Announces Permanent Management Fee Reduction LOS ANGELES, April 30, 2024 (GLOBE NEWSWIRE) -- Oaktree Specialty Lending Corporation (NASDAQ:OCSL) ("Oaktree Specialty Lending" or the "Company"), a specialty finance company, today announced its financial results for the fiscal quarter ended March 31, 2024. Financial Highlights for the Quarter Ended March 31, 2024   Total investment income was $94.0 million ($1.18 per share) for the second fiscal quarter of 2024, as compared with $98.0 million ($1.26 per share) for the first fiscal quarter of 2024. The decrease was primarily driven by purchase premium acceleration from the repayment of certain investments acquired in the mergers with Oaktree Strategic Income Corporation ("OCSI") and Oaktree Strategic Income II, Inc. ("OSI2"). Adjusted total investment income was $97.3 million ($1.22 per share) for the second fiscal quarter, as compared with $98.0 million ($1.26 per share) for the first fiscal quarter of 2024. The decrease was primarily driven by lower interest income from the timing of capital deployment and spread compression primarily resulting from the rotation out of second lien and subordinated investments. This was partially offset by higher fee income and higher original issue discount ("OID") acceleration from investment repayments. GAAP net investment income was $41.4 million ($0.52 per share) for the second fiscal quarter of 2024, as compared with $44.2 million ($0.57 per share) for the first fiscal quarter of 2024. The decrease for the quarter was primarily driven by lower total investment income, partially offset by lower part I incentive fees, professional fees and interest expense. Adjusted net investment income was $44.7 million ($0.56 per share) for the second fiscal quarter of 2024, as compared with $44.2 million ($0.57 per share) for the first fiscal quarter of 2024. The increase for the quarter was primarily driven by lower part I incentive fees, professional fees and interest expense, partially offset by lower adjusted total investment income. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding. Net asset value ("NAV") per share was $18.72 as of March 31, 2024, down as compared with $19.14 as of December 31, 2023. The decline from December 31, 2023 primarily reflected realized and unrealized losses on certain debt and equity investments. Originated $395.6 million of new investment commitments and received $322.6 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended March 31, 2024. The weighted average yield on new debt investments was 11.1%. Total debt outstanding was $1,680.0 million as of March 31, 2024. The total debt to equity ratio was 1.10x, and the net debt to equity ratio was 1.02x, after adjusting for cash and cash equivalents. Liquidity as of March 31, 2024 was composed of $125.0 million of unrestricted cash and cash equivalents and $887.5 million of undrawn capacity under the Company's credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $236.2 million, or $209.1 million excluding unfunded commitments to the Company's joint ventures. Of the $209.1 million, approximately $179.0 million can be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies or other restrictions. A quarterly cash distribution was declared of $0.55 per share. The distribution is payable in cash on June 28, 2024 to stockholders of record on June 14, 2024. Waived additional base management fees such that the total amount of waived base management fees (including those previously waived) will be $1.5 million for each of the three months ended March 31, 2024 and June 30, 2024. Announced a permanent reduction in the base management fee, effective as of July 1, 2024, to an annual rate of 1.00% of total gross assets, including any investment made with borrowings, but excluding cash and cash equivalents, net of all other existing waivers of the base management fee, including the waiver set forth in the A&R Advisory Agreement.       Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, "We generated strong portfolio activity in our fiscal second quarter that drove a continued shift in our investment composition toward first lien loans. During the quarter, we identified and sourced $396 million of new investment commitments across private and public markets while also realizing $323 million of repayments and sales, including $109 million of junior positions. We also made progress repositioning several underperforming investments, achieving key milestones aimed at enhancing recoveries." "We also announced a permanent reduction in the base management fee from 1.50% to 1.00% of assets, net of existing base management fee waivers," Mr. Panossian added. "We believe this permanent change to our fee structure demonstrates Oaktree's strong commitment to aligning its interests with shareholders. We have successfully grown OCSL since taking over as its investment advisor and this reduction in fees means that a larger portion of our investment income will flow to our shareholders. Today's announcement significantly enhances our earnings power and reinforces our dedication to maximizing shareholder value over the long term." Distribution Declaration The Board of Directors declared a quarterly distribution of $0.55 per share. The distribution is payable in cash on June 28, 2024 to stockholders of record on June 14, 2024. Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company's stockholders. Results of Operations     For the three months ended ($ in thousands, except per share data)   March 31, 2024(unaudited)   December 31, 2023(unaudited)   March 31, 2023(unaudited) GAAP operating results:             Interest income   $ 85,256     $ 91,414     $ 88,745   PIK interest income     4,816       3,849       4,123   Fee income     2,546       1,307       2,380   Dividend income     1,411       1,415       1,054   Total investment income     94,029       97,985       96,302   Net expenses     52,662       53,796       50,324   Net investment income     41,367       44,189       45,978   Net realized and unrealized gains (losses), net of taxes     (32,030 )     (33,654 )     (24,456 ) Net increase (decrease) in net assets resulting from operations   $ 9,337     $ 10,535     $ 21,522   Total investment income per common share   $ 1.18     $ 1.26     $ 1.32   Net investment income per common share   $ 0.52     $ 0.57     $ 0.63   Net realized and unrealized gains (losses), net of taxes per common share   $ (0.40 )   $ (0.43 )   $ (0.34 ) Earnings (loss) per common share — basic and diluted   $ 0.12     $ 0.14     $ 0.29   Non-GAAP Financial Measures1:             Adjusted total investment income   $ 97,340     $ 98,014     $ 95,741   Adjusted net investment income   $ 44,678     $ 44,218     $ 45,417   Adjusted net realized and unrealized gains (losses), net of taxes   $ (35,344 )   $ (32,858 )   $ (3,501 ) Adjusted earnings (loss)   $ 9,334     $ 11,360     $ 41,916   Adjusted total investment income per share   $ 1.22     $ 1.26     $ 1.31   Adjusted net investment income per share   $ 0.56     $ 0.57     $ 0.62   Adjusted net realized and unrealized gains (losses), net of taxes per share   $ (0.44 )   $ (0.42 )   $ (0.05 ) Adjusted earnings (loss) per share   $ 0.12     $ 0.15     $ 0.57   ______________________1 See Non-GAAP Financial Measures below for a description of the non-GAAP measures and the reconciliations from the most comparable GAAP financial measures to the Company's non-GAAP measures, including on a per share basis. The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company's performance without giving effect to non-cash income/gain/loss resulting from the merger of OCSI with and into the Company in March 2021 (the "OCSI Merger") and the merger of OSI2 with and into the Company in January 2023 (the "OSI2 Merger") and, in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation.     As of ($ in thousands, except per share data and ratios)   March 31, 2024(unaudited)   December 31, 2023(unaudited)   March 31, 2023(unaudited) Select balance sheet and other data:             Cash and cash equivalents   $ 125,031   $ 112,369   $ 43,750 Investment portfolio at fair value     3,047,445     3,018,552     3,164,860 Total debt outstanding (net of unamortized financing costs)     1,635,642     1,622,717     1,723,840 Net assets     1,524,099     1,511,651     1,515,150 Net asset value per share     18.72     19.14     19.66 Total debt to equity ratio   1.10x   1.10x   1.16x Net debt to equity ratio   1.02x   1.02x   1.14x Adjusted total investment income for the quarter ended March 31, 2024 was $97.3 million and included $88.6 million of interest income from portfolio investments, $4.8 million of payment-in-kind ("PIK") interest income, $2.5 million of fee income and $1.4 million of dividend income. The $0.7 million decline in adjusted total investment income was attributable to $1.9 million of lower interest income, mainly the result of the timing of capital deployment and spread compression primarily resulting from the rotation out of second lien positions. This was partially offset by a $1.2 million increase in fee income mainly driven by prepayment and amendment fees. Net expenses for the quarter ended March 31, 2024 totaled $52.7 million, down $1.1 million from the quarter ended December 31, 2023. The decrease in net expenses was primarily driven by lower part I incentive fees, professional fees and interest expense during the quarter. Adjusted net investment income was $44.7 million ($0.56 per share) for the quarter ended March 31, 2024, as compared to $44.2 million ($0.57 per share) for the quarter ended December 31, 2023. The increase for the quarter was primarily driven by $1.1 of lower part I incentive fees, professional fees and interest expense, partially offset by $0.7 million of lower adjusted total investment income. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding. Adjusted net realized and unrealized losses, net of taxes, was $35.3 million for the quarter ended March 31, 2024, primarily reflecting realized and unrealized losses on certain debt and equity investments. Portfolio and Investment Activity     As of ($ in thousands)   March 31, 2024(unaudited)   December 31, 2023(unaudited)   March 31, 2023(unaudited) Investments at fair value   $ 3,047,445     $ 3,018,552     $ 3,164,860   Number of portfolio companies     151       146       165   Average portfolio company debt size   $ 20,100     $ 20,200     $ 18,800                 Asset class:             First lien debt     80.8 %     77.9 %     75.0 % Second lien debt     5.4 %     8.4 %     13.0 % Unsecured debt     2.6 %     2.5 %     1.9 % Equity     4.8 %     4.8 %     4.1 % JV interests     6.4 %     6.4 %     6.0 %               Non-accrual debt investments:             Non-accrual investments at fair value   $ 69,128     $ 120,713     $ 73,424   Non-accrual investments at cost   $ 127,720     $ 174,897     $ 76,938   Non-accrual investments as a percentage of debt investments at fair value     2.4 %     4.2 %     2.4 % Non-accrual investments as a percentage of debt investments at cost     4.3 %     5.9 %     2.5 % Number of investments on non-accrual     5       7       2                 Interest rate type:             Percentage floating-rate     85.4 %     84.3 %     87.9 % Percentage fixed-rate     14.6 %     15.7 %     12.1 %               Yields:             Weighted average yield on debt investments1     12.2 %     12.2 %     11.9 % Cash component of weighted average yield on debt investments     11.0 %     11.1 %     10.9 % Weighted average yield on total portfolio investments2     11.7 %     11.7 %     11.5 %               Investment activity:             New investment commitments   $ 395,600     $ 370,300     $ 123,800   New funded investment activity3   $ 377,400     $ 367,600     $ 103,600   Proceeds from prepayments, exits, other paydowns and sales   $ 322,600     $ 213,500     $ 162,100   Net new investments4   $ 54,800     $ 154,100     $ (58,500 ) Number of new investment commitments in new portfolio companies     20       14       6   Number of new investment commitments in existing portfolio companies     15       10       3   Number of portfolio company exits     15       10       5   ______________________1 Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments, including the Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see Non-GAAP Financial Measures below) for the assets acquired in connection with the OCSI Merger and OSI2 Merger.2 Annual stated yield earned plus net annual amortization of OID or premium earned on accruing investments and dividend income, including the Company's share of the return on debt investments in SLF JV I and Glick JV, and excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 for the assets acquired in connection with the OCSI Merger and OSI2 Merger.3 New funded investment activity includes drawdowns on existing revolver and delayed draw term loan commitments.4 Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales. As of March 31, 2024, the fair value of the investment portfolio was $3.0 billion and was composed of investments in 151 companies. These included debt investments in 135 companies, equity investments in 42 companies, and the Company's joint venture investments in SLF JV I and OCSI Glick JV LLC ("Glick JV"). 28 of the equity investments were in companies in which the Company also had a debt investment. As of March 31, 2024, 94.2% of the Company's portfolio at fair value consisted of debt investments, including 80.8% of first lien loans, 5.4% of second lien loans and 7.9% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV. This compared to 77.9% of first lien loans, 8.4% of second lien loans and 7.9% of unsecured debt investments, including the debt investments in SLF JV I and Glick JV, as of December 31, 2023. As of March 31, 2024, there were five investments on non-accrual status, which represented 4.3% and 2.4% of the debt portfolio at cost and fair value, respectively. This is down from seven investments on non-accrual status in the prior quarter, which represented 5.9% and 4.2% of the debt portfolio at cost and fair value, respectively. SLF JV I The Company's investments in SLF JV I totaled $142.3 million at fair value as of March 31, 2024, up slightly as compared to $142.2 million as of December 31, 2023. As of March 31, 2024, SLF JV I had $398.7 million in assets, including senior secured loans to 54 portfolio companies. This compared to $372.8 million in assets, including senior secured loans to 52 portfolio companies, as of December 31, 2023. SLF JV I generated cash interest income of $3.5 million for the Company during the quarter ended March 31, 2024, down slightly as compared to $3.6 million in the prior quarter. In addition, SLF JV I generated dividend income of $1.4 million for the Company during the quarter ended March 31, 2024, consistent with the prior quarter. As of March 31, 2024, SLF JV I had $80.0 million of undrawn capacity (subject to borrowing base and other limitations) on its $270 million senior revolving credit facility, and its debt to equity ratio was 1.3x. Glick JV The Company's investments in Glick JV totaled $51.3 million at fair value as of March 31, 2024, up 0.6% from $51.0 million as of December 31, 2023. The increase was primarily driven by Glick JV I's use of leverage and unrealized appreciation in the underlying investment portfolio. As of March 31, 2024, Glick JV had $154.7 million in assets, including senior secured loans to 49 portfolio companies. This compared to $139.2 million in assets, including senior secured loans to 42 portfolio companies, as of December 31, 2023. Glick JV generated cash interest income of $1.5 million during the quarter ended March 31, 2024, consistent with the prior quarter. As of March 31, 2024, Glick JV had $6.0 million of undrawn capacity (subject to borrowing base and other limitations) on its $80 million senior revolving credit facility, and its debt to equity ratio was 1.4x. Liquidity and Capital Resources As of March 31, 2024, the Company had total principal value of debt outstanding of $1,680.0 million, including $730.0 million of outstanding borrowings under its revolving credit facilities, $300.0 million of the 3.500% Notes due 2025, $350.0 million of the 2.700% Notes due 2027 and $300.0 million of the 7.100% Notes due 2029. The funding mix was composed of 43% secured and 57% unsecured borrowings as of March 31, 2024. The Company was in compliance with all financial covenants under its credit facilities as of March 31, 2024. As of March 31, 2024, the Company had $125.0 million of unrestricted cash and cash equivalents and $887.5 million of undrawn capacity on its credit facilities (subject to borrowing base and other limitations). As of March 31, 2024, unfunded investment commitments were $236.2 million, or $209.1 million excluding unfunded commitments to the Company's joint ventures. Of the $209.1 million, approximately $179.0 million could be drawn immediately with the remaining amount subject to certain milestones that must be met by portfolio companies or other restrictions. The Company has analyzed cash and cash equivalents, availability under its credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believes its liquidity and capital resources are sufficient to invest in market opportunities as they arise. As of March 31, 2024, the weighted average interest rate on debt outstanding, including the effect of the interest rate swap agreements, was 7.0%, unchanged from the prior quarter. The Company's total debt to equity ratio was 1.10x as of each of March 31, 2024 and December 31, 2023. The Company's net debt to equity ratio was 1.02x as of each of March 31, 2024 and December 31, 2023, respectively. Non-GAAP Financial Measures On a supplemental basis, the Company is disclosing certain adjusted financial measures, each of which is calculated and presented on a basis of methodology other than in accordance with GAAP ("non-GAAP"). The Company's management uses these non-GAAP financial measures internally to analyze and evaluate financial results and performance and believes that these non-GAAP financial measures are useful to investors as an additional tool to evaluate ongoing results and trends for the Company and to review the Company's performance without giving effect to non-cash income/gain/loss resulting from the OCSI Merger and the OSI2 Merger and in the case of adjusted net investment income, without giving effect to capital gains incentive fees. The presentation of the below non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. "Adjusted Total Investment Income" and "Adjusted Total Investment Income Per Share" – represents total investment income excluding any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the OCSI Merger and the OSI2 Merger. "Adjusted Net Investment Income" and "Adjusted Net Investment Income Per Share" – represents net investment income, excluding (i) any amortization or accretion of interest income resulting solely from the cost basis established by ASC 805 (see below) for the assets acquired in connection with the OCSI Merger and the OSI2 Merger and (ii) capital gains incentive fees ("Part II incentive fees"). "Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes" and "Adjusted Net Realized and Unrealized Gains (Losses), Net of Taxes Per Share" – represents net realized and unrealized gains (losses) net of taxes excluding any net ...