses arising solely from the OSI to merger accounting adjustments more information is available in our earnings release and slide presentation.

Turning now to our results.

Oh CSL delivered another quarter of strong financial performance building upon the momentum from the first quarter.

For the second quarter, we reported adjusted net investment income of $45 4 million or <unk> 62 per share up from $37 1 million or <unk> 61 per share in the first quarter the.

The increase was primarily driven by higher interest income, resulting from our larger investment portfolio and rising base rates, partially offset by higher interest expense part one incentive fees and operating expenses.

Net expenses for the second quarter totaled $53 million up $10 million sequentially. The increase was mainly due to $7 $1 million of higher interest expense as a result of the impact of rising interest rates on the company's floating rate liabilities combined with a larger portfolio, resulting from our merger with OSI to in January .

We also recorded higher base management fees on the larger portfolio in professional fees due to seasonality and a larger portfolio.

Despite the sequential increase in professional fees. We are pleased to note that consistent with what we messaged when we announced the OSI tumor richer. They are on track to achieve $1 $4 million worth of operating expense synergies on an annualized basis.

With respect to interest rate sensitivity, both DSL still remains well situated to continue to benefit from a rising rate environment.

As of March 31, 88% of our debt portfolio at fair value was in floating rate investments.

Our strong earnings in the first quarter were again due to the higher base rates, which in turn drove our interest income higher.

Now moving to the balance sheet.

As we highlighted on our last call <unk> net leverage ratio at quarter end declined from the December quarter to 114 times, primarily the result of the OSI to merger.

Leverages now modestly higher than the midpoint of our target range of 0.92125 times debt to equity.

As of March 31, total debt outstanding was $1 8 billion and had a weighted average interest rate of six 2% up from five 6% at December 31, due to higher base rates unsecured debt represented 37% of our debt at quarter end down modestly from the prior quarter again due to deal with.

Hi to merger.

At quarter end, we had ample liquidity to meet our funding needs with total dry powder of approximately $379 million.

Including $44 million of cash and $335 million of Undrawn capacity on our attractively priced credit facilities.

Unfunded commitments, excluding unfunded commitment to the joint ventures were $237 million.

With approximately $184 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.

Shifting to our two joint ventures.

At quarter end, the Kemper JV had $393 million of assets invested in senior secured loans to 56 companies down from $409 million last quarter, primarily driven by exits from two investments.

The JV generated $3 $2 million of cash interest income or CSL in the quarter up from $2 6 million in the fourth quarter. As a result of the portfolios continued strong performance and the impact of rising interest rates on floating rate investments.

We also received a $1 $1 million dividend consistent with the first quarter dividend Leverages. The JV was one four times at quarter end unchanged from the prior quarter.

The Glick JV had $131 million of assets as of March 31 down from $138 million at December 31.

These consisted of senior secured loans to 39 companies.

Leverage at the JV was one two times at quarter end, and we received $1 $5 million worth of principal and interest payments on OS CSL subordinated note and the glick JV during the quarter.

In summary, we are very pleased with our financial results for the quarter and we continue to believe that our strong balance sheet positions us well for the remainder of the fiscal year.

Now I will turn the call back to Matt.

Thank you, Chris our strong financial results for the quarter enable us to generate an annualized return on adjusted net investment income of 12, 6%.

Up from 11, 9% in the prior quarter.

While we are very pleased with the growth in our earnings for the past several years, including our solid second quarter results. We continue to believe <unk> remains well positioned to maintain and even build upon our strong Roe going forward.

First we believe our CSL will continue to be positioned well for this rising rate environment.

Chris noted earlier with 88% of our investment portfolio in floating rate assets. We expect that further increases in base rates will positively impact our net interest margin.

We also continued to benefit from higher or at least generated at our joint ventures. During the second quarter bulk joint ventures delivered an ROE of over 14% and they are also being positively impacted by the rising rate environment.

And as I noted earlier, we expect that the cost savings imagine see reductions, resulting from the OSI to merger will also support our returns.

In conclusion, we are very pleased with our strong first half of our fiscal year.

Our portfolio is on solid footing, and we are well positioned to continue to capitalize on this increasingly attractive investment environment with our ample dry powder.

We believe that our solid portfolio and strong balance sheet position us well for the remainder of the fiscal year.

Thank you for joining us on today's call and for your continued interest in <unk>.

That we are happy to take your questions.

Greater please open the line.

Thank you we will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And the first question will come from Kevin <unk> from JMP Securities. Please go ahead.

Hi, Good morning, and thank you for taking my question.

In your prepared remarks, you mentioned that non sponsor pay downs picked up in the quarter. I was just curious if you could discuss what drove a pickup in non sponsor paydowns and your expectation for that to persist over the next few quarters.

Thanks for the question Kevin This is armen.

Our non sponsored deal activity really relates to catalysts and certain initiatives taken on by a company using our capital to fund growth or some sort of transformation in the business when those transformations occur.

There tends to be a pay down because of the companys enterprise value changes materially or its ability to generate cash flow changes materially to the positive.

It's hard to predict the timing of such pay downs.

But it's a nice balance to the portfolio are in an environment like today, where you usually don't see very much in terms of refinancing of sponsor led deals are non sponsored side. When these catalysts do work out results and a good outcome in terms of return of capital to a CSO.

Can't make any predictions about the future, but we would expect that given the performance of a lot of our non sponsor deals that we will have periodic repayments over time.

Okay.

And then just one more if I can I'm curious if you saw an increase in amendment requests from borrowers this quarter and if you could discuss your expectations about that.

I'll pick up over the next few quarters here.

Yes.

I mean, it's certainly more topical.

This quarter versus a year ago, I wouldn't say that it has materially picked up but certainly there are more discussions.

With borrowers, but I wouldn't say, we have a statistically significant sample or a material enough pickup to really.

To really dig deep and pull out any sort of conclusions around that at this time.

For the market overall, however, I would expect over the coming quarters, there will be more discussion.

Both on the topic of amendments and waivers as well as.

Solutions.

Too bloated capital structures, I think with the higher base rates.

One should expect that some of the most aggressive capital structures put in place over the last few years will be upside down and we will need some incremental capital either in the form of.

Pik preferred capital or additional equity capital or somebody.

Lenders in the existing capital structure converting part of their position to pick. So I would expect that activity is going to pick up generally in the market.

And I think it creates an opportunity for oaktree, just given the nature of our platform.

So it is it's a good question. It's one we're watching very closely but at this time, we're not seeing it in our portfolio at least any sort of meaningful pickup to comment on.

Okay I appreciate the color and I'll leave it there.

Thanks.

And the next question will be from Eric Zwick from Humpty Group. Please go ahead.

Thank you and good morning, everyone wanted to start just looking at the new investment commitments in the quarter was 100% first lien.

I'm curious if that was more just kind of discretionary and their partners are not seeing any attractive second lien opportunity then what that might mean I guess the total portfolio percentage is up to 75% now. So I guess curious also if you have a kind of target percentage for that first lien at this point.

Thanks, Eric.

Didn't say that we necessarily have a target per se a first lien, but we have seen more attractive risk adjusted returns in first lien loans.

That are new issue.

Versus junior in the capital structure.

With base rates.

They are and with spreads widening a bit in the first calendar quarter of this year versus a year ago or a year and a half ago do you really don't have to stretch for risk and go junior in the capital structure to earn 11 12, 13% Unlevered returns on Unlevered yields on those loans.

And.

Similarly, if you think about where a second lien or junior piece of the capital structure must price for it to make sense, it sort of needs to price around $14 $15, 16%. If a first lien this pricing at 12.

And at that type of pricing usually are well healed.

Sponsor or owner of the business would rather fund incremental equity and not pay a lender mid teens returns. So it's a combination of us not wanting to go.

Go into the second lien because it's a little bit riskier than we than we would like in a little bit riskier than you really need to take on and those sponsors and owners that we wanted to do business with who have the have the capital to invest in the equity and so in new deals and new sponsor led transactions.

We are routinely seeing greater than 50% equity checks.

And that compares very favorably to a year or year, and a half ago, where equity checks were more routinely 35% or 40%. So I would say, it's just a better quality market and we're getting I think some really nice returns in new issue loans in the low double digits without having to stretch for junior junior instruments in the capital structure.

That's great color. Thank you.

Go ahead of that.

Going forward in the next couple of quarters I Wouldnt.

Wouldn't expect to see a material uptick in second liens and.

It's probably on balance we would see flat to declining second lien in the portfolio I just can't comment on the on the quantity or the or the percentage allocation, but I think generally we generally are seeing better opportunities in person would probably migrate the portfolio on the margin more towards first rather than second.

Great. Thanks, Thanks again for the color there and then also noticed within the quarter just one secondary market purchase that was down from the 14 in the prior quarter. So curious if that was reflective of just a few opportunities of our prior quarters. It really just had to.

Outsized.

You know opportunity set relative to the most recent quarter.

The public markets were pretty strong in the first quarter.

High yield was up little over 4% senior loans were up about three 5% when you see that type of movement in the markets.

We we generally kind of hang back in.

Pick our spots when.

When we do see more volatility that's when we kind of lean into the public markets more so I would say for the most part we were probably better sellers of public credit than we were buyers of it in the quarter that could change given volatility we have obviously, a very active publicly traded book at oaktree across our platform and evaluate relative value.

In public versus private everyday frankly, so we saw some good opportunities in private we took those opportunities rather than leaning into public given the strength in the market there.

Makes sense and last one for me just.

I appreciate that the slide 12, where you've outlined your liquidity positioning and you're certainly.

Emily.

Positioned as you've kind of outlined just curious.

Given some of the market dynamics today macroeconomic dynamics as well as some of the challenges in the banking sector.

An opportunity, we're obtaining additional funding could become more difficult.

Specifically for Oaktree, but just where maybe that the bdcs in general So I'm just curious how you think about managing liquidity today win.

Banding, though.

Resources could become more and more challenging here in the near term.

I definitely agree with your premise that one should expect that generally access to funding is going to be more challenging in the coming quarters versus the prior four or five quarters.

And the largest most diversified well balanced credit managers are going to continue to have access, whereas maybe smaller ones will have limited access I think that will likely mean that firms like oaktree that do have that type of history and relationship.

Frankly grow and benefit from this type of part of the cycle, we as a firm generally speaking grow when the cycle turns rather than when it's pro cyclical. So it's a good time for us, but I think your question is.

Is.

It was very appropriate I would expect that some number of smaller managers smaller bdcs, probably we will have challenges in accessing.

Either the public markets or the lending markets just given.

Given some of the issues with the regional banks, given some of the issues, even with the larger banks and regulatory oversight, probably becoming more intense rather than less intense over the coming quarters.

We have always structured our capital structure in a way in anticipation of bad outcomes.

Never predicted about outcome, but we always ask ourselves what do we need to believe.

For the worst case scenario and how are we positioned if that were to take place. So our capital structure is very much.

Delivered or structured in contemplation of that type of scenario and so we feel very good about access to capital we feel very good about our banking relationships, we feel very good about our access even to the to the unsecured markets. So.

I think.

Overall, we feel like this is a position of strength for us and we're going to continue to manage our liquidity very very closely.

If Matt or Matt anything to add there Eric it's Matt.

I'd add.

If you think about the size of CSL has talked about this a lot both in terms of originating assets and then on the capital structure, but the size of our sales in the context of Oak tree I think it's the right size. So Thomas why we have regulations with with our banking partners. We have very good relations with our unsecured bond investors.

When we've accessed the market, we've I think access the right amount of capital.

Bonds traded well, obviously with banks are good. So I think when you look at kind of the quantum of capital and obviously you sell and how we have a diversified across banks and bonds I think thats. It.

That's a key strength.

I appreciate the insight. Thank you for taking my questions today.

Thanks, Eric.

And the next question is from Ryan Lynch from <unk>. Please go ahead.

Okay.

Hey, Good morning, first one I just wanted to touch on you mentioned one of the non accruals the Avery.

I was just curious.

Love to hear some more details on that because when you first hear about it.

Building in downtown San Francisco that certainly Sparks a lot of Red flag now this is a residential building so that that's obviously.

Much better than like an office building.

I would just love to hear.

How you expect this to be resolved because there's going to be resolved over time as they sell additional unit that you guys will get paid over time or are they looking to sell the whole building and then do you have any sense of your loan to value on this disposition obviously.

That's probably subject to change but.

What sort of cushion do you think you have at this point.

Yeah. Thanks, Thanks, Brian .

Information about that deal. So first of all we originated that deal in early 2021 and since then actually.

Out of the gates, we have very strong sales and about half of the loan was already repaid at par plus exit fees and clipping a coupon of <unk> plus <unk> 25, So I want to make sure that much is is out there where it's not this isn't like a typical corporate loan where you get 1% amortization.

Nation and you have it.

A bullet at the end I mean, we've been getting we've gotten almost 50% of the principal repaid plus exit fees et cetera.

In terms of the forward outlook.

I think the sponsor here, where the owner of the building as is.

Very well heeled very well known amazing operator of a variety of different types of real estate, including <unk>.

Including high end residential.

We are giving them the.

The benefit of the time.

And we're going to continue to clip our coupon and benefit from that.

As as we give time to that.

To that manager to have more of an orderly liquidation.

Could result in a block sale of the remaining units of the building it could be kind of one by one.

The units are still selling just at a lower sales pace, but at a high enough dollars per square foot that we are well covered on our loan.

The latest transactions in the.

In the building are meaningfully higher than our dollars per square foot basis, I don't want to put out a loan to value per se, but we are well covered and we're not we're not concerned about impairment of the loan. It's just a matter of time not a matter of if we get out of it.

Just one clarification on that you said you are happy to give time put the coupon on the loans on non accrual correct. So does that mean that you guys are still collecting interest and then using that to pay down your cost basis or.

No.

The coupon the coupon is not being paid in cash, but it is not forgiven either so we have put it on nonaccrual out of an abundance of caution.

We expect to get.

A substantial portion of that coupon over time, but given the current conditions of.

Carrying costs for that sponsor.

We were.

Where we are in negotiations with them now, but we understand the cash flow pressure is not a good thing and we would as part of just kind of buying some time, we will continue to earn our coupon but.

And have a right to collection of it.

But not current cash pay okay understood.

And then my other question I had was.

I'd love to just hear.

Your thoughts on the level of deal activity Youre seeing in some environment, there's obviously been a huge drop.

Oaktree Specialty Lending Corporation Q2 2023 Earnings Call

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