Oaktree Specialty Lending Q2 2025 Earnings Report

Oaktree Specialty Lending EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.51
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: $0.56

Oaktree Specialty Lending Revenue Results

• Actual Revenue: $70.52 million
• Expected Revenue: $84.67 million
• Beat/Miss: Missed by -$14.14 million
• YoY Revenue Growth: N/A

Oaktree Specialty Lending Announcement Details

• Quarter: Q2 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 11:00AM ET

Oaktree Specialty Lending (NASDAQ:OCSL) is a business development company. The fund specializing in investments in middle market, bridge financing, first and second lien debt financing, unsecured and mezzanine loan, mezzanine debt, senior and junior secured debt, expansions, sponsor-led acquisitions, preferred equity, and management buyouts in small and mid-sized companies. It seeks to invest in education services, business services, retail and consumer, healthcare, manufacturing, food and restaurants, construction and engineering. The firm also seeks investment in media, advertising sectors, software, IT services, pharmaceuticals, biotechnology, real estate management and development, chemicals, machinery, and internet and direct marketing retail sectors. It invests between $5 million to $75 million principally in the form of one-stop, first lien, and second lien debt investments, which may include an equity co-investment component in companies. The firm invest in companies having enterprise value between $20 million and $150 million and EBITDA between $3 million and $50 million. The fund has a hold size of up to $75 million and may underwrite transactions up to $100 million. It primarily invests in North America. The fund seeks to be a lead investor in its portfolio companies.

Oaktree Specialty Lending Q2 2025 Earnings Call Transcript

Key Takeaways

• In Q2, OCSL reported adjusted net investment income of $39M ($0.45/sh) and NAV of $16.75, down from $45M ($0.54/sh) and $17.63 due to higher non-accruals and write-downs.
• Non-accruals rose to 4.6% of portfolio fair value, offset by progress such as the SVP Singer exit, ongoing Avery property sales, and ~$100M of above-mark repayments in April.
• The Board declared a $0.40 base and $0.02 supplemental dividend; OCSL refinanced bonds into 2030 maturities, lowered revolving credit spreads, and now sits at a three-year low leverage with ~$1.1B of liquidity.
• During the quarter, OCSL committed $407M across 32 investments with a 9.5% average yield, raised portfolio positions to 152, and emphasized senior secured loans, highlighted by $425M in Vantiv and $100M in Barracuda financings.
• Faced with tariff-driven volatility and slower M&A, OCSL is prioritizing underwriting of larger, diversified businesses, selectively selling tariff-exposed assets, and preparing to deploy dry powder into JVs and rescue financings.

Presentation

[Operator]

Welcome, and thank you for joining Oaktree Specialty Lending Corporation Second Fiscal Quarter twenty twenty five Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen only mode, but will be promoted for a question and answer session following the prepared remarks. Before we begin, I want to remind you that comments on today's call include forward looking statements reflecting current views with respect to, among other things, future operating results and financial performance. Actual results could differ materially from those implied or expressed in the forward looking statements.

[Operator]

Please refer to the relevant SEC filings for a discussion of these factors in further detail. Oaktree undertakes no duty to update or revise any forward looking statements. I'd also like to remind you that nothing on this call constitute an offer to sell or solicitation of an offer to purchase any interest in Oaktree fund. Investors and others should note that OCSL 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 is shared on its website.

[Operator]

Now I would like to introduce Klab Khoury, OCSL Head of Investors, who will host today's conference call. Mr. Khoury, you may begin.

[Clark Koury, Head - IR at Oaktree Specialty Lending]

Thank you, operator. Our second quarter earnings release, which we issued this morning, along with the accompanying slide presentation can be accessed on the Investors section of our website, oaktreespecialtylending.com. Joining me on the call today is Armen Panossian, Chief Executive Officer and Co Chief Investment Officer Matt Pendo, President and Chris McCown, Chief Financial Officer and Treasurer. I'll now turn the call over to Matt to provide an overview of our performance during the quarter and a couple of updates with regard to our capital structure. Matt?

[Matt Pendo, President at Oaktree Specialty Lending]

Thanks, Clark, and thank you to everyone for joining today. Adjusted net investment income was $39,000,000 or $0.45 per share compared to $45,000,000 or $0.54 per share in the first quarter. Our net asset value was $16.75 per share versus $17.63 in the prior quarter. These results reflect ongoing challenges with a few portfolio company investments, which we have been and continue to work towards restructuring or exiting. We moved several of these investments to non accrual and took additional write downs.

[Matt Pendo, President at Oaktree Specialty Lending]

As a result, investments on non accrual status increased to 4.67.6% of fair market value and cost respectively. This compares to 3.95.1% in the first quarter. On the positive side, we made progress in resolving several investments on non accrual, including exiting our loan position in SVP Singer, where we received proceeds totaling $5,700,000 which was consistent with our mark as of December 31. We've also seen some increased sales activity in Avery, a luxury mixed use building in San Francisco. Sales picked up in the second half of calendar year 2024, and the trend has continued thus far into 2025.

[Matt Pendo, President at Oaktree Specialty Lending]

Proceeds from sales go to repaying our loan, enabling us to redeploy capital into new income generating investments. During the last quarter, we received proceeds totaling 10% of our cost basis, and we expect to receive additional repayments next quarter. In addition, in April, we received nearly $100,000,000 from repayments on debt investments, all of which were realized as small premiums as compared to our March 31 valuation. Now turning to our dividend. In line with our new dividend policy we announced last quarter, our Board approved a base dividend of $0.40 per share and a variable supplemental dividend of $02 per share for the second quarter.

[Matt Pendo, President at Oaktree Specialty Lending]

With regard to our balance sheet, we successfully issued new unsecured bonds that mature in 02/1930 to refinance our existing bonds that matured in February 2025. Additionally, shortly after quarter end, we successfully amended our senior secured revolving credit facility, extending its maturity and reducing the interest rate from SOFR plus 2% to a range of SOFR plus 1.75% to 1.875%. We appreciate the support of our bank group and believe that lower interest expense and associated fees will have a favorable impact on our net investment income. With these positive changes to our capital structure and our leverage at its lowest level in over three years, we have ample dry powder for new investments as we navigate this volatile period. Before I turn it over to Armen, I want to remind you about the meaningful steps we took to more closely align our interests with shareholders.

[Matt Pendo, President at Oaktree Specialty Lending]

Earlier this year, we amended our incentive fee structure by implementing a total return hurdle, and Oaktree purchased $100,000,000 in OCSL shares and a meaningful premium to the share price, which provide us with additional capital to deploy into our pipeline. Also, in July of last year, we reduced our management fee to 1% on all assets. We believe these actions demonstrate our commitment to shareholders and to enhancing the long term earnings power of the portfolio. I'll now turn it over to Armen to provide more detail on non accruals and our investment activities.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Thanks, Matt. I'll start with additions to our non accruals. Two companies were added to non accrual status during the quarter. The first was Mosaic Companies, a designer, distributor and retailer of specialty wall and mosaic tile, floor tile and slabs. Mosaic operates three distinct business segments and the sponsor had initiated sale processes for all three.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Unfortunately, each of these segments are expected to be impacted by tariffs, which affected the sponsor's efforts to sell. Two of those processes were paused during the quarter. The sale of the third segment closed shortly after quarter end, resulting in a meaningful cash pay down of approximately 50% of our total position. Pro form a for the repayment, we took a conservative approach in valuing the remaining assets, leading to a markdown of approximately 76% on the unsold portions. Despite being placed on nonaccrual, the material cash recovery reflects progress in our efforts to manage and resolve the position.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

We are actively working to sell the remaining two business segments. The second addition was SiO2, a manufacturer of a hybrid material that combines glass and plastic for medical use in diagnostic tubes, vials, and syringes. Our prior position in the company was restructured in August of twenty twenty three. In this quarter, we placed a restructured loan on non accrual due to the company's continued cash needs. We marked down the loan by about 69% at quarter end.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

The company recently signed a new contract and is pursuing several other opportunities and license agreements. We remain focused on supporting the company in these strategic initiatives. Although it's not new to our non accrual list, Dialyze is another investment where we took a significant markdown. We placed the company's first lien term loan on non accrual in the December given the company's ongoing cash needs. We continue to be actively engaged with management and other stakeholders to evaluate the best path forward, but unfortunately, the situation has not materially improved.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

And this quarter, we marked the loan down by about 76%. While we're clearly not pleased with how SiO2 and Dialyze have trended, these two positions now represent less than 1% of the portfolio at fair value. Turning now to investment activity for the quarter. We committed $4.00 $7,000,000 of capital across 32 investments, consisting of 24 new borrowers and eight existing borrowers. This compares to 13 investments totaling $198,000,000 in commitments last quarter.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

The weighted average yield on our new debt investments was 9.5% versus 9.6% in the prior quarter. Increasing portfolio diversification remains a focus as we took the number of positions to 152 from 136 last quarter. We continue to emphasize investments at the top of the capital structure and consistent with the first quarter, approximately 84 of the portfolio was invested in senior secured loans, including 81% in first lien loans. To mitigate risk in the current environment, we are prioritizing investments in larger, more diversified businesses that have the financial and operational ability to withstand uncertain times. As of March 31, the median EBITDA of our portfolio companies was approximately $158,000,000 a $16,000,000 increase from the prior quarter.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

The leverage in our portfolio companies was steady at 5.4 times, well below overall middle market leverage levels. The portfolio's weighted average interest coverage based on current base rates declined slightly to 1.8 times compared to 2.1 times last quarter. Looking at our second quarter originations, I'd like to highlight two noteworthy loans we made to Vantiv and Barracuda. The healthcare sector remains a strong focus for us given its critical need and sustainable outlook. Vantiv is a global leader in the development and manufacturing of capital equipment and consumables for both acute and chronic dialysis therapies.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

As a recognized innovator, Vantiv holds the number one position in the nonclinical peritoneal dialysis market, manning approximately 73% market share. This financing facilitated Carlyle Group's acquisition of Vantiv, structured as a $2,500,000,000 first lien term loan and a $450,000,000 revolving credit facility. Oaktree provided $425,000,000 of the term loan, which carries a coupon of SOFR plus 5%, along with 77,000,000 of the revolving credit facility. OCSL was allocated 61,000,000 of the total deal. We also like service providers with recurring cash flow models and made an investment in Barracuda, provider of cloud enabled email data and network cybersecurity solutions for middle market and small to mid sized businesses.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

This financing sits alongside the company's syndicated first lien and second lien term loans, and proceeds were used to bolster the company's liquidity position. Oaktree led this transaction and provided $100,000,000 of the total $200,000,000 term loan priced at SOFR plus 6.5%, with OCSL receiving $15,500,000 We believe these transactions highlight the strength of Oaktree's deal sourcing platform and our capacity to participate in larger scale opportunity, advantages we believe set us apart from other market participants. I'll now turn to an overview of exit and repayment activity during the quarter. Investment exits slowed in the second quarter, totaling $279,000,000 primarily driven by fewer sales within our liquid portfolio. As you may recall from our remarks last quarter, we took advantage of strength in the public credit markets late last year and sold certain investments that we believe are fully valued.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

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

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

Thank you, Armen. In our second fiscal quarter ending 03/31/2025, we delivered adjusted net investment income of $38,700,000 or $0.45 per share as compared to $44,700,000 or $0.54 per share in the prior quarter. The decrease was primarily driven by lower total investment income, partially offset by reduced interest expense and Part one incentive fees during the quarter. Adjusted total investment income in the quarter declined $9,900,000 compared to the prior quarter, primarily due to a decrease in interest income resulting from a smaller average investment portfolio, the impact of placing new investments on nonaccrual status, and declining reference rates. Net expenses declined $3,800,000 from the prior quarter, driven by a $2,400,000 decrease in interest expense due to lower outstanding borrowings and lower reference rates on our floating rate liabilities, and a $1,500,000 decrease in part one incentive fees, net of fees waived, reflecting the impact of the total return hurdle.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

Now moving to our balance sheet. Our net leverage ratio at quarter end was 0.93 times, down from 1.03 times last quarter. As of March 31, total debt outstanding was $1,470,000,000 and had a weighted average interest rate of 6.7%, including the effect of our interest rate swap agreements. This is up from last quarter, primarily reflecting the impact of refinancing our 3.5% fixed rate bonds that matured in February with new bonds that mature in 02/1930. In connection with issuing the new bonds, we entered into an interest rate swap agreement, translating to a coupon of SOFR plus 2.19%.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

Unsecured debt represented 65% of total debt at quarter end, up from about 59% last quarter. We have plenty of dry powder to fund investment commitments with liquidity of approximately $1,100,000,000. This includes $98,000,000 of cash and $1,000,000,000 of undrawn capacity on our credit facilities following the recent amendment that Matt described earlier. Unfunded commitments, excluding those related to the joint ventures, were $273,000,000 approximately $252,000,000 of which can be drawn immediately as the remaining $21,000,000 is subject to portfolio companies meeting certain milestones before the funds can be drawn. Our target leverage range remains unchanged at 0.9 times to 1.25 times.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

We are currently at the low end of that range due to a combination of successful investment exits, Oaktree's one hundred million dollars equity investment in the March, and our prudent approach to deploying capital given market volatility. Turning now to our joint ventures. Together, the JVs currently hold $440,000,000 of investments, primarily in broadly syndicated loans spread across 54 portfolio companies. During the second fiscal quarter, the JVs again generated attractive annualized ROEs, which were approximately 10.6% in aggregate. Leverage at the JVs was 1.3 times, up slightly from last quarter.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

In addition, we received a $700,000 dividend from the Kemper JV. With that, I would like to turn the call back to Armen to provide some color on the market environment.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Thanks, Chris. Before opening the call up to questions, I'll provide some brief commentary on the market environment. Since the end of the second quarter, we have experienced some of the most volatile public market conditions since the pandemic March of twenty twenty. There is significant uncertainty surrounding the trade environment, including what new tariffs may arise, potential retaliatory measures from other countries, and how long these policies will remain in place. Despite the wide range of potential outcomes, we believe we can make the following observations with some certainty.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Despite an optimistic outlook for a pickup in M and A activity earlier this year, activity has been slow and is likely to remain that way until we have more clarity around the economic outlook. We expect many lenders will be more cautious around capital deployment as they focus on the health of existing portfolio companies. In this environment, companies that were once supported by easy credit and low interest rates are now grappling with tightening liquidity, rising borrowing costs, and disrupted supply chains driven by global trade upheaval. It will be a couple of quarters before tariffs roll through the supply chain and impact portfolio company performance, so it's too early to assess the real impact now. That said, well in advance of the actual tariff announcements, we were considering their potential impact on existing and prospective investments.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

This heightened focus factored into our underwriting and risk evaluation, and we are proactively selling investments within our liquid portfolio that we perceive to have more exposure to negative impacts of tariffs. We are also focused on further diversifying our portfolio by selectively investing in companies we believe are well positioned to deliver attractive returns given market uncertainty caused by tariffs, as well as inflation and high interest rates. Recently, there has also been an uptick in demand for capital solutions or rescue financing, which could benefit managers like Oaktree that have significant experience and expertise in this area. Historically, in periods of market volatility, our firm wide DNA has enabled us to capitalize on opportunities while others are sidelined, and we have the dry powder to do so again if appropriate opportunities arise. In closing, we believe OCSL is well positioned to navigate the current market environment and to deliver attractive risk adjusted returns to our shareholders over the long term.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

We appreciate your participation on our call today, and now we will take your questions. Operator, please open the line.

[Operator]

Thank you. We will now begin the question and answer session. 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 then 2. At this time, we will pause momentarily to assemble our roster.

[Operator]

The first question comes from Finian Oshai with Wells Fargo. Please go ahead.

[Finian O’Shea, Analyst at Wells Fargo]

Hey, everyone. Good morning. First question, did did you lean into any liquid markets, structured finance or syndicated loans in April?

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Hey Fin, it's Armen. We were a little active, but not very because we were then and continue to be concerned that the tariff situation is not resolved. And so what happened in April was, yes, it started off with a sell off in high yield bonds, senior loans to a lesser extent in structured credit. But there's been a rebound in the back half April. And so we've taken more of a measured approach given that recovery.

[Finian O’Shea, Analyst at Wells Fargo]

It was helpful. And just a second high level question. Armen, you mentioned remaining focused on the larger and diversified businesses. I think that's been the language or narrative for a while. Can you hit on like high level how successfully you've been effectuating that?

[Finian O’Shea, Analyst at Wells Fargo]

Are you out there finding adequate issuers that fit within your box on a credit and structure perspective for direct lending? Or is this a challenge? And then sort of Part B there, the losses experienced or what's the sort of overlap? Are they the company, are they generally smaller EBITDA or do they overlap with that sort of core focus? Thanks.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Good question. So in terms of size, Ben, the market ebbs and flows. So late last year, when the markets were pretty strong and wide open from banking perspective, we saw spreads tightening in broadly syndicated loans, we saw spreads tightening in high yield bonds, And we saw new issuance in senior loans, creation of CLOs. And we saw tightening in direct lending as well. And in the larger borrower segment, we found that or the borrowers found that they could get better pricing and looser legal terms from the broadly syndicated loan market versus direct lending.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

So it was, I would say, it felt a little bit more challenging or the trend did not feel so great for the ultra large cap, the 150,000,000 plus EBITDA category for new deals, what didn't feel so great in the back half or the fourth quarter, fourth calendar quarter of last year. Some of the volatility we've been seeing in the markets though in the last month, month and a half, we are seeing a pullback in new issuance activity from the banks. And so we are seeing a return of some larger borrowers into the direct lending market post Liberation Day. And so the pipeline from that perspective is, I would say on the margin better for issuing direct loans to very large borrowers. With that said, M and A deal volume is not as robust as we would like it to be overall as a market.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Now the reason for that is in the fourth quarter after President Trump was elected, there was, I would say some positive feelings about where the market would go and where rates would go. The President Trump generally at that time was considered to be somebody who would lean on lower rates, would lean on deregulation and those would be good things for deal flow and the transaction of sponsor to sponsor LBOs. Now, so there was a lot of activity at least in terms of discussions late last year and early this year as to, hey, 2025 issuance is going to be very strong and M and A volumes will be strong. But the tariff announcements have thrown a wrench in that and it just seems like private equity sponsors generally are reticent to do deals to pending kind of what's going to happen with these tariffs because it leans on higher rates, it leans on more inflation and all of that is sort of bad for valuation multiples. So there is a I think somewhat of a pause happening right now in two respects.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

One is private equity sponsors doing new deals and two, corporate borrowers that have some level of tariff related exposure, I. E. Part of their supply chain runs through a non US market or they part of their sales go to a non US market. We're seeing that there is a pause in building up of inventory, a pause in CapEx spending. And given that backdrop, I would expect to see continued sort of reservations around deal activity for a few months at least.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

So that's kind of the current condition around deal flow, large cap, but the deals that are getting done, so high quality businesses that are somewhat insulated from tariff impacts that are still being LBO'd and there have been some announcements in the last few weeks. So deals are happening, it's just at less of a rate. Those deals are getting done more frequently in the direct lending market rather than the broadly syndicated loan market. So we are engaged in those situations. We our pipeline for the quarter so far for this quarter that we're in so far is actually pretty good, just given some of that pullback from the bank.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

So we feel good about that condition. To answer your second question about the markdowns, no, look, the markdowns are not in large cap sponsor lending. The markdowns, unfortunately, it's been the same names for a few quarters now, for a couple of years now that have kind of weighed on performance. And I don't there isn't anything thematic about them, but other than mid last year with Pluralsight, which was a very large LBO that had some issues, which I think we've discussed in the past and has been pretty well known in the market. Other than that one situation, the rest of them are sort of idiosyncratic situations where just businesses have not executed the way they should have.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

In the case of SiO2, a business that was doing incredibly well during COVID, took a lot of that profitability and spent it on new R and D that didn't pan out unfortunately. And so that's not really a large cap issue or a big versus small business issue. It's a deal where the execution around that technology just did not meet expectations.

[Finian O’Shea, Analyst at Wells Fargo]

Okay, thank you.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Thank you.

[Operator]

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

[Melissa Wedel, Vice President, U.S. Equities Research at JP Morgan]

Good morning. Thanks for taking my questions. Really trying to discern sort of run rate NII, given the markdowns on the portfolio and the changes in non accruals, it seems like with some stabilizing base rates, this could be sort of what we could expect. And given no changes in base rates, this could be a run rate level NII. Is that fair to say?

[Melissa Wedel, Vice President, U.S. Equities Research at JP Morgan]

Or are you seeing other things happening in the portfolio that could impact that?

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

Hey, Melissa, it's Chris. Thanks for the question. I'll get us started. And if Marvin or Matt want to chime in, please feel free. I think a couple of things we're focused on.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

We mentioned in our prepared remarks that we finished the quarter at 0.93 times net leverage. Definitely kind of the low end of our range and where we've been operating historically. Our average portfolio throughout the quarter was a little bit lower versus prior quarters. As Arma mentioned, we're

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

to be

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

patient around deployment. But over time, we are mindful lowering our leverage range than where we've been operating. And then I think the other focus, think Matt mentioned in his comments, just around working through some of these situations on non accruals, turning those into cash producing assets is definitely a continued focus of ours.

[Matt Pendo, President at Oaktree Specialty Lending]

Think, Melissa, it's Matt. The other area we continue to

[Matt Pendo, President at Oaktree Specialty Lending]

focus on is the JVs and putting more assets in there, running leverage, a little bit higher there. They invest mostly in BSL, so those are it's relatively more easy to deploy there than in some of the private assets that the sales cycle is a bit longer. So that's just the other point I'd make.

[Melissa Wedel, Vice President, U.S. Equities Research at JP Morgan]

Sure. I mean, to that point on leverage and then deploying within the joint ventures, I mean, obviously, this quarter seems very, very different from even the March. When we look at sort of the repayment levels that you've seen in the portfolio and exits, repayments and exits over the last three quarters, they've been pretty sizable. Should we be expecting any slowing of repayment activity during this period of volatility? Or would you expect that to remain pretty elevated?

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

Melissa, this is Armen. I could take a crack at that. So a couple of things. In terms of liquid credit, in the back half of last year, especially the fourth quarter as the markets were pretty tight, we actually were just generally a net seller of liquid credit. And so we actually delevered those JVs as a result of that.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

I think given the volatility in the last four to six weeks in the public markets and our anticipation of further volatility in those markets given what I would expect would be a challenging tariff backdrop for a while. I would expect that we will find some opportunities to deploy into the joint ventures and increase their leverage again. We're looking for good deals that are or good companies that are trading discounted. And we don't think it's there yet. Traded off two, three, maybe 3.5 points in late March and into April.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

And they've recovered maybe half of that point move. And and if you look at high yield bonds, the spreads had widened to 4.35%, four point four zero % ish during that timeframe. They're now back to sort of three seventy five. They are pretty volatile though, quite sort of up and down. But we think that as performance starts to show up in the second calendar quarter this year and into the third, there's probably going to be volatility in the public credit and equity markets that we think we could take advantage of for the JVs.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

In the case of private credit, we actually have had some exits since the end of the quarter. And so I think we those are more idiosyncratic, not really reflective of necessarily a tightening credit story. It was just situations that resolved. So I think our repayments for the quarter are not going to be immaterial. I think they will be up for the quarter ended June.

[Armen Panossian, CEO & Co-CIO at Oaktree Specialty Lending]

I think they'll still be significant enough. But again, but yes, I think your instinct is correct that if the markets are volatile, generally speaking, repayments, refinancings should slow down. And I would expect to see that over the coming quarters as well.

[Melissa Wedel, Vice President, U.S. Equities Research at JP Morgan]

Thanks very much.

[Operator]

Thank you. The next question comes from Paul Johnson with KBW. Please go ahead.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Thank you. Thanks for taking my questions. Just on the kind of run rate question of income, just looking at the portfolio yield this quarter, think it was down 50 basis points or so. But if I take a quick average of just kind of the debt portfolio yield quarter over quarter, it looks like it's down a little over 100 basis points. So I'm just curious, is there any kind of one time stuff that's flowing through there that would is this yield, I guess, that we have today reflective of kind of what you think the portfolio should generate going forward?

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

Yes. Hey, it's Chris. Question. Yeah, I think a couple of factors. I think looking at sort of the quarter on quarter decline in interest income, part of that is just due to reference rate declines.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

In the December, rate sets for about half the book were based on ninethirty base rates. So those reset at the December in light of the rate cuts that happened in the fourth calendar quarter. That played through the March. So that's part of it. And as far as the quarter on quarter decline in yield, seeing from the 10.7% reported last quarter to the 10.2% this quarter, majority of that, about 30 bps worth was due to the impact of the new non accruals, which we've discussed.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

And a little bit of just, I'll call it lingering timing with respect to reference rate resets and also some spread compression quarter on quarter. So I do think that where we're at now is a decent run rate field on the book.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Thank you for that. And then you partly answered my question here, but on the JV, the 10.6% ROE, is that a net ROE as opposed to like an operating ROE on the JV?

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

That's looking at the NII of the JV. I should say the NII plus the coupon interest on the subordinated note.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Because that's pretty close to what you're generating on the balance sheet. So it sounds like you may find some opportunities to increase leverage there and put some investments into the JV. So with leverage, I guess, what do you think you could potentially get the JV to in terms of an ROE over time?

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

That's I think it will depend on the opportunity set. I mean, certainly getting back up into the call it the 11%, twelve % context I think achievable.

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

But, you know,

[Christopher McKown, CFO & Treasurer at Oaktree Specialty Lending]

we'll we'll ultimately depend on on the opportunities that we're seeing there.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Appreciate it. That's all for me.

[Operator]

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Clark Corey for any closing remarks.

[Clark Koury, Head - IR at Oaktree Specialty Lending]

Thank you, operator, and thank you all for joining us on today's call. A replay of the earnings call will be available in approximately one hour, and you can access that on the Investors section of OCSL's website. Please feel free to reach out to me and team with any questions you may have. Thanks again for your participation and support.

[Operator]

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

Participants

Executives

• Clark Koury, Head - IR
• Matt Pendo, President
• Armen Panossian, CEO & Co-CIO
• Christopher McKown, CFO & Treasurer

Analysts

• Finian O’Shea, Analyst at Wells Fargo
• Melissa Wedel, Vice President, U.S. Equities Research at JP Morgan
• Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)