Q2 2024 Oaktree Specialty Lending Corporation Earnings Call

Welcome and thank you for joining Oaktree specialty lending Corporation's second fiscal quarter Conference call. Today's conference call is being recorded at this time all participants are in a listen only mode, but we will be prompted for a question and answer.

Operator: Welcome and thank you for joining Oaktree Specialty Lending Corporation's second fiscal quarter conference call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode.

Operator: But we will be prompted for a question and answer session following the prepared remarks. Now, I would like to introduce Michael Mosticchio, head of investor relations, who will be hosting today's call. Mr. Mosticchio, you may begin.

Michael Mosticchio: Session. Following the prepared remarks, now I would like to introduce Michael Mr. Chia head of Investor Relations, who will be hosting.

Michael Mosticchio: Today's call are Mr. Mr. <unk> you may begin.

Michael Mosticchio: Thank 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.

Michael Mosticchio: Thank 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 investor section of our website at www.oaktreespecialtylending.com. Joining us on the call today are Armen Panossian, Chief Executive Officer and Chief Investment Officer; Matt Pendo, President; Chris McKown, Chief Financial Officer and Treasurer; and Matt Stewart, Chief Operating Officer.

Michael Mosticchio: Joining us on the call today are Armen, Chief Executive Officer, and Chief Investment Officer, Matt Penndot President.

Michael Mosticchio: Chris Mccown, Chief Financial Officer, and Treasurer, and Matt Stewart, Chief operating Officer.

Michael Mosticchio: 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.

Michael Mosticchio: 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 statement. 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 statement.

Michael Mosticchio: Please refer to our SEC filings for a discussion of these factors in further detail.

Michael Mosticchio: We undertake no duty to update or revise any forward looking statements.

Michael Mosticchio: 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 fund. Investors and others should note that OCSL uses the investor section of its corporate website to announce material information. The company encourages investors, the media, and others to review the information that it shares on its website. With that said, I would now like to turn the call over to Matt. Thanks, Mike, and welcome, everyone.

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

Michael Mosticchio: Investors and others should note that CSL 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.

Matt: Thanks, Mike and welcome everyone. Thank you for joining us today and for your interest in and support of O C. S. L.

Mathew M. Pendo: Thank you for joining us today and for your interest in and support of OCSL. Our second quarter was highlighted by robust origination activity that drove a positive shift in the composition of our portfolio, steady earnings, and progress on several non-accruals that led to an improvement in credit quality. Adjusted NII was $0.56 per share, roughly in line with the $0.57 per share for the prior quarter. These results reflect the ongoing strength in the earnings power of OCSL, including solid interest income from our predominantly floating rate portfolio.

Mathew M. Pendo: Our second quarter was highlighted by robust origination activity that drove a positive shift in the composition of our portfolio.

Mathew M. Pendo: Earnings and progress on several non accruals that led to an improvement in credit quality.

Mathew M. Pendo: Adjusted and I I was 56 cents per share roughly in line with the 57 cents per share for the prior quarter.

Mathew M. Pendo: These results reflect the ongoing strength and the earnings power of Ocs L, including solid interest income from our predominantly floating rate portfolio.

Mathew M. Pendo: However, our results were impacted by the timing of repayments, which primarily occurred at the start of the quarter, and capital deployments, which were concentrated towards the end of the quarter. In addition, our continued rotation into primarily first-link loans reduced our weighted average portfolio spread by approximately 10 basis points during the quarter. Our first lien investments have increased from 71% at September 30, 2022 to approximately 81% today. At the same time, second-lane investments decreased from 16% to 5% over the same period.

Mathew M. Pendo: However, our results were impacted by the timing of repayments, which primarily occurred at the start of the quarter and capital deployments, which were concentrated towards the end of the quarter.

Mathew M. Pendo: In addition, our continued rotation into primarily first lien loans reduced our weighted average portfolio spread by approximately 10 basis points in the quarter.

Mathew M. Pendo: Our first lien investments have increased from 71% at September 30, 2022 to approximately 81% today.

Mathew M. Pendo: At the same time second lien investments decreased from 16% to 5% over the same period we.

Mathew M. Pendo: We declared a dividend of $0.55 per share, consistent with the past five quarters. We also worked closely with the management teams of our underperforming portfolio companies and made important progress repositioning several investments during the quarter. Drawing upon our long history and proven expertise in turning around challenge investments and leveraging the deep resources of Oaktree, we are confident that we can continue to successfully maximize outcomes and deliver value for our shareholders. The successful restructuring of some of our non-accrual positions, as well as no new non-accruals, enabled us to drive improved credit quality during the quarter.

Mathew M. Pendo: We declared a dividend of 55 cents per share.

Mathew M. Pendo: With the past five quarters.

Mathew M. Pendo: We also work closely with the management teams of our underperforming portfolio companies and made important progress repositioning several investments during the quarter.

Mathew M. Pendo: Drawing upon our long history and proven expertise in turning around challenge investments and leveraging the deep resources of Oaktree. We are confident that we can continue to successfully maximize outcomes and deliver value for our shareholders.

Mathew M. Pendo: Exceptional restructuring some of our non accrual positions as well as no new non accruals enabled us to drive improved credit quality during the quarter.

Mathew M. Pendo: Investments on non-accrual status at quarter end represented 2.4% of the portfolio at fair value and 4.3% at cost. That was down from 4.2% of the portfolio at fair value and 5.9% at cost the prior quarter. NAV per share declined to $18.72 from $19.14 per share for the prior quarter.

Mathew M. Pendo: Investments on nonaccrual status at quarter end represented two 4% of the portfolio at fair value and four 3% at cost that was down from four 2% of the portfolio at fair value and five 9% at cost the prior quarter.

Mathew M. Pendo: NAV per share declined to $18.72 from $19 14 per share for the prior quarter.

Mathew M. Pendo: The decline reflected further markdowns on our non-performing investors, due both to restructurings on some as well as lower valuations on others. Our robust investment activity consisted of $396 million of new commitments in the quarter, building on the momentum from the prior quarter when we originated $370 million of new investment. We continue to find attractive opportunities across sponsor, non-sponsor, and publicly-traded credit investments, bolstering a healthy deal flow, even as we maintain our highly selective approach to investing amid the uncertainty in this current higher-prolonged interest rate environment.

Mathew M. Pendo: The decline reflected further markdowns on certain of our nonperforming investments due both to restructurings on some as well as lower valuations on others.

Mathew M. Pendo: Our robust investment activity consisted of $396 million of new commitments in the quarter building on the momentum from the prior quarter. When we originated 370 million of new investments, we continue to find attractive opportunities across sponsor non sponsor and publicly traded credit investments bolstering healthy deal.

Mathew M. Pendo: So even as we as we maintain our highly selective approach to investing amid the uncertainty in this current higher for longer interest rate environment.

Mathew M. Pendo: Importantly, our new originations were made at attractive yields with lender-friendly deal structures, including lower leverage and loan to value. To that end, the weighted average yield on our new debt investments was 11.1%. On the repayment front, we received $323 million from paydown and exits in the second quarter.

Mathew M. Pendo: Importantly, our new originations were made at attractive yields with lender friendly deal structures.

Mathew M. Pendo: <unk> lower leverage and loan to values that in the weighted average yield on our new debt investments was 11, 1%.

Mathew M. Pendo: On the repayment front, we received 323 million from Paydowns and exits in the second quarter. Our portfolio continues to receive steady levels of repayments, even in a less active M&A environment.

Mathew M. Pendo: Our portfolio continues to receive steady levels of repayments, even in a less active M&A environment. We have also been capitalizing on the strength in the liquid credit markets by opportunistically selling out of certain public debt investments. Over the past two years, over 50 percent of our portfolio has turned over, which we believe reflects the strength of our investment underwriting and selection process. Exits occur largely when these companies prove successful and have the ability to pay down debt, refinance at lower rates, or sell at attractive valuations to larger competitors.

Mathew M. Pendo: We have also been capitalizing on the strength in the liquid credit markets by Opportunistically selling out of certain public debt investments.

Mathew M. Pendo: Over the past two years over 50% of our portfolio has turned over which we believe reflects the strength of our investment underwriting and selection process.

Mathew M. Pendo: Exit exit occur largely when these companies proved successful and have the ability to pay down.

Mathew M. Pendo: Pay down debt refinance at lower rates or sell at attracted valuations to larger competitors.

Mathew M. Pendo: We pursue opportunities and make investment decisions with these outcomes in mind. Before I turn the call over to Armen, I wanted to highlight a significant action that our manager has taken in support of OCSL. As part of our strong commitment to aligning our interests with shareholders, we announced yesterday that Oaktree has agreed to a significant and permanent reduction in our base management fee to 1% on gross assets from $1.5 billion. As a reminder, Oaktree has been waiving $1.5 million of management fees each quarter as part of the OSI 2 merger that closed in January of last year.

Mathew M. Pendo: We pursue opportunities and make investment decisions with these outcomes in mind before.

Mathew M. Pendo: Before I turn the call over to arm and I wanted to highlight our significant actions that our manager has taken in support of Oc S. L.

Mathew M. Pendo: As part of our strong commitment to aligning our interests with shareholders, we announced yesterday that Oaktree has agreed to a significant and permanent reduction in our base management fee to 1% on gross assets from 1.5%.

Mathew M. Pendo: As a reminder, oaktree has been waiving $1.5 million of management fees each quarter as part of the OSI to margin that closed in January of last year.

Mathew M. Pendo: For the original agreement, those fee waivers were decreased to $750,000 per quarter for the second year following the close of the transaction, which occurred this January. However, Oaktree agreed to keep the fee waivers at $1.5 million per quarter for both the March and June 2024 quarters.

Mathew M. Pendo: The original agreement those fee waivers would decrease to 750000 per quarter for the second year. Following the close of the transaction which occurred this January.

Mathew M. Pendo: However, all three agreed to keep the fee waivers at 1.5 million per quarter for both the March and June 2024 quarters.

Mathew M. Pendo: We expect this reduction will increase OCSL's adjusted net investment income per share by approximately $0.15 annually. This equates to an estimated improvement in our return on adjusted net investment income of 0.8% annually. Bottom line, this lowers our cost of operations and allows a larger share of investment income to flow directly to our shareholders. With that, I would like to turn the call over to Armen to provide more color on our portfolio activity and the market environment. Thanks, Matt, and hello everyone.

Mathew M. Pendo: We expect this reduction will increase both yourself adjusted net investment income per share by approximately 15 cents annually.

Armen: [noise] equates to an estimated improvement in our return on adjusted net investment income of <unk>, 8% annually bottom line. This lowers our cost of operations and allows the largest share of investment income to flow directly to our shareholders with that I would like to turn the call over to arm and to provide more color on our portfolio activity and the market environment.

Armen: Thanks, Matt and Hello, everyone.

Armen Panossian: I'll begin with comments on our portfolio activity and then conclude with observations regarding the market environment. Our portfolio was well-diversified, with $3 billion at fair value across 151 companies at the close of the quarter. We remain focused on investing at the top of the capital stream, with 86% of the portfolio invested in senior secured loans, consistent with the prior quarter. First lien loans accounted for 81% of the portfolio at fair value.

Armen: I'll begin with comments on our portfolio activity and then conclude with observations regarding the market environment, our portfolio was well diversified with $3 billion at fair value across 151 companies close of the quarter.

Armen Panossian: We remain focused on investing at the top of the capital structure with 86% of the portfolio invested in senior secured loans consistent with the prior quarter.

Armen Panossian: First lien loans accounted for 81% of the portfolio at fair value.

Armen Panossian: We also continue to emphasize investments in larger, more diversified businesses to further mitigate risk. Median portfolio company EBITDA as of March 31 was approximately $134 million, roughly in line with the prior quarter. And leverage in our portfolio companies was steady at 5.2 times, well below the overall middle market leverage level. The portfolio's weighted average interest coverage, based on current base rates, was also steady at nearly 2.0 times.

Armen Panossian: We also continue to emphasize investments in larger more diversified businesses further mitigate risks median portfolio company EBITDA as of March 31 was approximately $134 million.

Armen Panossian: Roughly in line with the prior quarter and leveraging our portfolio of companies was steady at five two times well below overall middle market leverage levels. The portfolio's weighted average interest coverage based on current base rates was also study a nearly 2.0 types.

Armen Panossian: In the March quarter, we leverage Oaktree spot was originated $396 million of new investment commitments across 35 transactions originations were dispersed across a broad array of opportunities spanning the private credit and public debt markets, including 14 private deals six primaries and 15 secondary purchases.

Armen Panossian: In the March quarter, we leveraged Oaktree's platform to originate $396 million of new investment commitments across 35 transactions. Our originations were dispersed across a broad array of opportunities spanning the private credit and public debt markets, including 14 private deals, 6 primaries, and 15 secondary purchases. Notably, we participated in five private sponsor-led transactions.

Armen Panossian: Yes.

Armen Panossian: Notably we participated in five private sponsor led transactions brokerage size reputation and ability to underwrite, but quickly enabled us to participate.

Armen Panossian: Oaktree's size, reputation, and ability to underwrite the fund quickly enabled us to participate. We also found compelling relative value in the public credit markets, purchasing $191 million across primary new issues and secondary market purchases. 92% of our originations in the quarter were first-line investments, reflecting our defensive investment approach, and the average yield for all of our originations was 11.1%. Our origination activity remains steady in the current quarter, supported by a robust pipeline of opportunities across sponsor and non-sponsored borrowers. Turning to credit quality, as Matt noted, our non-accruals decreased during the quarter as we made significant progress working through these situations. This was driven in part by the removal of OTG management from non-accrual status.

Armen Panossian: We also found compelling relative value in the public credit markets purchasing $191 million across primary new issues and secondary market purchases, 92% of originations in the quarter were first lien investments, reflecting our defensive investment approach and the average yield for all of our originations was 11.

Armen Panossian: One 1%.

Armen Panossian: Our origination activity remained steady in the current quarter supported by a robust pipeline of opportunities across sponsored and non sponsored borrowers.

Armen Panossian: Turning to credit quality as Matt noted, our non accruals decreased during the quarter as we made significant progress working through these situations. This was driven in part by the removal of OTG management nonaccrual status. As a reminder, this company operates a concession business across several airports in the U S. O D. G is a solid business model.

Armen Panossian: It's performing well, but were struggling to meet its higher interest expense burden and the increase in base rates as a result, a restructured balance sheet out of court in February resulting in lenders were giving a portion of their debt and exchanged for equity in the company.

Armen Panossian: As a reminder, this company operates a concession business across several airports in the U.S. OTG has a solid business model and is performing well, but it was struggling to meet its higher interest expense burden from the increase in base rates. As a result, it restructured its balance sheet out of court in February, resulting in lenders forgiving a portion of their debt in exchange for equity in the company. We've placed this investment back on accrual status following the restructuring but written it down quarter over quarter to reflect cash declines tied to the restructuring cost.

Armen Panossian: This is the investment back on accrual status following the restructuring, but loaded down quarter over quarter to reflect cash declines tied to the restructuring costs.

Armen Panossian: Additionally, we partially removed from non accrual our investment and all web leads which generates leads for insurance.

Armen Panossian: As a reminder, this is a non core position we inherited from the prior manager in 2017.

Armen Panossian: Company completed a restructuring of its debt in March we placed two tranches of the restructured debt back on accrual status as the company is back on solid financial footing and focused on executing on its strategic initiatives.

Armen Panossian: We also removed CPC acquisition Corp, a small public secondly from nonaccrual after we sold out of our position following an improvement in its secondary trading up.

Armen Panossian: Additionally, we partially removed from non-accrual our investment in all web leads, which generates leads for insurance. As a reminder, this is a non-core position we inherited from the prior manager in 2017. The company completed a restructuring of its debt in March. We placed two tranches of the restructured debt back on accrual status, as the company is back on solid financial footing and focused on executing on its strategic initiatives. We also removed CPC Acquisition Corp., a small public second lien, from non-accrual after we sold out of our position following an improvement in its secondary trading wall.

Armen Panossian: I also wanted to provide an update on drastic and Amazon aggregator and we placed on non accrual last quarter, we have been working with the management team and lenders to support liquidity and positioning the company for long term success.

Armen Panossian: In February the company filed for bankruptcy protection to strengthen its financial position and deleverage its balance sheet protected lender led financing as a result of this we wrote off our preferred equity investment and marked down our term loan.

Armen Panossian: Overall portfolio is in solid shape, we view recent challenges faced by companies placed on non accrual is idiosyncratic and not indicative of broader or systemic issues within the portfolio.

Armen Panossian: I also wanted to provide an update on Thrasio, an Amazon aggregator that we placed on non-accrual last quarter. We have been working with the management team and lenders to support liquidity and position the company for long-term success. In late February, Thrasio filed for bankruptcy protection to strengthen its financial position and deleverage its balance sheet in a protected, lender-led finance system.

Armen Panossian: Course, we are closely monitoring all of our vessels given persistently high interest rates and the potential for these increased borrowing cost to create stress for some time.

Armen Panossian: With that in mind, I'll turn to our view on the market environment.

Armen Panossian: Over the past six months credit markets have experienced widespread rally leading to historically tight spreads across the leveraged loan and private credit Park.

Armen Panossian: The market strength, there's multiple drivers, including supportive capital inputs.

Armen Panossian: As a result of this, we wrote off our preferred equity investment and marked down our term line. Our overall portfolio is in solid shape. We view recent challenges faced by companies placed on nonaccrual as idiosyncratic and not indicative of broader or systemic issues within the portfolio.

Armen Panossian: Overall trend remains driven by investor confidence in the soft landing that would lead to a meaningful decline in interest.

Armen Panossian: While we aren't overly bearish about the U S economy or the inflation outlook. We believe downside risks may outweigh the upside given that markets have already priced an overly optimistic expectations.

Armen Panossian: Specifically, we are skeptical about the pace and extent of interest rate declines anticipating a more modest trajectory than what is currently priced at.

Armen Panossian: Of course, we are closely monitoring all of our investments, given persistently high interest rates and the potential for these increased borrowing costs to create stress for some. With that in mind, I'll turn to our view of the market environment. Over the past six months, credit markets have experienced a widespread rally, leading to historically tight spreads across the leveraged loan and private credit markets. Market strength has multiple drivers, including supportive capital influences. But the overall trend remains driven by investor confidence in a soft landing that will lead to a meaningful decline in interest rates.

Armen Panossian: As such rates could remain elevated compared to where they were prior to 2022, which could pose challenges for borrowers with high debt loads or companies that will need to refinance our debt in the coming years.

Armen Panossian: Against this backdrop, we continue to exercise caution, we will remain selective and prudent as we apply our investment approach that prioritizes relative value drawing the part of Oaktree substantial resources and expertise to selectively invest across private public credit markets.

Armen Panossian: Fortunately, we remain well capitalized with ample liquidity to navigate near term volatility and continue to construct the portfolio for strong long term performance on behalf of shareholders.

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

Armen Panossian: While we aren't overly bearish about the U.S. economy or the inflation outlook, we believe downside risks may outweigh the upside, given that markets have already priced in overly optimistic expectations. Specifically, we are skeptical about the pace and extent of interest rate declines, anticipating a more modest trajectory than what is currently priced in.

Speaker Change: Thank you Armen.

Armen Panossian: As Matt noted, we reported adjusted net investment income of $44 $7 million or 56 cents per share as compared with $44 $2 million or 57 cents per share in the first quarter.

Armen Panossian: The slight increase on a dollar basis was primarily driven by a modest decline in net expenses due to lower part one incentive fees professional fees interest expense in the quarter.

Armen Panossian: As such, rates could remain elevated compared to where they were prior to 2022, which could pose challenges for borrowers with high debt loads or companies that will need to refinance their debt in the coming years. Against this backdrop, we continue to exercise, We will remain selective and prudent as we apply our investment approach that prioritizes relative value, drawing upon Oaktree's substantial resources and expertise to selectively invest across private and public credit markets.

Armen Panossian: This was partially offset by slightly lower adjusted total investment income.

Armen Panossian: The per share decrease for the quarter was driven by an increase in weighted average shares outstanding.

Armen Panossian: Adjusted total investment income decreased by $700000 in the quarter and was adversely impacted by a $1 $9 billion decreased interest income due primarily to the result of the timing of capital capital deployment and spread compression, primarily resulting from the rotation out of higher yielding second liens.

Armen Panossian: Importantly, we remain well capitalized with ample liquidity to navigate near-term volatility and continue to construct the portfolio for strong long-term performance on behalf of shareholders. Now, I will turn the call over to Chris to discuss our financial results in more detail. Thank you, Armen.

Chris: This was partially offset by a 1.2 million dollar increase in fee income, resulting from prepayment and amendment fees and higher OID acceleration from investment repayments.

Chris: We'd note that our GAAP financial results were lower due to purchase price premium acceleration from the par repayments of certain investments acquired in the merger Smith with CSI with I too.

Christopher McKown: As Matt noted, we reported adjusted net investment income of $44.7 million, or $0.56 per share, as compared with $44.2 million, or $0.57 per share, in the first quarter. A slight increase on a dollar basis was primarily driven by a modest decline in net expenses due to lower Part 1 incentive fees, professional fees, and interest expense in the quarter. This is partially offset by slightly lower adjusted total investment income. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding.

Christopher McKown: Net expenses for the second quarter totaled $52 $7 million down $1 1 million sequentially.

Christopher McKown: Klein was mainly driven by zero point $6 million of lower part one incentive fees point 3 million of lower professional fees and <unk> 3 million of lower interest expense.

Christopher McKown: As Matt highlighted Oaktree agreed to waive a total $3 million of base management fees over the March and June quarters at a rate of $1.5 million per quarter.

Christopher McKown: Adjusted total investment income decreased by $700,000 in the quarter and was adversely impacted by a $1.9 million decrease in interest income due primarily to the result of the timing of capital deployment and spread compression primarily resulting from the rotation out of higher-yielding second liens. This was partially offset by a $1.2 million increase in fee income resulting from prepayment and amendment fees and higher OID acceleration from investment repayment. We'd note that our GAAP financial results were lowered due to purchase price premium acceleration from the par repayments of certain investments acquired in the mergers with both CSI and OSI-2. Net expenses for the second quarter totaled $52.7 million, down $1.1 million sequentially.

Christopher McKown: Starting on July 1st 2024 are new 1% base management fee will go into effect and will be calculated net base management fees at Oaktree agreed to waive as part of the OSI to merger.

Christopher McKown: Shifting to our balance sheet, we maintain a strong capital position with ample liquidity, our net debt to equity remains on the low end of our target range at about 1.02 times, providing us plenty of room to grow leverage should we find more compelling opportunities in the market.

Christopher McKown: Newly funded investment activity of $377 million exceeded proceeds from repayments exits and sales of 323 million, enabling us to grow the portfolio.

Christopher McKown: As of March 31, total debt outstanding was $1.68 billion and had a weighted average interest rate of 7.0%, including the effects of our interest rate swap agreements consistent with the level at the end of the December quarter.

Christopher McKown: The decline was mainly driven by $0.6 million of lower Part 1 incentive fees, $0.3 million of lower professional fees, and $0.3 million of lower interest expense. As Matt highlighted, Oaktree agreed to waive a total $3 million of base management fees over the March and June quarters at a rate of $1.5 million per quarter. Starting on July 1st, 2024, our new 1% base management fee will go into effect and will be calculated net of the base management fees that Oaktree agreed to waive as part of the OSI 2 merger.

Christopher McKown: Rates remained steady during the quarter.

Christopher McKown: Unsecured debt represented 57% of total debt at quarter end also in line with the prior quarter.

Christopher McKown: Our balance sheet was further bolstered through continued share issuance under our ATM program, we were able to capitalize on the constructive market environment to raise a $46 million of common equity in the quarter to fund our pipeline Easter.

Christopher McKown: These shares were issued at an average 104% premium to our NAV.

Christopher McKown: Our liquidity is strong with approximately $1 billion at quarter end, including $125 million of cash and 888 million of undrawn capacity on our credit facilities.

Christopher McKown: Shifting to our balance sheet, we maintain a strong capital position with ample liquidity. Our net debt equity remains on the low end of our target range at about 1.02 times, providing us with plenty of room to grow leverage should we find more compelling opportunities in the market. Newly funded investment activity of $377 million exceeded proceeds from repayments, exits, and sales of $323 million, enabling us to grow the portfolio. As of March 31st, total debt outstanding was $1.68 billion and had a weighted average interest rate of 7.0%, including the effect of our interest rate swap agreement, consistent with the level at the end of the December quarter as interest rates remained steady during the quarter. Unsecured debt represented 57% of total debt at quarter end, also in line with the prior quarter.

Christopher McKown: Unfunded commitments, excluding unfunded commitments to the joint ventures were $209 million with approximately 179 million eligible to be drawn immediately whereas the remaining amount is subject to certain milestones that must be met by portfolio companies before funds can be drawn.

Christopher McKown: Turning now to our two joint ventures.

Christopher McKown: R. J vs again delivered another quarter of strong performance together, the jv's hold $504 million of investments primarily in broadly syndicated loans spread across 56 portfolio companies.

Christopher McKown: Quarter, the J D again generated attractive annualized ROE, which combined for nearly 14%.

Christopher McKown: Leverage at the JV increased to 1.3 times in aggregate at quarter end due to the addition of assets to the portfolio in connection with our partners.

Christopher McKown: In summary, we are pleased with our financial results and the progress we've made to date on our challenged investments and continue to believe that our strong balance sheet positions us well for the second half of fiscal year 2024.

Christopher McKown: Our balance sheet was further bolstered through continued share issuance under our ATM program. We were able to capitalize on the constructive market environment to raise $46 million of common equity in the quarter to fund our pipeline. These shares were issued at an average 104% premium to our NAS. Our liquidity is strong, with approximately $1 billion at quarter end, including $125 million of cash and $888 million of undrawn capacity on our credit facility.

Christopher McKown: Now I will turn the call back to Matt for some closing remarks.

Christopher McKown: Thank you Chris we are pleased by the growth in our earnings are the past several years and our financial performance for the second quarter further demonstrates the resilience of those earnings our return on adjusted net investment income for the quarter was 11, 7%, which once again is at the higher end of our targeted range and our dividend continues to be.

Christopher McKown: Unfunded commitments, excluding unfunded commitments to the joint ventures, were $209 million, with approximately $179 million eligible to be drawn immediately, whereas the remaining amount is subject to certain milestones that must be met by portfolio companies before funds can be drawn. Turning now to our two joint ventures, our JVs again delivered another quarter of strong performance.

Christopher McKown: By earnings looking ahead, we are being proactive with our nonaccrual investments and have plans in place that we believe will optimize the recovery for each investment.

Christopher McKown: In addition, a new fee structure and the ongoing fee waivers will be accretive to our ROE effective immediately.

Christopher McKown: All in all we are quite optimistic about our future and look forward to building upon our long term track record of delivering attractive returns to our shareholders as always we appreciate your participation on the call today and for your interest in O N E. S. L with that we're happy to take your questions. Operator, Please open the lines.

Christopher McKown: Together, the JVs hold $504 million of investments, primarily in broadly syndicated loans spread across 56 portfolio companies. For the quarter, the JVs again generated attractive annualized ROEs, which combined were nearly 14 percent. Leverage at the JVs increased to 1.3 times in aggregate at quarter end due to the addition of assets to the portfolios in connection with our partners. In summary, we are pleased with our financial results and the progress we've made to date on our challenged investments and continue to believe that our strong balance sheet positions us well through the second half of fiscal year 2024. Now, I will turn the call back to Matt for some closing remarks. Thank you, Chris.

Operator: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.

Christopher McKown: Our first question comes from Brian Mckenna with citizens J M. Pete. Please go ahead.

Matt: Okay, great. Thanks, Good morning, So a question on the dividend and the management fee reduction so if I annualize second quarter results and then add the 15 cents.

Mathew M. Pendo: We are pleased by the growth in our earnings over the past several years, and our financial performance for the second quarter further demonstrates the resilience of those earnings. Our return on adjusted net investment income for the quarter was 11.7%, which once again is at the higher end of our targeted range, and our dividend continues to be covered by earnings. Looking ahead, we are being proactive with our non-accrual investments and have plans in place that we believe will optimize the recovery for each investor. In addition, our new fee structure and ongoing fee waivers will be accretive to our ROE with effective immediateness.

Mathew M. Pendo: To that so the fee change different AD coverage is still less than 110% and that's before any reduction in interest rate and then any other changes in underlying credit across the portfolio. So what makes you confident you'll be able to fully earn the dividend and looking out over the next 12 to 18 months, assuming the forward curve plays out and then can you remind us why your earnings sensitive.

Mathew M. Pendo: Yes to every 100 basis point move in rates.

Mathew M. Pendo: Yeah.

Speaker Change: Sure sure Brian. Thanks. Thanks for the question. So you know at a high level, where we feel very comfortable given the change in the management fee, which is going to 1% as of July 1st in our ability in the future to cover our dividend and feel good about the dividend one of the one.

Mathew M. Pendo: All in all, we are quite optimistic about our future and look forward to building upon our long-term track record of delivering attractive returns to our shareholders. As always, we appreciate your participation on the call today and for your interest in OCSL. With that, we're happy to take your questions. Operator, please open the line. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.

Mathew M. Pendo: Other things this quarter that that impacted the results were just some inter quarter timing in terms of repayments and then fundings. So there was a there was a little bit I wouldn't take this quarter and just annualize. It so as we think about.

Mathew M. Pendo: And adjusting for for that timing difference as we look at at our pipeline and the fundings that that we've done this quarter as well as you know already this quarter, but then for the balance of the quarter the fee waiver et cetera, and we feel you add that altogether, we feel very comfortable with with covered.

Operator: If you're using a speakerphone, please pick up your handset before pressing the button. If, at any time, your question has been answered and you would like to withdraw your question, please press star and then 2. Our first question comes from Brian McKenna with Citizens JMP. Please go ahead. Okay, great, thanks. Good morning, all.

Christopher McKown: The dividend. So I think the one thing is just is just focused on kind of the timing of the quarter and then just our pipeline as you know as we see it.

Christopher McKown: Got it okay helpful and then.

Christopher McKown: Shifting gears a bit here just looking at the investment portfolio.

Christopher McKown: So, a question on the dividend and the management fee reduction. So, if I annualize the second quarter results and then add the 15 cents to that for the fee change, dividend coverage is still less than 110%, and that's before any reduction in interest rates and then any other changes in underlying credit across the portfolio. So, you know, what makes you confident you'll be able to pocket the dividend looking out over the next 12 to 18 months, assuming the forward curve plays out? And then can you remind us what your earning sensitivity is to every 100 basis point moving rates? Sure, Brian, thanks for the question.

Christopher McKown: Sparing solid growth year to date, it's up about 5%. So what's your expectation around new investment activity as well as prepayments for the next couple of quarters and I'm, just trying to get a sense of the trajectory of the portfolio from here.

Christopher McKown: This is armen, we have already funded 100 million.

Speaker Change: This quarter.

Speaker Change: So the second calendar quarter, we do have a pretty healthy pipeline for the balance of the quarter in terms of new fundings.

Speaker Change: I don't have a very good sense for them you know unexpected repayments, obviously, but I do think that the market is opening back up and we are seeing more M&A.

Speaker Change: M&A deal volume or deal activity that we could potentially consider as part of our or for a direct loan at our publicly public market activities are we remain.

Mathew M. Pendo: So, you know, at a high level, we feel very comfortable, given the change in the management fee, which is going to be 1% as of July 1st, in our ability in the future to cover our dividend and feel good about the dividend. One of the things this quarter that impacted the results was just some inter-quarter timing in terms of repayments and then funding. So there was a little bit.

Mathew M. Pendo: Quite active there we go we will deploy when it makes sense in the public markets as well we continue to watch out for.

Mathew M. Pendo: Periods of.

Mathew M. Pendo: Opportunity or potential volatility that that makes sense.

Mathew M. Pendo: But you know I think that this quarter, we will have a pretty Ah another strong quarter for origination just based on what we know about the pipeline I'm not sure I could guide to a more specific number but you know the 100 million are in the in the month of April I think it was a good start so far.

Mathew M. Pendo: I wouldn't necessarily take this quarter and just analyze it. So as we think about... And adjusting for that timing difference, as we look at our pipeline and the funding that we've done this quarter as well as, you know, already this quarter, but then for the balance of the quarter, the fee waiver, et cetera, you know, we feel, when you add it all together, we feel very comfortable with covering the dividend. So I think, you know, the one thing is just to focus on kind of the timing of the quarter and then just our pipeline as we see it. Got it.

Speaker Change: All right I'll leave it there thanks for taking my question.

Mathew M. Pendo: Okay.

Mathew M. Pendo: Next question comes from Finian O'shea with Wells Fargo. Please go ahead.

Speaker Change: Hey, everyone.

Speaker Change: Good morning so.

Speaker Change: First question looking at origination this quarter it's.

Mathew M. Pendo: Some.

Mathew M. Pendo: Participation.

Mathew M. Pendo: Public deals there.

Mathew M. Pendo: There's not much brighter Oi T. So.

Mathew M. Pendo: Does this.

Mathew M. Pendo: Combining that with the fee cut the does this mean things are going this way.

Kyle Joseph: Okay, helpful. And then, shifting gears a bit here, just looking at the investment portfolio, you know, it's experienced solid growth year to date. It's up about 5%. So what's your expectation around new investment activity, as well as prepayments for the next couple of quarters? And I'm just trying to get a sense of the trajectory of the portfolio. This is Armen.

Armen Panossian: He cut as just sort of an offset to the.

Kyle Joseph: Returns you expect to be generating.

Speaker Change: Eight minutes Armen.

Armen Panossian: The portfolio over the last couple of years has migrated to a substantially higher percentage of first lien.

Kyle Joseph: Kind of a reflection of our view of kind of risk in the markets.

Armen Panossian: We're now 80% first lien we were 60%.

Armen Panossian: We have already funded $100 million this quarter, so the second calendar quarter. We do have a pretty healthy pipeline for the balance of the quarter in terms of new funding. I don't have a very good sense for, you know, unexpected repayments, obviously, but I do think that the market is opening back up, and we are seeing more M&A deal volume or deal activity that we could potentially consider as part of or for a direct loan. And our public market activities are, you know, we remain quite active there.

Kyle Joseph: 24 months ago 36 months ago.

Armen Panossian: And for a portfolio that is largely first lien and I would say on balance might even increase in our first lien exposures as.

Armen Panossian: As we looked at sort of the the appropriate aligning level of management fee.

Armen Panossian: Over and over over the long run we thought that 1% was more adequate or were more consistent and you know that.

Armen Panossian: The markets are going to ebb and flow I think the spreads will obviously they have tightened over the last 18 months. They may widen were not making a prediction on that but we do think that.

Armen Panossian: The best way to deliver a low volatility and dependable dividend.

Kyle Joseph: We, you know, will deploy when it makes sense in the public markets as well. We continue to watch that for periods of opportunity or potential volatility that make sense. But, you know, I think that this quarter we will have another strong quarter for origination just based on what we know about the pipeline. Not sure I could guide you to a more specific number, but, you know, the $100 million in the month of April I think is a good start. All right, I'll leave it there.

Kyle Joseph: For our shareholders is to continue to do what we have been doing around the first lien migration, which.

Kyle Joseph: We thought that.

Kyle Joseph: Now it would be a good time as any.

Kyle Joseph: To reduce the fee in and deliver that continued stability to our shareholders. That's really what's driving it it's not a it's not a forward prediction about about spreads I mean that we're not just very hard to make any sort of prediction on that.

Kyle Joseph: The market certainly have tightened over the last 18 months vis vis spreads.

Speaker Change: Oh that's helpful. Thank you and just a follow up on the <unk>.

Finian O'shea: Thanks for taking my question. The next question comes from Finian O'Shea with Wells Fargo. Please go ahead. Hey, everyone. Good morning.

Finian O'shea: Related non traded BDC or for fraud.

Finian O'shea: That looks to be moving along at say $150 million a month.

Armen Panossian: So, first question: looking at origination this quarter, private participation, some public deals, there's not a lot of spreader OIT. So does this, combined with the fee cut, does this mean things are going this way, and the fee cut is just sort of an offset to the returns you expect to be generating? Hey Finn, it's Armen.

Armen Panossian: Good.

Finn: Can you talk about the.

Finn: Perhaps resources that you at Brookfield are putting into it the platforms you're on the.

Armen Panossian: Distribution force it like where you're.

Finn: What are your sort of hoping this goes to.

Armen Panossian: You know, the portfolio over the last couple of years has migrated. Management Fee, over the long run, we thought that 1% was more adequate or more consistent. And, you know, I think the markets are going to ebb and flow. I think the spreads will, obviously, they have tightened over the last 18 months. They may widen.

Finn: Staying possibly cadence or a total size.

Speaker Change: Yeah, but I I don't really have a projection on what we've got but we.

Armen Panossian: You know over except for the monthly cadence to go to I could tell you that our investment team.

Armen Panossian: And teams at Oaktree, we continue to grow in terms of resources, both in terms of sourcing and analytics.

Armen Panossian: We're not making a prediction about that, but we do think that the best way to deliver a low volatility and dependable dividend for our shareholders is to continue to do what we have been doing around the first wave migration, which, you know, we thought that now would be a good time, as any, to reduce the fee and deliver that continued stability to our shareholders. That's really what's driving it.

Armen Panossian: Brookfield Oaktree do you have a partnership on.

Armen Panossian: On the wealth solution channel called Oak, Brookfield, Oaktree, well solutions Bose that is responsible for our activities on the non traded REIT other non traded BDC side as.

Armen Panossian: As well as other.

Armen Panossian: Products for the retail channel.

Armen Panossian: It's not something that is a distraction or a burden for the investment team at all and I think that as we have grown across our multiple channels, including institutional.

Armen Panossian: It's not a forward prediction about spreads. I mean, we're not it's just very hard to make any sort of prediction on that But the market certainly has tightened over the last 18 months vis-a-vis spreads. It's helpful, thank you. A follow-up on the related non-traded BDC or group run that looks to be moving along at, say, $150 million a month. Can you talk about the resources that you at Brookfield are putting into it, the platforms you're on, the distribution force, and like where you are, where you're sort of hoping this goes to as, say, a monthly cadence or total size?

Armen Panossian: It's just made oaktree are more I would say powerful counterparty in the markets I'm you know.

Armen Panossian: Providing the whole capital structure solution.

Armen Panossian: In partnership with Robert.

Speaker Change: Yeah, like it sorry to interrupt but.

Speaker Change: At what level would it be a distraction or burden if say 150 about this is just to sort of freeze.

Armen Panossian: <unk> for you like where are we where should we be alarmed or or looking at it.

Armen Panossian: Hey.

Armen Panossian: Fin, it's Matt So we've been we've been raising about $1 50, a month for you know two years. So that's been a steady cadence like I don't I don't.

Armen Panossian: Yeah, I don't really have a projection on what we, you know, hope or expect for the monthly cadence to go to. But I could tell you that our investment team and teams at Oaktree continue to grow in terms of resources, both in terms of sourcing and analytics. Brookfield and Oaktree do have a partnership on the Wealth Solutions Channel called Brookfield-Oaktree Wealth Solutions, or BOWS, that is responsible for our activities on the non-traded BDC side, as well as other products for the retail channel. It's not something that is a distraction or burden for the investment team at all.

Armen Panossian: As already said, we don't make predictions about where that's going to go but that but that's where it's been and it's worked just fine and works fine for that BDC works fine for the for the rest of Oaktree and our resources. So I don't you know I wouldn't spend too much time, when kind of you know.

Armen Panossian: Hypothetically hypothesis about what could happen is that everything its been didn't want 50 that that works well for for that BDC works well for Oaktree and that's just kind of how we're thinking about it.

Speaker Change: Awesome. Thank Yuval said I'll hop back in the queue.

Speaker Change: Thanks, Dan.

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

Armen Panossian: And I think that as we have grown across our multiple channels, including institutional, it's just made Oaktree a more, I would say, powerful counterparty in the markets, you know, providing the whole capital structure solution. Okay. And then also in partnership with our Yeah, sorry to interrupt, but at what level would it be a distraction or burden if, say, $150 a month is just too much of a breeze for you? Like, where should we be alarmed or looking at it more orally? Hey, Finn. Finn, it's Matt.

Matt: Hey, good morning, Thanks for taking my question just on the decline in interest income I know you guys talked about.

Matt: Spreads and then timing, but you know just in terms of modeling.

Matt: Would you attribute the majority to either of those or was it really more of a timing thing and the spreads and then you know how do we factor that end that you're I think you reported portfolio yield was stable quarter on quarter, if I'm not mistaken.

Matt: Yeah, Hi, it's Matt Stuart So I know in our prepared remarks, we talked about the second lien portfolio impacting our spreads by about 10 basis points, but overall, we had spread compression within our book of in and around 15, Bips on a weighted average yield.

Mathew M. Pendo: So, we've been raising about $150 a month for, you know, two years, so that's been a steady pace. Like, I don't, as Armen said, we don't make predictions about where that's going to go, but that's where it's been, and it's worked just fine, and works fine for that BDC, works fine for the rest of Oaktree and our resources, so I don't, you know, I wouldn't spend too much time kind of hypothesizing about what could happen, this, that, everything. It's been $150, that works well for that BDC, works well for Oaktree, and that's just kind of how we're thinking. It was awesome. Thank you both. And I'll hop back in the queue.

Mathew M. Pendo: That was offset by a lot of the progress we've made on the non accruals and work we did throughout the quarter and then there's Armen noted we did have back weighted deployments I'm about $330 million of our deployments during the quarter were kind of mid February to March and that will always have some level.

Mathew M. Pendo: Of what I'll call friction between deployments and repayments, but that on average probably amounted to about a penny and a half this quarter of impact that we probably normally wouldn't see in a normal quarter.

Operator: Thanks. The next question comes from Kyle Joseph with Jeffries. Please go ahead. Hey, good morning.

Kyle Joseph: Got it very helpful. And then just a follow up for me.

Kyle Joseph: Thanks for taking my questions. Just on the decline in interest income, I know you guys talked about both spreads and then timing, but, you know, just in terms of modeling, would you attribute the majority to either of those? Or was it really more of a timing thing than the spreads? And then, you know, how do we factor that in that your, I think your reported portfolio yield was stable quarter on quarter, if I'm not mistaken? Hi, it's Matt Stewart.

Kyle Joseph: On the unripe unrealized depreciation in the quarter. It sounds like the majority of that was tied to N. P. A's and just give us a sense for X. The M. P. H, how how portfolio performance and valuations have been trending.

Kyle Joseph: Yeah.

Kyle Joseph: Hey, Kyle it's Chris I would just say that.

Matthew Stewart: Ex the MTA you know the portfolios.

Kyle Joseph: Relatively flat quarter on quarter.

Matthew Stewart: Correct to point out that that's really the driver.

Kyle Joseph: So, I know in our prepared remarks we talked about the second lean portfolio impacting our spreads by about 10 basis points, but overall, we had spread compression within our book of in and around 15 BIPs on our weighted average yield. Now, we'll always have some level of what I'll call friction between deployments and repayments, but that, on average, probably amounted to about a penny and a half in impact that we probably normally wouldn't see in a normal quarter. I found it to be very helpful.

Matthew Stewart: Yeah, I mean predominantly the write downs during the quarter were.

Kyle Joseph: And Thrasher O M Pal and O T G. All of our nonperforming assets from 12 31.

Kyle Joseph: Yeah.

Speaker Change: Got it very helpful. Thanks for taking my questions.

Kyle Joseph: Our next question comes from Paul Johnson with K B W. Please go ahead.

Speaker Change: Hey, good morning, taking my question Congrats on yeah.

Kyle Joseph: Cut that lets me.

Kyle Joseph: All of this because I mean with this announcement you know some of them.

Matthew Stewart: And then just a follow-up for me on the unrealized depreciation in the quarter. It sounds like the majority of that was tied to NPAs, and just give us a sense for X the NPAs, how portfolio performance and valuations have been trending, details. Chris.

Kyle Joseph: All of this obviously with the restructuring so that's still ongoing some of it.

Speaker Change: During the quarter.

Speaker Change: But you know the timing is such an announcement.

Chris: You're pretty confident that you've got a handle on.

Christopher McKown: Yeah. The NPA, you know, the portfolio is... Relatively flat quarter-on-quarter. You're right to point out that that's really just a driver.

Christopher McKown: Any of the remaining credit issues and the booking.

Christopher McKown:

Christopher McKown: Confidence.

Christopher McKown: Forward from here.

Christopher McKown: Yeah, I mean, predominantly the write-downs during the quarter were Intheratio, Impow, and OTG, all of our non-performing assets from 12-30. Got it. Very helpful. Thanks for taking my question. The next question comes from Paul Johnson with KBW. Please go ahead.

Christopher McKown: Yeah.

Paul Conrad Johnson: Yeah, those urban we do feel confident that we have.

Paul Conrad Johnson: Both a good plan for maximizing recoveries for our our challenges in the portfolio. You know, we we do have a process that we engage in regularly we're just evaluating the quality of the portfolio as well just to try to anticipate any sort of.

Paul Conrad Johnson: Good morning, thanks for taking my question, and congratulations on the C-Cut announcement. On the fee cut, I mean, with this announcement, you know, some of the developments obviously with the restructuring, some of that's still ongoing. The timing of such an announcement, you're pretty confident that you've got it handled, including any remaining credit issues and the book and some. Confidence. [inaudible] Yeah, this is Armen.

Armen Panossian: Issues or even repayments that we may get out of.

Armen Panossian: After the unexpected.

Armen Panossian: We feel good about the marks in the portfolio, we feel good about the quality of the portfolio and and are positioned well in the market to continue to deploy them. So I think you know we we've we've taken a pretty conservative view on the the very small handful of challenges that we do have in the portfolio and have marked them in a way that we think is.

Armen Panossian: We do feel confident that we have both a good plan for maximizing recoveries for our challenges in the portfolio. You know, we do have a process that we engage in regularly with just evaluating the quality of the portfolio as well, just to try to anticipate any sort of issues or even repayments that we may get faster than expected. We feel good about the marks in the portfolio. We feel good about the quality of the portfolio, and we are positioned well in the market to continue to grow.

Armen Panossian: Is that conservatism, but we will continue to work hard to.

Armen Panossian: Maximize recoveries and hopefully even outperformed those those marks are it is it's certainly is our goal to do better than where we have it marked and really leverage oaktree capabilities too.

Armen Panossian: So I think, you know, we've taken a pretty conservative view on the very small handful of challenges that we do have in the portfolio and have labeled them in a way that we think is reflective of that conservatism.

Armen Panossian: To execute on on an outcome that is favorable for shareholders.

Speaker Change: Thanks for that.

Armen Panossian: <unk>.

Armen Panossian: And then switching over to just activity in the quarter, you know a fairly high level of prepayment activity.

Armen Panossian: But we will continue to work hard to maximize recoveries and, hopefully, even outperform those marks. It certainly is our goal to do better than where we have it marked and really leverage Oaktree's capabilities to execute on an outcome that is favorable for shareholders. Thanks for that, Armen.

Speaker Change: Wondering if you can kind of get some sort of color as to what kind of the balance sheet is in terms of repayments and exits since you've had the spin.

Paul Conrad Johnson: And then switching over to just activity in the quarter, you know, fairly high level of retainment activity. I was wondering if you could kind of give some sort of color as to what kind of the balance has been in terms of repayments and exits that you've had, have these been more liquid assets or higher yielding season stuff, what was kind of, what have you kind of observed? Yeah, just in terms of payoffs, it's kind of a mix. There are some chunky repayments on the private side, including a position in Melissa and Doug, which is probably the largest single payoff.

Paul Conrad Johnson: More liquid assets.

Paul Conrad Johnson: Higher yielding seasoned stuff, what what was kind of.

Paul Conrad Johnson: Sure.

Paul Conrad Johnson: Taken out in the market.

Paul Conrad Johnson: Yeah, just in terms of payoffs, it's kind of a mix. There are there were some chunky repayments on the private side, including our position and Melissa and Doug which is probably the largest.

Paul Conrad Johnson: Single pay off and then we had to repayment and a company called our daughter. So we had some small repayments in in Oh, that's small, but a reasonably sized second lien repayment and Blackhawk networks.

Armen Panossian: And then we had a repayment in a company called Ardana, and we had some small repayments in, or not small, but a reasonably sized second lien repayment in Blackhawk Networks. So it's been, the repayments have been pretty strong. On the exits, in terms of the public side, you know, we are pretty active in trading and have benefited from the markets, especially the senior loan markets, rallying this year, this calendar year. And so we took some chips off the table with respect to both loans and bonds that we have in the portfolio.

Armen Panossian: So it's been.

Armen Panossian: The repayments have been pretty strong on the on the exits in terms of public public side, Yeah, we are pretty active in and trading in and have benefited from the markets.

Armen Panossian: Especially the senior loan markets rallying this year this calendar year and so we did take some chips off the table with respect to both loans and bonds that we have in the portfolio.

Armen Panossian: And that was about, you know, $56 million of par on the public side and about $201 million of par on the private side in terms of total exits. And the proceeds that we realized, you know, across the portfolio, you know, was driven by, it was actually a better than par recovery in those exits, really driven by some higher than par exit prices on the private side, as we, as we saw some recovery. Yeah, I'd appreciate the detail there.

Armen Panossian: And that was about $56 million of par in the public side about $201 million of par on the private side.

Armen Panossian: In terms of total exits.

Armen Panossian: And the proceeds that we realized across.

Armen Panossian: Across the the portfolio was driven Oh, it was actually a better than par recovery.

Armen Panossian: And those exits you know are really driven by some higher than par exit prices on the private side as we as we saw some repayments.

Speaker Change: Got it I appreciate the detail there that's all the questions for me.

Paul Conrad Johnson: That's all the questions. The next question comes from Melissa Wedel with J.P. Morgan. Please go ahead.

Paul Conrad Johnson: The next question comes from Melissa Wedel with JP Morgan. Please go ahead.

Melissa Wedel: Good morning. Thanks for taking my questions today. Most have actually been asked and answered already.

Melissa Wedel: Good morning, Thanks for taking my question most of have actually been asked and answered already but just to follow along the thread and repayment activity when.

Melissa Wedel: But just to follow along the thread of repayment activity. When we think about prior cycles, I think there were some elevated prepayments, and income, just because of the pace of rate cuts that we had seen in the prior cycle. Given that this one is likely to be more extended, you've been talking about the potential for sort of a higher for longer rate environment for a long time. Should we be thinking about prepayment income in a more normalized way than what we've seen in previous rate decline cycles? Thanks Melissa, it's Armen.

Armen Panossian: When do we think about higher cycle I think there were some.

Armen Panossian: Elevated prepayment fee income.

Armen Panossian: And just because of the.

Armen Panossian: Pace of rate cuts that we had seen in the prior cycle given that this one is likely to be more extended and you've been talking about that potential for sort of a higher for longer rate environment for a long time should we be thinking about prepayment income in a more normalized suede and what we've seen in previous and right to me.

Armen Panossian: In cycles.

Armen Panossian: Thankful of assortment.

Armen Panossian: It's a good question. I don't think that we have a strong enough handle on making such predictions on prepayments, but I think your instinct is right that if base rates remain elevated for an extended period of time, where you will see repayments are when a company just outperforms and or you know a sponsor wanting to sell a business just because it needs to return capital, the historic trend of enterprise valuation multiples rising, interest rates being low, either declining or ultra low and that driving prepayments, that's no longer the case.

Armen Panossian: Good question I don't think that we have a strong enough handle on.

Armen Panossian: The making such predictions on prepayments, but I think your instinct is right that.

Armen Panossian: If base rates remain elevated for an extended period of time, where you will see repayments are when a company just outperforms.

Armen Panossian: And or you know our sponsors are wanting to sell a business just because it needs to return capital.

Armen Panossian: The historic trend of enterprise valuation multiples rising interest rates being low either either declining or ultra low and not driving prepayments and.

Armen Panossian: That's no longer the case, so when you do see a prepayment.

Armen Panossian: So when you do see a prepayment, it's really because of something idiosyncratic on the upside, most likely. Like in the case of Melissa and Doug, that was a business, that was a loan that we did not know about a year ago or a little bit over a year ago. It repaid faster than we thought it would, and it was because the company was performing well or had performed well through COVID, and there was a strategic acquirer for that business that was willing to pay a price that was accretive to the sponsors' view of that business.

Armen Panossian: It's really because of something idiosyncratic to the upside.

Armen Panossian: Most likely like in the case of Melissa Doug that was a business that was a loan that we did you know about a year ago or a little bit over a year ago. It repaid a faster than we thought it would and it was because the company was performing well or had performed well through COVID-19 and there was a strategic acquirer for that business that was willing to pay up.

Armen Panossian: So it was accretive to the to the sponsors.

Armen Panossian: <unk> view of that of that business, so, but I wouldn't say that there's a long line of of conversations that are being teed up with us that indicate that there is.

Armen Panossian: So, I wouldn't say that there's a long line of conversations that are being teed up with us that indicate that there's this short-term M&A deal volume wave happening. But I would also say that M&A deal volume is slightly elevated in terms of our forward pipeline as we look at it today versus maybe 12 or 18 months ago. So prepayments should be higher over the next 12 months than they were in, let's say, late 2022 and most of 2023.

Armen Panossian: Short term M&A deal volume wave happening.

Armen Panossian: But I, but I would also say that M&A deal volume is slightly elevated in terms of our forward pipeline as we look at it today versus maybe 12 or 18 months ago. So prepayments will should be higher over the next 12 months than they were in lets say.

Armen Panossian: Late 2022 and in most of 2023 I would expect for a sponsor to sponsor transactions to pick up sponsored two strategic sales to pick up but I don't think it's gonna be quite at the same speed that we were used to pre.

Armen Panossian: I would expect sponsor-to-sponsor transactions to pick up, sponsor-to-strategic sales to pick up, but I don't think it's going to be quite at the same speeds that we were used to, pre-COVID, especially. And Melissa, one of the reasons it's hard to predict this is that, if you go back over the last two years, over 50% of our portfolio has actually turned over, which all So one would have thought it'd be a little bit lower. But it's really difficult to predict. It's idiosyncratic, as Armen mentioned, like Melissa and Doug.

Armen Panossian: Pre COVID-19, especially.

Armen Panossian: Unless one of the reasons, it's hard to predict is if you go back over the last two years over 50% of our portfolio is actually turned over which yeah. All of that occurred during a rising rate environment. So what one would have thought it'd be a little bit lower so it's it's really difficult to predict that they just socratic as already mentioned like a Melissa.

Armen Panossian: So it's tough to kind of project out for the next year on that point.

Matthew Stewart: So it's tough to kind of project out for the next year on that. Yeah, fair enough. That's really helpful though.

Speaker Change: Yeah fair enough, that's really helpful. Though.

Melissa Wedel: I hope I didn't miss this, but I know you talked about median EBITDA on the portfolio and leverage being pretty steady quarter on quarter. I'm just curious what you're seeing in terms of your portfolio company revenue and EBITDA trends, generally, sort of on a year-over-year basis. Thank you.

Matthew Stewart: I hope I didn't Miss this but I know you talked about median EBITDA in our portfolio and leverage being pretty steady quarter on quarter. Just curious what you're seeing in terms of your portfolio company revenue and EBITDA trends generally I'm sort of on a year over year basis. Thank you.

Armen Panossian: Most of this is going to be like 20,000 feet, 30,000 feet, but I would say, generally speaking, revenue is generally stable to increasing modestly. EBITDA, I would say, is stable. I wouldn't—it's not—I wouldn't say it's materially higher by any stretch, and certainly not weaker in any sort of consistent way or observable way across the portfolio.

Armen Panossian: Most of this is gonna be like 20000 feet 30000 feet, but I would say generally speaking revenue is revenue generally for the portfolio or the AR is sort of stable to increasing modestly.

Armen Panossian: EBITDA I would say is stable I wouldn't it's not I wouldn't say, it's materially higher by any stretch and it's certainly not weaker in any sort of a consistent way or or observable way across the portfolio. So I would say it I would say unlevered performance of businesses. So ignoring the.

Armen Panossian: So I would say it's the unlevered performance of businesses, so ignoring the elevated cost of borrowing and how much that's gone up over the last two years, companies generally have seen higher revenue over the last two or three years by a few percentage points annually, and EBITDA sort of flat to slightly up generally. Thanks, everyone. Again, if you have a question... Our next question comes from. Rowe with B. Reilly. Thanks a bunch. Good morning.

Rowe: The elevated cost of borrowing and how much that's gone up over the last two years companies generally Oh I've seen higher revenue over the last two or three years by a few percentage points annually and EBITDA sort of flat to slightly up generally.

Rowe: Thanks Anna.

Rowe: Again, if you have a question. Please press star and then one.

Armen Panossian: Our next question comes from Bryce Rowe with B Riley. Please go ahead.

Rowe: Thanks, a bunch of good morning.

Bryce Wells Rowe: Maybe we wanted to start with, you know, this discussion around spreads and some level of spread compression that you've seen. Can you speak to the level of spread that you saw with the $100 million that you funded here in April and then how the pipeline looks from a spread perspective, maybe relative to what you've seen over the last six months. Yeah, that's a good question.

Rowe: Maybe wanted to start with with this this discussion around spreads and some level of spread compression that you've seen can you can you speak to the level of spread that you that you've seen with the with the $100 million that you funded here in April and then how the pipeline looks from a spread.

Bryce Wells Rowe: Second maybe relative to what you've seen over the last six months.

Speaker Change: Yeah, that's a good.

Bryce Wells Rowe: So this.

Armen Panossian: So, in this $100 million that we funded in April, spreads are in the mid-$500s. I think that, you know, this would kind of give you some directional feedback. In late 2022, early 2023, that's probably where the top tick was on spreads. And where we saw a typical first lien or unit tranche sponsor-led financing, even though the deal flow was pretty light during that time frame, the spreads were 650, maybe to as much as 700 basis points. At that point in time,

Bryce Wells Rowe: This $100 million that we have funded in April spreads are in the mid five hundreds.

Armen Panossian: I think that this will give you some directional the back in late 2022 early 2023, that's probably where the topic was on on spreads and where we saw a typical first lien or unit tranche.

Armen Panossian: Financing, even though the deal flow was pretty light during that timeframe.

Armen Panossian: Were 650, maybe maybe as much as 700 spread.

Armen Panossian: At that point in time, but since then you know I think the market is trending towards more of a 500 to 550 spread.

Armen Panossian: But since then, you know, I think the market is trending towards more of a 500 to 550 spread. In really lightly leveraged situations, you might even see an occasional deal print even inside of 500. But that would be, I would say, atypical.

Armen Panossian: In really lightly levered situations, you might even see an occasional deal print even inside of 500, but that would be I would say atypical, but there's certainly I. The market is not you know at 650 anymore or even above 600 anymore. It's it's it's certainly.

Bryce Wells Rowe: But there's certainly... The market is not, you know, at 650 anymore or even above 600 anymore. It's certainly more in the low to mid 500. As we look at the market going forward, okay, that's helpful, Armen.

Armen Panossian: More in the low 500 low to mid five hundreds at this point as we look at as we look at the market going forward.

Armen Panossian: Okay. That's that's helpful and then.

Matthew Stewart: And then, I wanted to ask about balance sheet leverage both at OCSL and then within the JVs. You noted an uptick in balance sheet leverage at the JVs. I think it was up 1.1 to 1.3. You know, is there more appetite to take leverage at the JVs higher? And then from a, you know, I guess an on-balance sheet OCSL perspective, you know, no real change from a balance sheet leverage perspective year over year or quarter over quarter. You know, what's the appetite there? Are you still trying to manage to, you know, maybe the lower end of your targeted balance sheet leverage? Hi, it's Matt Stewart.

Armen Panossian: And then wanted to wanted to ask about balance sheet leverage both CSL and then within the JV.

Matthew Stewart: Yeah, you you noted an uptick in balance sheet leverage at the JV I think it was up 1.1 to 1.3.

Matthew Stewart: Is that is there is there more appetite to take leverage at the JV is higher and then from a I guess an on balance sheet O C. S. L perspective, you have no no real change from a balance sheet.

Matthew Stewart: This perspective year over year or quarter over quarter, you know what what's the appetite.

Matthew Stewart: The tight there you're still trying to manage too you know maybe the lower end of your targeted balance sheet leverage range.

Matthew Stewart: Hi, It's Matt Stuart as you noted we did raise leverage at the JV at 1.3 times on the back of the heavy new issue volume and the the new facility that we put in last year. Our target there is to get to 1.5 to 1.75.

Bryce Wells Rowe: As you noted, we did raise leverage at the JV to 1.3 times on the back of the heavy new issue volume and the new facility that we put in last year. Our target there is to get to 1.5 to 1.75 as we rotate into a more first lien, broadly syndicated portfolio. So, we do have additional room to grow the JV and ROE at those JVs. And then on the balance sheet, we ended the quarter a little bit over one times net leverage.

Bryce Wells Rowe: As we rotate into a more first lien broadly syndicated portfolio.

Bryce Wells Rowe: So we do have additional room to grow the JV and Roy at those Jv's and then on balance sheet. We ended the quarter I'm a little bit over one times net leverage. So we do have capacity as Armen noted, we did fund about $100 million. So far this quarter. So we are closer to 1.1.

Bryce Wells Rowe: So, we do have capacity. As Armen noted, we did fund about $100 million so far this quarter. So, we are closer to 1.1 currently, but we will operate and leave capacity for additional funding if we do get some volatility. Even at 1.1, we have significant room to get to the top side of our leverage target at 1.25. Okay, all right. Last one for me.

Bryce Wells Rowe: Currently.

Bryce Wells Rowe: But we will operate and leave capacity per additional fundings, if we do get some volatility even at 1.1, we have significant room to get to the top side of our leverage target at 1.25.

Speaker Change: Okay Alright.

Bryce Wells Rowe: Last one for me.

Bryce Wells Rowe: If you look at the slide deck and the secondary.

Bryce Wells Rowe: If you look at the slide deck and the secondary public market activity, $92 million for the second quarter, it's one of the heavier quarters from an origination perspective within that secondary public market, and the secondary market price looks like 98 cents, so a little bit higher than what you might have done in the past. I just kind of wanted to kind of understand the thought process there, being that that's typically a little bit more opportunistic, and you see maybe a lower secondary purchase price when you see that level of volume. This is Armen.

Armen Panossian: Public market activity and $92 million for it for the second quarter.

Armen Panossian: It's one of the one of the heavier quarters from a you know.

Armen Panossian: In origination perspective within that secondary public in the secondary market price looks like 98%, so a little bit higher than what you might've done.

Armen Panossian: In the past just kind of wanted to kind of understand the thought process there.

Armen Panossian: Being that that's typically a little bit more opportunistic and you you see maybe a lower secondary purchase price when you see that level of volume associated with it.

Armen Panossian: Yeah. This is arlen.

Armen Panossian: We've made some rotations in the Publicly Traded book. We had some sort of higher spread names that are atypical of public markets, just kind of higher than average in the public. We also bought some CLO BBs in the new issue market that were in the high 90s. So these are performing loan positions and solid CLO portfolios in structured credit where we were getting sort of better than normal public spreads. In the case of CLO BBs, our spreads are in the mid 700s.

Armen Panossian: Made some rotations in.

Armen Panossian: In the publicly traded book we had.

Armen Panossian: Some some sort of higher spread names that are.

Armen Panossian: Atypical of public markets, just kind of a higher than average in the public. We also bought some CLO double b's in the new issue market that were in the high nineties. So these are performing.

Armen Panossian: Loan positions and solid CLO portfolios and structured credit where we.

Armen Panossian: Yeah, we were getting sort of better than normal public spreads in the case of CLO double B's our spreads are in the mid seven hundreds.

Armen Panossian: These aren't like a big change in the portfolio, but.

Armen Panossian: These aren't like a big change in the portfolio, but when we do see some CLO issuance that is strong, really fueled by a big demand or a strong demand for AAA CLOs, sometimes we find the BB tranche has a choppier placement.

Armen Panossian: You know when we do see some a CLO issuance that is strong I really fueled by a big demand or strong demand for triple H C. L. O's, sometimes we find the double b tranche as choppy replacement and we're able to get you know sort of step in there.

Armen Panossian: And we're able to sort of step in there in partnership with our structured credit team and trading activities to be able to get some outsized pricing on CLO BBs as the CLO market opens up in terms of new issuance. So we saw that opportunity in the first calendar quarter, and we took it, and we feel pretty good about some of those purchases today. Thanks for taking the question. This concludes our question and answer session. I would like to turn the conference back over to Michael Mosticchio for any closing remarks. All right.

Michael Mosticchio: And in partnership with our structured credit team.

Armen Panossian: Team in and trading activities to be able to get some outsized.

Armen Panossian: Outsized pricing on CLO double B's.

Armen Panossian: Again as the as the CLO market opens up in terms of new issue and so we saw that opportunity and in the first calendar quarter and we took it.

Armen Panossian: And and I feel pretty good about some of those purchases today.

Armen Panossian: Okay.

Michael Mosticchio: Thanks for thanks for taking the questions.

Armen Panossian: Thanks.

Michael Mosticchio: This concludes our question and answer session I would like to turn the conference back over to Michael Mr. Chu for any closing remarks.

Michael Mosticchio: Thanks, Dave. 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 or by dialing 877-344-7529 for U.S. callers or 1-412-317-0088 for non-U.S. callers with the replay access code 241. 6934, beginning approximately one hour after this broadcast. Thank you all for joining today's call. The conference is now concluded. Thank you for attending today's presentation.

Michael Mosticchio: Great. Thanks, Dave and thank you all for joining us on today's earnings conference call. A replay of this call will be available for 30 days I know see yourselves website in the investors section or by dialing 87734 475 to nine for U S callers or 141 to 317.

Michael Mosticchio: 088 for non U S callers with the replay access code two for one.

Michael Mosticchio: Dickstein before beginning approximately one hour. After this broadcast thank you all for joining today's call.

Michael Mosticchio: Yeah.

Michael Mosticchio: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.