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Oaktree Specialty Lending: IIQ 2020 Results – First Look

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The BDC Reporter was diverted by the news of Barings BDC’s (BBDC) surprise acquisition of MVC Capital (MVC) from completing our systematic first look at every public BDC’s IIQ 2020 results. We return now to OCSL’s performance – published August 10, 2020. See the press release below. In a word, the BDC’s results were GOOD from virtually every perspective and even merit a re-grade of the long term outlook,  as we’ll discuss shortly. Like most BDCs – especially those with loan assets that are publicly traded – OCSL’s portfolio value increased sharply in the quarter, making up two-thirds of the ground lost in the dismal first quarter. NAV Per Share moved up 14% in the period. As importantly, the BDC is one of only a handful of public BDCs that can boast of growing their net book value per share since the IVQ 2017. Furthermore, Net Investment Income Per Share (NIIPS) remained essentially unchanged – after adjusting for special items – at a time when most peers were being clobbered by lower LIBOR and – in some cases – by income being lost on non-accruals. OCSL managed to achieve an adjusted NIIPS of $0.12 in the quarter, well above the prior distribution level that had held for two years of $0.095. With that gap in mind, and thanks to leverage just below the low end of its “target” debt to equity, management felt emboldened to increase its quarterly dividend by a pretty penny to $0.105, or $0.42 per annum. That’s a “permanent” increase in the periodic payout and worth noting in a BDC environment where more than half the sector players have reduced, suspended or temporarily halted their payments to shareholders. At the moment we expect only OCSL and Sixth Street Specialty Lending (TSLX) will increase their distributions in 2020 over the 2019 level, even though Newtek Business Services (NEWT) is also a contender.

Credit is more of a question mark. Non accruals did not move up much from their modest IQ 2020 level despite a new addition in the period. However, that’s just part of the picture and OCSL does not offer shareholders an investment rating system quarterly, so we’re postponing any conclusions till we review the 100+ companies in the portfolio. We’re also nonplussed by the need for a recent waiver in the BDC’s Joint Venture from the senior lender – Deutsche Bank. For the record, the BDC’s investment at cost in the JV has lost (25%) of its value  as of June 2020.

Overall, though, OCSL is looking GOOD: besides the IIQ 2020 results we can say as much for the BDC’s Liquidity and its Long Term Outlook. Previously – on expectation of a dividend cut and a smaller portfolio going forward – we had rated the prospects of OCSL as only FAIR. We now see that the BDC is actively booking new loans ( except in the JV); has a little room for further growth; has increased its dividend (important both in quantitative and psychological terms) and has plenty of availability. Going into the second phase of this pandemic shaped economic contraction that’s encouraging. As a result, OCSL joins twelve other BDCs whose long term outlook we deem GOOD, just a quarter of the total.

We’ll shortly be publishing the annotated transcript of OCSL’s IIQ 2020 Conference Call for our Premium subscribers where we’ll go into much further detail about many of the developments mentioned above and much more. Then – at some point – we’ll undertake a Credit Review.

For all the First Look reviews of IIQ 2020 BDC results, check out the BDC Data Table. We are constantly adding new updates as results come in and we undertake an initial survey. Besides these reports, we are also filling in NAV Per Share and investment portfolio size data to compare with prior periods; adding company or BDC Credit Reporter generated data on underperforming companies and assets and affirming or amending our earlier assessments of every BDC’s Liquidity, Credit, Dividend and Long Term Outlook

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