8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 10, 2020

 

 

Oaktree Strategic Income Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   814-01013   61-1713295

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

333 South Grand Avenue, 28th Floor

Los Angeles, CA

  90071
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (213) 830-6300

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Common stock, par value $0.01 per share    OCSI    The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging Growth Company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On August 10, 2020, Oaktree Strategic Income Corporation (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.

On August 10, 2020, the Company will host a conference call to discuss its financial results for the fiscal quarter ended June 30, 2020. In connection therewith, the Company provided an investor presentation on its website at http://www.oaktreestrategicincome.com. A copy of the investor presentation is attached hereto as Exhibit 99.2.

The information disclosed under this Item 2.02, including Exhibits 99.1 and 99.2 hereto, is being “furnished” and is not deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor is it deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

 

(d)

Exhibits

 

99.1    Press release of Oaktree Strategic Income Corporation dated August 10, 2020
99.2    Oaktree Strategic Income Corporation Third Quarter 2020 Earnings Presentation


SIGNATURE

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    OAKTREE STRATEGIC INCOME CORPORATION
Date: August 10, 2020     By:  

/s/ Mel Carlisle

      Name:   Mel Carlisle
      Title:   Chief Financial Officer and Treasurer
EX-99.1

Exhibit 99.1

 

LOGO

Oaktree Strategic Income Corporation Announces Third Fiscal Quarter 2020 Financial Results and Declares Distribution of $0.125 Per Share

LOS ANGELES, CA, August 10, 2020 - Oaktree Strategic Income Corporation (NASDAQ: OCSI) (“Oaktree Strategic Income” or the “Company”), a specialty finance company, today announced its financial results for the fiscal quarter ended June 30, 2020.

Financial Highlights for the Quarter Ended June 30, 2020

 

   

Net asset value (“NAV”) per share was $8.47 as of June 30, 2020, up more than 18% from $7.17 as of March 31, 2020. The increase in NAV was primarily attributable to unrealized gains resulting from price increases on liquid debt investments following the improvement in broader credit market conditions.

 

   

Total investment income was $8.6 million ($0.29 per share) for the third fiscal quarter of 2020, down from $10.3 million ($0.35 per share) for the second fiscal quarter of 2020, primarily reflecting lower interest income due to lower LIBOR, a smaller overall portfolio size and lower original issue discount (“OID”) acceleration income, as well as lower fee income.

 

   

Net investment income was $3.2 million ($0.11 per share) for the third fiscal quarter of 2020, as compared with $4.6 million ($0.15 per share) for the second fiscal quarter of 2020, primarily driven by lower investment income, partially offset by lower interest expense resulting from lower LIBOR.

 

   

Originated $41.6 million of new investment commitments and received $90.7 million of proceeds from prepayments, exits, other paydowns and sales during the quarter ended June 30, 2020. Of these new investment commitments, 100.0% were first lien loans. The weighted average yield on new investments was 9.5%.

 

   

Total debt outstanding was $312.2 million as of June 30, 2020. The total debt to equity ratio was 1.25x, and the net debt to equity ratio was 1.13x, after adjusting for cash and cash equivalents.

 

   

Liquidity as of June 30, 2020 was composed of $30.1 million of unrestricted cash and cash equivalents and $92.8 million of undrawn capacity on its credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $31.6 million, or $17.6 million when excluding unfunded commitments to the OCSI Glick JV, with approximately $9.1 million that can be drawn immediately. The remaining $8.5 million is subject to certain milestones that must be met by one of the Company’s portfolio companies.

 

   

A quarterly cash distribution was declared of $0.125 per share, payable on September 30, 2020 to stockholders of record on September 15, 2020.

Armen Panossian, Chief Executive Officer and Chief Investment Officer, said, “OCSI’s quarter was highlighted by a strong rebound in NAV and a solid level of originations. Following an improvement in credit market conditions, NAV increased by more than 18 percent, and the overall credit quality of the mostly first lien investment portfolio remains sound amid the uncertain economic environment. While we modestly reduced the overall size of the portfolio during the quarter, OCSI was able to leverage Oaktree’s opportunistic credit platform to originate $42 million of new investment commitments at attractive yields. Importantly, we remain well-positioned with a solid balance sheet and ample liquidity to meet our funding needs during this period of uncertainty.”

Distribution Declaration

The Board of Directors declared a quarterly distribution of $0.125 per share, payable on September 30, 2020 to stockholders of record on September 15, 2020.

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.

 

1


Results of Operations

 

     For the three months ended  
     June 30, 2020
(unaudited)
     March 31, 2020
(unaudited)
     June 30, 2019
(unaudited)
 

Operating results:

        

Interest income

   $ 7,783,459    $ 9,665,605    $ 13,521,604

PIK interest income

     744,122      296,894      2,838

Fee income

     108,580      380,114      284,081
  

 

 

    

 

 

    

 

 

 

Total investment income

     8,636,161      10,342,613      13,808,523

Net expenses

     5,467,652      5,780,838      7,890,136
  

 

 

    

 

 

    

 

 

 

Net investment income

     3,168,509      4,561,775      5,918,387

Net realized and unrealized gains (losses)

     38,990,006      (74,777,439      (2,435,487
  

 

 

    

 

 

    

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 42,158,515    $ (70,215,664    $ 3,482,900
  

 

 

    

 

 

    

 

 

 

Net investment income per common share

   $ 0.11    $ 0.15    $ 0.20

Net realized and unrealized gains (losses) per common share

   $ 1.32    $ (2.53    $ (0.08

Earnings (loss) per common share — basic and diluted

   $ 1.43    $ (2.38    $ 0.12
  

 

 

    

 

 

    

 

 

 

 

     As of  
     June 30, 2020
(unaudited)
     March 31, 2020
(unaudited)
     September 30, 2019  

Select balance sheet and other data:

 

Cash and cash equivalents

   $ 30,102,649    $ 21,931,375    $ 5,646,899

Investment portfolio at fair value

     506,452,244      524,379,311      597,104,447

Total debt outstanding

     312,156,800      327,156,800      294,656,800

Net assets

     249,709,066      211,233,898      284,450,006

Net asset value per share

     8.47      7.17      9.65

Total debt to equity ratio

     1.25      1.55      1.04

Net debt to equity ratio

     1.13      1.44      1.02

Total investment income for the quarter ended June 30, 2020 was $8.6 million and included $7.8 million of interest income from portfolio investments, $0.7 million of payment-in-kind (“PIK”) interest income and $0.1 million of fee income. Total investment income was $1.7 million lower as compared to the quarter ended March 31, 2020, primarily reflecting lower interest income due to lower LIBOR, a smaller overall portfolio size and lower OID acceleration income, as well as lower fee income.

Net expenses for the quarter totaled $5.5 million, down $0.3 million from the quarter ended March 31, 2020. This was primarily attributable to a $0.5 million decrease in interest expense due to lower LIBOR, offset by a $0.3 million increase in Part I incentive fees.

Net investment income was $3.2 million ($0.11 per share) for the third fiscal quarter of 2020, as compared with $4.6 million ($0.15 per share) for the second fiscal quarter of 2020.

Net realized and unrealized gains on the investment portfolio for the quarter were $39.0 million and were primarily attributable to an increase in the prices of certain liquid debt investments and tighter credit spreads resulting from the improvement in broader credit market conditions during the quarter.

 

2


Portfolio and Investment Activity

 

     As of  

($ in thousands)

   June 30, 2020
(unaudited)
    March 31, 2020
(unaudited)
    June 30, 2019
(unaudited)
 

Investments at fair value

   $ 506,452   $ 524,379   $ 588,582

Number of portfolio companies

     76     88     82

Average portfolio company debt size

   $ 6,700   $ 6,000   $ 7,300

Asset class:

      

Senior secured debt

     90.9     92.8     90.5

OCSI Glick JV

     9.1     7.2     9.5

Non-accrual debt investments:

      

Non-accrual investments at fair value

   $ 47,874   $ 37,834   $ —  

Non-accrual investments as a percentage of debt investments

     9.5     7.2     —  

Number of investments on non-accrual

     2     1     1

Interest rate type:

      

Percentage floating-rate

     98.7     100.0     100.0

Percentage fixed-rate

     1.3     —       —  

Yields:

      

Weighted average yield on debt investments1

     5.9     6.0     7.8

Weighted average yield on debt investments (excluding the OCSI Glick JV)2

     6.5     6.5     7.6

Cash component of weighted average yield on debt investments

     5.1     5.5     7.6

Weighted average yield on total portfolio investments3

     5.9     6.0     7.8

Investment activity:

      

New investment commitments

   $ 41,600   $ 93,900   $ 38,800

New funded investment activity4

   $ 34,900   $ 101,300   $ 41,300

Proceeds from prepayments, exits, other paydowns and sales

   $ 90,700   $ 83,800   $ 43,000

Net new investments5

   $ (55,800   $ 17,500   $ (1,700

Number of new investment commitments in new portfolio companies

     7     18     5

Number of new investment commitments in existing portfolio companies

     2     9     4

Number of portfolio company exits

     19     14     4

 

1

Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including the Company’s share of the return on debt investments in the OCSI Glick JV.

2 

Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, excluding the Company’s share of the return on debt investments in the OCSI Glick JV.

3 

Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including the Company’s share of the return on debt investments in the OCSI Glick JV.

4 

New funded investment activity includes drawdowns on existing revolver commitments.

5 

Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.

As of June 30, 2020, the fair value of the Company’s investment portfolio was $506.5 million and was composed of investments in 76 companies, including the OCSI Glick JV.

As of June 30, 2020, 90.9% of the Company’s portfolio at fair value consisted of senior secured debt investments, including 88.4% of first liens and 2.5% of second liens, and 9.1% was related to a subordinated note investment in the OCSI Glick JV.

As of June 30, 2020, non-accruals represented 12.4% of the debt portfolio at cost and 9.5% at fair value. For the quarter ended June 30, 2020, the Company placed one new investment on non-accrual status, which represented 0.5% and 0.4% of the debt portfolio at cost and fair value, respectively.

The Company’s investments in the OCSI Glick JV totaled $46.0 million at fair value as of June 30, 2020, up 21% from $37.8 million as of March 31, 2020. The sequential increase in the value of the Company’s investments in the OCSI Glick JV was primarily driven by unrealized appreciation in the underlying investment portfolio resulting from the broader market recovery during the quarter and the OCSI Glick JV’s use of leverage. The Company’s investment in the OCSI Glick JV remained on non-accrual status as of June 30, 2020. While the Company did not recognize income from the OCSI Glick JV during the quarter, the underlying OCSI Glick JV portfolio generated net investment income of $1.1 million. Following quarter-end, the OCSI Glick JV used these proceeds to make a $1.1 million repayment of outstanding principal on the subordinated notes, of which $1.0 million was paid to the Company.

 

3


As of June 30, 2020, the OCSI Glick JV had $143.3 million in assets, including senior secured loans to 41 portfolio companies. As of June 30, 2020, two investments held by the OCSI Glick JV were on non-accrual status, which represented 4.4% of the OCSI Glick JV portfolio at cost and 1.6% at fair value, respectively. As of June 30, 2020, OCSI Glick JV had $11.3 million of undrawn capacity (subject to borrowing base and other limitations) on its senior revolving credit facility.

Liquidity and Capital Resources

As of June 30, 2020, the Company had total principal value of debt outstanding of $312.2 million under its credit facilities. The Company was in compliance with all financial covenants under its credit facilities as of June 30, 2020.

As of June 30, 2020, the Company had $30.1 million of unrestricted cash and cash equivalents and $92.8 million of undrawn capacity on its credit facilities (subject to borrowing base and other limitations). Unfunded investment commitments were $31.6 million, or $17.6 million when excluding unfunded investment commitments to the OCSI Glick JV, with approximately $9.1 million that can be drawn immediately. The remaining $8.5 million is subject to certain milestones that must be met by one of the Company’s portfolio companies. 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 believe its liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate.

As of June 30, 2020, the weighted average interest rate on debt outstanding was 3.0%, down from 3.8% as of March 31, 2020, primarily reflecting the decline in LIBOR during the quarter.

The Company’s total debt to equity ratio was 1.25x and 1.55x as of June 30, 2020 and March 31, 2020, respectively. The Company’s net debt to equity ratio was 1.13x and 1.44x as of June 30, 2020 and March 31, 2020, respectively.

Conference Call Information

Oaktree Strategic Income will host a conference call to discuss its first fiscal quarter results at 12:30 p.m. Eastern Time / 9:30 a.m. Pacific Time on August 10, 2020. The conference call may be accessed by dialing (877) 507-4376 (U.S. callers) or +1 (412) 317-5239 (non-U.S. callers), participant password “Oaktree Strategic Income.” Alternatively, a live webcast of the conference call can be accessed on Oaktree Strategic Income’s website, www.oaktreestrategicincome.com. During the earnings conference call, the Company intends to refer to an investor presentation that will be available on the Investors section of its website.

For those individuals unable to listen to the live broadcast of the conference call, a replay will be available on Oaktree Strategic Income’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10145870, beginning approximately one hour after the broadcast.

About Oaktree Strategic Income Corporation

Oaktree Strategic Income Corporation (NASDAQ:OCSI) is a specialty finance company dedicated to providing customized capital solutions for middle-market companies in both the syndicated and private placement markets. The Company’s investment objective is to generate a stable source of current income while minimizing the risk of principal loss and, to a lesser extent, capital appreciation by providing innovative first-lien financing solutions to companies across a wide variety of industries. The Company is regulated as a business development company under the Investment Company Act of 1940, as amended, and is externally managed by Oaktree Fund Advisors, LLC, an affiliate of Oaktree Capital Management, L.P. For additional information, please visit Oaktree Strategic Income’s website at www.oaktreestrategicincome.com.

 

4


Forward-Looking Statements

Some of the statements in this press release constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements may include statements as to: our future operating results and distribution projections; our business prospects and the prospects of our portfolio companies; and the impact of the investments that we expect to make. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this press release involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K and our quarterly reports on Form 10-Q. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; general considerations associated with the COVID-19 pandemic; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Contacts

Investor Relations:

Oaktree Strategic Income Corporation

Michael Mosticchio

(212) 284-1900

ocsi-ir@oaktreecapital.com

Media Relations:

Financial Profiles, Inc.

Moira Conlon

(310) 478-2700

mediainquiries@oaktreecapital.com

 

5


Oaktree Strategic Income Corporation

Consolidated Statements of Assets and Liabilities

 

     June 30, 2020
(unaudited)
    March 31, 2020
(unaudited)
    September 30,
2019
 
ASSETS       

Investments at fair value:

      

Control investments (cost June 30, 2020: $73,157,302; cost March 31, 2020: $73,157,303; cost September 30, 2019: $73,189,664)

   $ 45,959,183   $ 37,833,930   $ 54,326,418

Non-control/Non-affiliate investments (cost June 30, 2020: $486,882,953; cost March 31, 2020: $546,774,334; cost September 30, 2019: $553,679,070)

     460,493,061     486,545,381     542,778,029
  

 

 

   

 

 

   

 

 

 

Total investments at fair value (cost June 30, 2020: $560,040,255; cost March 31, 2020: $619,931,637; cost September 30, 2019: $626,868,734)

     506,452,244     524,379,311     597,104,447

Cash and cash equivalents

     30,102,649     21,931,375     5,646,899

Restricted cash

     7,792,996     9,321,466     8,404,733

Interest, dividends and fees receivable

     1,940,633     1,489,472     3,813,730

Due from portfolio companies

     556,404     539,587     350,597

Receivables from unsettled transactions

     29,207,404     28,775,575     5,091,671

Deferred financing costs

     2,010,442     2,308,557     2,139,299

Deferred offering costs

     101,846     —         —    

Derivative asset at fair value

     281,117     316,967     20,876

Other assets

     879,067     731,202     761,462
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 579,324,802   $ 589,793,512   $ 623,333,714
    

 

 

   

 

 

 
LIABILITIES AND NET ASSETS

 

Liabilities:

      

Accounts payable, accrued expenses and other liabilities

   $ 1,312,049   $ 1,569,469   $ 901,410

Base management fee and incentive fee payable

     1,641,920     1,442,121     1,368,431

Due to affiliate

     1,136,158     1,041,237     1,457,007

Interest payable

     1,983,791     2,532,742     2,750,587

Payables from unsettled transactions

     11,385,018     44,817,245     37,724,473

Director fees payable

     —         —         25,000

Credit facilities payable

     312,156,800     327,156,800     294,656,800
  

 

 

   

 

 

   

 

 

 

Total liabilities

     329,615,736     378,559,614     338,883,708

Commitments and contingencies

      

Net assets:

      

Common stock, $0.01 par value per share, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding as of June 30, 2020, March 31, 2020 and September 30, 2019

     294,668     294,668     294,668

Additional paid-in-capital

     369,199,332     369,199,332     369,199,332

Accumulated overdistributed earnings

     (119,784,934     (158,260,102     (85,043,994
  

 

 

   

 

 

   

 

 

 

Total net assets (equivalent to $8.47, $7.17 and $9.65 per common share as of June 30, 2020, March 31, 2020 and September 30, 2019, respectively)

     249,709,066     211,233,898     284,450,006
  

 

 

   

 

 

   

 

 

 

Total liabilities and net assets

   $ 579,324,802   $ 589,793,512   $ 623,333,714
  

 

 

   

 

 

   

 

 

 

 

6


Oaktree Strategic Income Corporation

Consolidated Statements of Operations

(unaudited)

 

     Three months
ended

June 30, 2020
    Three months
ended

March 31, 2020
    Three months
ended

June 30, 2019
    Nine months
ended

June 30, 2020
    Nine months
ended

June 30, 2019
 

Interest income:

          

Control investments

   $ —     $ —     $ 1,486,149   $ 1,436,726   $ 4,444,357

Non-control/Non-affiliate investments

     7,780,962     9,638,008     11,984,332     27,163,419     32,404,578

Interest on cash and cash equivalents

     2,497     27,597     51,123     60,804     170,250
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     7,783,459     9,665,605     13,521,604     28,660,949     37,019,185
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PIK interest income:

          

Non-control/Non-affiliate investments

     744,122     296,894     2,838     1,044,579     16,587
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total PIK interest income

     744,122     296,894     2,838     1,044,579     16,587
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fee income:

          

Non-control/Non-affiliate investments

     108,580     380,114     284,081     876,359     513,522
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

     108,580     380,114     284,081     876,359     513,522
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     8,636,161     10,342,613     13,808,523     30,581,887     37,549,294
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Base management fee

     1,374,962     1,442,121     1,497,711     4,322,609     4,363,871

Part I incentive fee

     266,935     271,520     1,294,691     1,530,593     3,245,213

Professional fees

     243,949     263,188     397,365     880,323     1,231,578

Directors fees

     105,000     105,000     105,000     315,000     315,278

Interest expense

     2,995,323     3,477,099     3,860,478     9,899,313     10,854,962

Administrator expense

     217,964     229,039     224,328     696,917     890,228

General and administrative expenses

     263,519     264,391     325,656     801,389     941,220
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5,467,652     6,052,358     7,705,229     18,446,144     21,842,350

Reversal of fees waived / (fees waived)

     —         (271,520     184,907     (322,121     (291,740
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

     5,467,652     5,780,838     7,890,136     18,124,023     21,550,610
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     3,168,509     4,561,775     5,918,387     12,457,864     15,998,684
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized appreciation (depreciation):

          

Control investments

     8,125,254     (16,325,059     (355,315     (8,334,873     (2,585,573

Non-control/Non-affiliate investments

     33,839,061     (51,578,952     (2,132,068     (15,488,851     (10,912,918

Foreign currency forward contract

     (35,850     485,679     (106,334     260,241     (58,439
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized appreciation (depreciation)

     41,928,465     (67,418,332     (2,593,717     (23,563,483     (13,556,930
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized gains (losses):

          

Non-control/Non-affiliate investments

     (2,938,459     (7,334,148     (125,517     (10,549,832     1,244,015

Foreign currency forward contract

     —         (24,959     283,747     (267,444     291,867
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gains (losses)

     (2,938,459     (7,359,107     158,230     (10,817,276     1,535,882
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses)

     38,990,006     (74,777,439     (2,435,487     (34,380,759     (12,021,048
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

   $ 42,158,515   $ (70,215,664   $ 3,482,900   $ (21,922,895   $ 3,977,636
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income per common share — basic and diluted

   $ 0.11   $ 0.15   $ 0.20   $ 0.42   $ 0.54

Earnings (loss) per common share — basic and diluted

   $ 1.43   $ (2.38   $ 0.12   $ (0.74   $ 0.13

Weighted average common shares outstanding — basic and diluted

     29,466,768     29,466,768     29,466,768     29,466,768     29,466,768

 

7

EX-99.2

Slide 0

Third Quarter Fiscal Year 2020 Earnings Presentation August 10, 2020 Nasdaq: OCSI Exhibit 99.2


Slide 1

Forward Looking Statements Some of the statements in this presentation constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this presentation may include statements as to: our future operating results and distribution projections; the ability of Oaktree Fund Advisors, LLC (“Oaktree”) to reposition our portfolio and to implement Oaktree’s future plans with respect to our business; the ability of Oaktree and its affiliates to attract and retain highly talented professionals; our business prospects and the prospects of our portfolio companies; the impact of the investments that we expect to make; the ability of our portfolio companies to achieve their objectives; our expected financings and investments and additional leverage we may seek to incur in the future; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our portfolio companies; and the cost or potential outcome of any litigation to which we may be a party. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this presentation involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K for the fiscal year ended September 30, 2019 and our quarterly report on Form 10-Q for the quarter ended June 30, 2020. Other factors that could cause actual results to differ materially include: changes or potential disruptions in our operations, the economy, financial markets or political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; general considerations associated with the COVID-19 pandemic; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings. We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Unless otherwise indicated, data provided herein are dated as of June 30, 2020.


Slide 2

Summary of Results for the Quarter Ended June 30, 2020 Net Asset Value $8.47 per share as of June 30, 2020, up 18% as compared to $7.17 per share as of March 31, 2020 Increase primarily due to unrealized gains resulting from price increases on liquid debt investments Net Investment Income $0.11 per share as of June 30, 2020, as compared to $0.15 for the quarter ended March 31, 2020 Decline primarily attributable to lower interest income due to lower LIBOR, a smaller overall portfolio size, lower original issue discount income acceleration from repayments, as well as lower fee income Dividend Declared a cash distribution of $0.125 per share, payable on September 30, 2020 to stockholders of record as of September 15, 2020 Consistent with prior quarter distribution Investment Portfolio $506 million investment portfolio at fair value diversified across 76 portfolio companies 88.4% first lien, 2.5% second lien, 9.1% investments in OCSI Glick JV Excluding OCSI Glick JV, non-accruals represented 0.4% of the debt portfolio at fair value in one investment1 Investment Activity $42 million of new investment commitments across 9 companies; 100% first lien 9.5% weighted average yield on new investment commitments Received $91 million of proceeds from prepayments, exits, other paydowns and sale, primarily driven by active sales in order to reduce risk and exit lower yielding investments Capital Structure & Liquidity $312 million of total debt outstanding as of June 30, 2020, as compared to $327 million as of March 31, 2020 1.25x total debt to equity; 1.13x net debt to equity Liquidity was composed of $30 million of unrestricted cash and $93 million of undrawn capacity on credit facilities2 $18 million of unfunded commitments, with approximately $9 million that can be drawn immediately3 1Excludes OCSI’s investment in OCSI Glick JV LLC (“Glick JV”), a joint venture that invests primarily in middle market and other corporate debt securities, which was restructured during the quarter ended March 31, 2020 and placed on non-accrual status. Including the Glick JV, non-accruals represented 9.5% of the debt portfolio at fair value as of June 30, 2020. 2Credit facility availability subject to borrowing base and other limitations. 3Excludes unfunded commitments to the Glick JV. Approximately $9 million of unfunded commitments were ineligible to be immediately drawn due to certain milestones.


Slide 3

Portfolio Summary as of June 30, 2020 (As % of total portfolio at fair value; $ in millions) (As % of total portfolio at fair value) Portfolio Composition Top Ten Industries4 Portfolio Characteristics Note:Numbers may not sum due to rounding. 1Excludes OCSI’s share of the return on debt investments in the Glick JV. 2 Excludes negative EBITDA borrowers and recurring revenue software investments. 3Percentage of debt portfolio, excludes OCSI’s investment in the Glick JV, which was restructured during the quarter ended March 31, 2020 and placed on non-accrual status. Including the Glick JV, non-accruals represented 9.5% of the debt portfolio at fair value as of June 30, 2020. 4 Based on GICS sub-industry classification. Excludes multi-sector holdings, which is composed of investments in the Glick JV. $506 million Total Investments 76 Portfolio Companies 6.5% Weighted Average Yield on Debt Investments $130 million Median Debt Portfolio Company EBITDA2 91% Senior Secured Debt Investments 0.3% Non-Accruals (Excluding the Glick JV)3 (At fair value) (Excluding the Glick JV)1


Slide 4

Portfolio Diversity OCSI’s portfolio is diverse across borrowers and industries (As % of total portfolio at fair value) (As % of total portfolio at fair value) Portfolio by Industry1 Diversity by Investment Size Top 10 Investments 24% Next 15 Investments 25% Remaining 50 Investments 42% Glick JV 9% Industry Group % of Portfolio Software 16.1% Commercial Services & Supplies 8.4% Media 6.7% Aerospace & Defense 5.7% Diversified Telecommunication Services 5.0% IT Services 4.4% Entertainment 3.6% Oil, Gas & Consumable Fuels 3.5% Hotels, Restaurants & Leisure 3.1% Health Care Providers & Services 3.0% Personal Products 2.7% Pharmaceuticals 2.7% Remaining 19 Industries 26.1% Glick JV 9.1% As of June 30, 2020 Note:Numbers may not sum due to rounding. 1Based on GICS industry classification.


Slide 5

Portfolio Originations New Investment Highlights ($ in millions) Historical Originations and Exits (As % of new investment commitments; $ in millions) New Investment Composition Note:Numbers rounded to the nearest million or percentage point and may not sum due to rounding. 1 New funded investments includes drawdowns on existing revolver commitments. 2Investment exits includes proceeds from prepayments, exits, other paydowns and sales. 2 1 $42 million New Investment Commitments $35 million New Investment Fundings 9.5% Weighted Average Yield on New Debt Commitments 100% Held by Other Oaktree Funds $41 million New Investment Commitments in New Portfolio Companies $1 million New Investment Commitments in Existing Portfolio Companies


Slide 6

As of June 30, 2020 Note:Numbers may not sum due to rounding. 1Excludes investments in the Glick JV. Non-Core Investment Portfolio Detail Portfolio Repositioning Progress1 (As % of non-core investment portfolio at fair value; $ in millions) Non-core Investments by Type (At fair value; $ in millions) Non-core Portfolio Composition $37 Non-Core Investments: 8% of portfolio Non-Core Investments: 58% of portfolio -87% Non-Core Investments +102% Core Investments ($ in millions; at fair value) Only four non-core investments remained as of June 30, 2020


Slide 7

Financial Highlights ($ in thousands, except per share amounts) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Net Investment Income per Share $0.11 $0.15 $0.16 $0.17 $0.20 Net Realized and Unrealized Gains (Losses) per Share $1.32 $(2.53) $0.05 $(0.07) $(0.08) Earnings (Loss) per Share $1.43 $(2.38) $0.21 $0.10 $0.12 Distributions per Share $0.125 $0.155 $0.155 $0.155 $0.155 NAV per Share $8.47 $7.17 $9.71 $9.65 $9.71 Weighted Average Shares Outstanding 29,466,768 29,466,768 29,466,768 29,466,768 29,466,768 Investment Portfolio (at Fair Value) $506,452 $524,379 $584,454 $597,104 $588,582 Cash and Cash Equivalents $30,103 $21,931 $9,525 $5,647 $4,071 Total Assets $579,325 $589,794 $613,134 $623,334 $613,810 Total Debt Outstanding $312,157 $327,157 $306,157 $294,657 $308,257 Net Assets $249,709 $211,234 $286,017 $284,450 $286,021 Total Debt to Equity Ratio 1.25x 1.55x 1.07x 1.04x 1.08x Net Debt to Equity Ratio 1.13x 1.44x 1.04x 1.02x 1.06x Weighted Average Interest Rate on Debt Outstanding 3.0% 3.8% 4.0% 4.2% 4.5%


Slide 8

Portfolio Highlights ($ in thousands) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Investments at Fair Value $506,452 $524,379 $584,454 $597,104 $588,582 Number of Portfolio Companies 76 88 84 84 82 Average Portfolio Company Debt Investment Size $6,700 $6,000 $7,100 $7,200 $7,300 Asset Class: First Lien 88.4% 90.6% 88.0% 88.5% 88.4% Second Lien 2.5% 2.2% 2.7% 2.4% 2.1% Glick JV 9.1% 7.2% 9.3% 9.1% 9.5% Equity 0.0% 0.0% 0.0% 0.0% 0.0% Interest Rate Type for Debt Investments: % Floating Rate 98.7% 100.0% 100.0% 100.0% 100.0% % Fixed Rate 1.3% -% -% -% -% Yields: Weighted Average Yield on Debt Investments1 5.9% 6.0% 7.2% 7.4% 7.8% Weighted Average Yield on Debt Investments (Excluding the Glick JV)2 6.5% 6.5% 7.1% 7.3% 7.6% Cash Component of Weighted Average Yield on Debt Investments 5.1% 5.5% 7.0% 7.3% 7.6% Weighted Average Yield on Total Portfolio Investments3 5.9% 6.0% 7.2% 7.4% 7.8% Note:Numbers may not sum due to rounding. 1Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on the debt investments in the Glick JV. 2Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, excluding our share of the return on the debt investments in the Glick JV. 3Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on the debt investments in the Glick JV.


Slide 9

Investment Activity ($ in thousands) As of 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 New Investment Commitments $41,800 $93,900 $34,900 $50,800 $38,800 New Funded Investment Activity1 $35,100 $101,300 $37,900 $51,100 $41,300 Proceeds from Prepayments, Exits, Other Paydowns and Sales $90,700 $83,800 $46,000 $40,200 $43,000 Net New Investments2 $(55,600) $17,500 $(8,100) $10,900 $(1,700) New Investment Commitments in New Portfolio Companies 7 18 9 7 5 New Investment Commitments in Existing Portfolio Companies 2 9 2 1 4 Portfolio Company Exits 19 14 9 5 4 Weighted Average Yield at Cost on New Debt Investment Commitments 9.5% 6.6% 6.6% 6.8% 6.9% 1New funded investment activity includes drawdowns on existing revolver commitments. 2Net new investments consists of new funded investment activity less proceeds from prepayments, exits, other paydowns and sales.


Slide 10

Historical Statement of Operations ($ in thousands, except per share data) For the three months ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Interest income $7,783 $9,666 $11,212 $11,976 $13,522 PIK interest income 744 297 4 10 3 Fee income 109 380 388 93 284 Total investment income 8,636 10,343 11,603 12,078 13,809 Base management fee 1,375 1,442 1,506 1,511 1,498 Part I incentive fee 267 272 992 1,049 1,295 Interest expense 2,995 3,477 3,427 3,673 3,860 Other operating expenses1 830 862 1,002 901 1,052 Total expenses 5,468 6,052 6,926 7,134 7,705 Reversal of fees waived / (fees waived) - (272) (51) (198) 185 Net expenses 5,468 5,781 6,876 6,937 7,890 Net investment income 3,169 4,562 4,728 5,142 5,918 Net unrealized appreciation (depreciation) 41,928 (67,418) 1,926 (148) (2,594) Net realized gains (losses) (2,938) (7,359) (520) (1,997) 158 Net increase (decrease) in net assets resulting from operations $42,159 $(70,216) $6,134 $2,996 $3,483 1Includes professional fees, directors fees, administrator expenses and general and administrative expenses.


Slide 11

Net Asset Value Per Share Bridge Note:Net asset value per share amounts are based on the shares outstanding at each respective quarter end. Net investment income per share, net unrealized appreciation / (depreciation), and net realized gain / (loss) are based on the weighted average number of shares outstanding for the period. 1Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1


Slide 12

Capital Structure & Liquidity Overview ($ in millions) ($ in million) ($ in millions) Funding Sources Liquidity Rollforward2 Historical Leverage Utilization2 Committed Principal Outstanding Interest Rate Maturity Deutsche Bank Facility $200 $173 LIBOR+2.25% 3/30/2021 Citibank Revolving Credit Facility 180 119 LIBOR+1.70% / 2.25%1 7/18/2023 East West Bank Facility 25 20 LIBOR+2.85% 1/6/2021 Total $405 $312 As of June 30, 2020 Note:We have analyzed cash and cash equivalents, availability under our credit facilities, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believe our liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate. 1Interest rate spread depends on asset type. 2Credit facility availability subject to borrowing base and other limitations. 3 Excludes unfunded commitments to Glick JV. Target Leverage Ratio: 1.2x to 1.6x debt-to-equity Multiple capital sources provide OCSI with flexibility to optimize new investment fundings in order to maintain competitive borrowing costs 100% of debt sources are floating rate 3.0% weighted average interest rate on debt outstanding In compliance with all financial covenants under credit facilities for the June 30, 2020 reporting period 12/31/2019 3/31/2020 6/30/2020 Credit Facility Committed $455 $405 $405 Credit Facility Drawn 306 327 312 Cash and Cash Equivalents 10 22 30 Total Liquidity 159 100 123 Total Unfunded Commitments3 16 6 18 Adjusted Liquidity $143 $94 $105 Cash $10 $22 $30 Net Assets $286 $211 $250 Net Leverage 1.0x 1.4x 1.13x Total Leverage 1.1x 1.5x 1.25x


Slide 13

Joint Venture Summary ($ in millions; at fair value) (As % of total portfolio at fair value) Joint Venture with GF Equity Funding (“Glick”) Portfolio Summary Debt Portfolio Top Ten Industries2 As of June 30, 2020 1Interest rate on subordinated notes was LIBOR + 6.5% prior to the subordinated notes restructuring, which occurred during the quarter ended March 31, 2020. 2Based on GICS sub-industry classification. Primarily invests in senior secured loans of middle market companies as well as other corporate debt securities Joint venture structure Equity ownership: 87.5% OCSI and 12.5% Glick Shared voting control: 50% OCSI and 50% Glick Funded by $100 million credit facility OCSI’s investments in the Glick JV (at fair value): 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Total Investments $128 $137 $158 $173 First Lien 95% 95% 92% 92% Second Lien & Other 5% 5% 8% 8% Number of Debt Investments 41 44 42 39 Average Investment Size $3 $3 $4 $4 Non-Accruals 1.6% 4.2% 0.0% 0.0% Wt. Avg. Debt Portfolio Yield 5.6% 5.6% 6.7% 6.9% Subordinated Notes Restructuring During the quarter ended March 31, 2020, OCSI’s subordinated note investment in the Glick JV was restructured and placed on non-accrual in order to realign the joint venture for current market conditions While the Company did not recognize income from the Glick JV during the quarter, the underlying investment portfolio generated net investment income of $1.1 million during the quarter ended June 30, 2020 Subsequent to June 30, 2020, the Glick JV used these proceeds to make a $1.1 million repayment of outstanding principal on the subordinated notes, of which $1.0 million was paid to OCSI 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Subordinated Note (L+4.5%)1 $46 $38 $54 $54 Subordinated Note % Par 70% 57% 82% 82% 87.5% Equity Interest $ - $ - $ - $ -


Slide 14

Contact: Michael Mosticchio, Investor Relations ocsi-ir@oaktreecapital.com