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 8, 2018
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) |
Registrants 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)) |
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 8, 2018, Oaktree Strategic Income Corporation (the Company) issued a press release announcing its financial results for the fiscal quarter ended June 30, 2018. A copy of the press release is attached hereto as Exhibit 99.1.
On August 8, 2018, the Company will host a conference call to discuss its financial results for the fiscal quarter ended March 31, 2018. 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 8, 2018 | |
99.2 | Oaktree Strategic Income Corporation Third Quarter 2018 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 8, 2018 | By: | /s/ Mel Carlisle | ||||
Name: Mel Carlisle Title: Chief Financial Officer and Treasurer |
Exhibit 99.1
Oaktree Strategic Income Corporation Announces Third Fiscal Quarter 2018 Financial Results and Declares Distribution of
$0.155 Per Share
LOS ANGELES, CA, August 8, 2018 - Oaktree Strategic Income Corporation (NASDAQ: OCSI) (Oaktree Strategic Income or the Company), a specialty finance company, today announced its unaudited financial results for the fiscal quarter ended June 30, 2018.
Third Fiscal Quarter 2018 Highlights
| Total investment income of $11.7 million, or $0.40 per share; |
| Net investment income of $5.1 million, or $0.17 per share; |
| Net asset value (NAV) per share as of June 30, 2018 of $9.91; and |
| Originated $113.6 million of new investment commitments and received $83.8 million of proceeds from prepayments, exits, other paydowns and sales. |
| The Companys Board of Directors declared a quarterly distribution of $0.155 per share, payable on September 28, 2018 to stockholders of record on September 15, 2018. |
Management Commentary
Edgar Lee, Chief Executive Officer and Chief Investment Officer said, Oaktree Strategic Income delivered improved earnings for the third quarter by exiting virtually all of our underperforming investments and selectively growing our investment portfolio. Looking forward, with access to greater leverage, we are excited to grow and further diversify our portfolio to deliver enhanced shareholder returns.
Portfolio and Investment Activity
As of June 30, 2018, the fair value of the Companys investment portfolio was $570.8 million and was comprised of investments in 72 companies, including our investments in OCSI Glick JV LLC (Glick JV).
At fair value, 89.7% of the Companys portfolio as of June 30, 2018 consisted of senior secured floating-rate debt investments, including 85.7% of first lien loans and 4.0% of second lien loans; 10.1% consisted of a subordinated note investment in the Glick JV; and 0.2% consisted of equity investments in other portfolio companies.
As of June 30, 2018, the Glick JV had $181.9 million in assets, including senior secured loans to 32 portfolio companies. The joint venture generated income of $1.6 million for Oaktree Strategic Income during the quarter ended June 30, 2018.
The weighted average yield on the Companys debt investments as of June 30, 2018, including the return on our subordinated note investment in Glick JV, was 7.9%.
During the quarter ended June 30, 2018, the Company originated $113.6 million of new investment commitments in 15 new portfolio companies and 1 existing portfolio company and funded $114.3 million of investments across new and existing portfolio companies.
During the quarter, the Company received $83.8 million of proceeds from various prepayments, exits, other paydowns and sales and exited 8 investments.
Results of Operations
Total investment income for the quarter ended June 30, 2018 was $11.7 million, including $10.8 million of cash interest income, $0.6 million of payment-in-kind (PIK) interest income and $0.3 million of fee income from portfolio investments. PIK interest income, net of PIK collected in cash, represented 4.9% of total investment income for the quarter ended June 30, 2018.
Net expenses for the quarter were $6.6 million, a $0.6 million increase from $6.0 million in the prior quarter. The increase was primarily due to higher incentive fees, which was attributable to higher pre-incentive fee net investment income, and higher interest expense, which was attributable to increases to LIBOR, partially offset by lower professional fees.
Net realized and unrealized loss on our investment portfolio for the quarter ended June 30, 2018 was $3.3 million.
Liquidity and Capital Resources
As of June 30, 2018, the Company had $24.3 million of cash and cash equivalents (including restricted cash), total principal value of debt outstanding of $260.6 million, and $64.4 million of undrawn capacity on its credit facilities and debt securitization, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 4.3% as of June 30, 2018.
As of June 30, 2018, the Companys total leverage ratio was 0.89x debt-to-equity.
Distribution Declaration
The Companys Board of Directors declared a quarterly distribution of $0.155 per share, payable on September 28, 2018 to stockholders of record on September 15, 2018.
Distributions are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Companys stockholders.
Portfolio Asset Quality
As of June 30, 2018, there was one investment on which the Company had stopped accruing cash and/or PIK interest or original issue discount (OID) income that, in the aggregate, represented 0.14% of the debt portfolio at cost and 0.01% at fair value.
($ in thousands) | ||||||||
Non-Accrual - Debt Investments |
As of June 30, 2018 | As of September 30, 2017 | ||||||
Non-Accrual Investments at Fair Value |
$ | 50 | $ | 6,293 | ||||
Non-Accrual Investments/Total Debt Investments at Fair Value |
0.01 | % | 1.1 | % |
Oaktree Strategic Income Corporation
Consolidated Statements of Assets and Liabilities
June 30, 2018 (unaudited) |
March 31, 2018 (unaudited) |
September 30, 2017 |
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ASSETS |
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Investments at fair value: |
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Control investments (cost June 30, 2018: $72,973,228; cost March 31, 2018: $72,410,345; cost September 30, 2017: $71,340,632) |
$ | 57,707,953 | $ | 57,895,281 | $ | 57,606,674 | ||||||
Affiliate investments (cost June 30, 2018: $0; cost March 31, 2018: $16,333,131; cost September 30, 2017: $17,479,053) |
| | 935,913 | |||||||||
Non-control/Non-affiliate investments (cost June 30, 2018: $516,498,332; cost March 31, 2018: $493,721,398; cost September 30, 2017: $516,270,639) |
513,086,230 | 484,777,863 | 501,894,073 | |||||||||
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Total investments at fair value (cost June 30, 2018: $589,471,560; cost March 31, 2018: $582,464,874; cost September 30, 2017: $605,090,324) |
570,794,183 | 542,673,144 | 560,436,660 | |||||||||
Cash and cash equivalents |
13,296,085 | 23,633,508 | 35,604,127 | |||||||||
Restricted cash |
10,982,637 | 7,973,136 | 7,408,260 | |||||||||
Interest, dividends and fees receivable |
2,678,368 | 2,681,992 | 3,014,075 | |||||||||
Due from portfolio companies |
8,951 | 37,546 | 286,260 | |||||||||
Receivables from unsettled transactions |
4,620,469 | 2,020,000 | 505,000 | |||||||||
Deferred financing costs |
2,101,795 | 2,220,700 | 1,222,933 | |||||||||
Other assets |
968,876 | 1,045,792 | 185,336 | |||||||||
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Total assets |
$ | 605,451,364 | $ | 582,285,818 | $ | 608,662,651 | ||||||
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LIABILITIES AND NET ASSETS |
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Liabilities: |
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Accounts payable, accrued expenses and other liabilities |
$ | 867,845 | $ | 1,154,430 | $ | 482,877 | ||||||
Base management fee and incentive fee payable |
1,711,290 | 1,515,934 | 2,236,187 | |||||||||
Due to affiliate |
2,491,450 | 1,932,272 | 450,517 | |||||||||
Interest payable |
2,510,079 | 2,098,920 | 1,996,171 | |||||||||
Payables from unsettled transactions |
47,366,994 | 22,975,533 | 49,029,789 | |||||||||
Director fees payable |
| 130,000 | 98,008 | |||||||||
Credit facilities payable |
80,556,800 | 80,056,800 | 82,956,800 | |||||||||
Notes payable (net of $2,006,553, $2,079,079 and $2,224,132 of unamortized financing costs as of June 30, 2018, March 31, 2018 and September 30, 2017, respectively) |
177,993,447 | 177,920,921 | 177,775,868 | |||||||||
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Total liabilities |
313,497,905 | 287,784,810 | 315,026,217 | |||||||||
Commitments and contingencies |
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Net assets: |
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Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding as of June 30, 2018, March 31, 2018 and September 30, 2017 |
294,668 | 294,668 | 294,668 | |||||||||
Additional paid-in-capital |
373,995,934 | 373,995,934 | 373,995,934 | |||||||||
Net unrealized depreciation on investments, secured borrowings and foreign currency |
(18,578,126 | ) | (39,791,730 | ) | (44,653,664 | ) | ||||||
Net realized loss on investments and secured borrowings |
(52,324,441 | ) | (27,764,071 | ) | (24,354,622 | ) | ||||||
Accumulated overdistributed net investment income |
(11,434,576 | ) | (12,233,793 | ) | (11,645,882 | ) | ||||||
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Total net assets (equivalent to $9.91, $9.99 and $9.97 per common share as of June 30, 2018, March 31, 2018 and September 30, 2017, respectively) |
291,953,459 | 294,501,008 | 293,636,434 | |||||||||
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Total liabilities and net assets |
$ | 605,451,364 | $ | 582,285,818 | $ | 608,662,651 | ||||||
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Oaktree Strategic Income Corporation
Consolidated Statements of Operations
(unaudited)
Three months ended June 30, 2018 |
Three months ended March 31, 2018 |
Three months ended June 30, 2017 |
Nine months ended June 30, 2018 |
Nine months ended June 30, 2017 |
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Interest income: |
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Control investments |
$ | 1,074,611 | $ | 768,550 | $ | 1,452,148 | $ | 3,041,858 | $ | 4,250,910 | ||||||||||
Affiliate investments |
| | 130,217 | | 331,804 | |||||||||||||||
Non-control/Non-affiliate investments |
9,642,088 | 8,290,028 | 10,406,975 | 26,696,591 | 28,930,631 | |||||||||||||||
Interest on cash and cash equivalents |
74,887 | 62,879 | 36,094 | 208,861 | 98,590 | |||||||||||||||
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Total interest income |
10,791,586 | 9,121,457 | 12,025,434 | 29,947,310 | 33,611,935 | |||||||||||||||
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PIK interest income: |
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Control investments |
562,883 | 774,562 | | 1,632,596 | | |||||||||||||||
Affiliate investments |
| | 63,551 | | 164,331 | |||||||||||||||
Non-control/Non-affiliate investments |
7,669 | 7,493 | | 18,425 | 20,965 | |||||||||||||||
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Total PIK interest income |
570,552 | 782,055 | 63,551 | 1,651,021 | 185,296 | |||||||||||||||
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Fee income: |
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Affiliate investments |
14,822 | | 3,351 | 14,822 | 9,647 | |||||||||||||||
Non-control/Non-affiliate investments |
283,864 | 651,259 | 498,497 | 1,333,172 | 1,177,271 | |||||||||||||||
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Total fee income |
298,686 | 651,259 | 501,848 | 1,347,994 | 1,186,918 | |||||||||||||||
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Dividend and other income: |
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Control investments |
| | | | 187,420 | |||||||||||||||
Allowance for control investments |
| | (420,192 | ) | | (420,192 | ) | |||||||||||||
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Total dividend and other income |
| | (420,192 | ) | | (232,772 | ) | |||||||||||||
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Total investment income |
11,660,824 | 10,554,771 | 12,170,641 | 32,946,325 | 34,751,377 | |||||||||||||||
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Expenses: |
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Base management fee |
1,414,815 | 1,393,458 | 1,419,603 | 4,220,445 | 4,234,003 | |||||||||||||||
Part I incentive fee |
1,002,145 | 480,384 | 1,143,101 | 1,742,251 | 2,420,829 | |||||||||||||||
Professional fees |
618,423 | 745,110 | 280,008 | 2,383,716 | 972,310 | |||||||||||||||
Board of Directors fees |
114,093 | 130,000 | 127,464 | 374,093 | 385,064 | |||||||||||||||
Interest expense |
3,235,080 | 2,898,165 | 2,661,975 | 8,897,722 | 8,124,752 | |||||||||||||||
Administrator expense |
326,998 | 281,931 | 127,533 | 888,613 | 456,018 | |||||||||||||||
General and administrative expenses |
225,132 | 276,568 | 480,490 | 936,910 | 1,513,902 | |||||||||||||||
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Total expenses |
6,936,686 | 6,205,616 | 6,240,174 | 19,443,750 | 18,106,878 | |||||||||||||||
Fees waived |
(347,760 | ) | (240,192 | ) | | (705,445 | ) | (6,232 | ) | |||||||||||
Insurance recoveries |
| | | | (250,000 | ) | ||||||||||||||
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Net expenses |
6,588,926 | 5,965,424 | 6,240,174 | 18,738,305 | 17,850,646 | |||||||||||||||
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Net investment income |
5,071,898 | 4,589,347 | 5,930,467 | 14,208,020 | 16,900,731 | |||||||||||||||
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Unrealized appreciation (depreciation) on investments and foreign currency: |
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Control investments |
(750,211 | ) | (59,931 | ) | 103,555 | (1,531,317 | ) | (1,702,261 | ) | |||||||||||
Affiliate investments |
16,333,131 | 134,093 | (1,633,615 | ) | 16,543,140 | (3,281,200 | ) | |||||||||||||
Non-control/Non-affiliate investments |
5,630,684 | 3,045,873 | (4,272,744 | ) | 11,063,715 | 7,195,580 | ||||||||||||||
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Net unrealized appreciation (depreciation) on investments and foreign currency |
21,213,604 | 3,120,035 | (5,802,804 | ) | 26,075,538 | 2,212,119 | ||||||||||||||
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Net unrealized appreciation on secured borrowings |
| | | | (14,575 | ) | ||||||||||||||
Realized gain (loss) on investments and secured borrowings: |
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Affiliate investments |
(15,914,944 | ) | | | (15,914,916 | ) | | |||||||||||||
Non-control/Non-affiliate investments |
(8,645,426 | ) | 973,257 | 11,535 | (12,054,903 | ) | (13,401,975 | ) | ||||||||||||
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Net realized gain (loss) on investments and secured borrowings |
(24,560,370 | ) | 973,257 | 11,535 | (27,969,819 | ) | (13,401,975 | ) | ||||||||||||
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Net increase in net assets resulting from operations |
$ | 1,725,132 | $ | 8,682,639 | $ | 139,198 | $ | 12,313,739 | $ | 5,696,300 | ||||||||||
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Net investment income per common share basic and diluted |
$ | 0.17 | $ | 0.16 | $ | 0.20 | $ | 0.48 | $ | 0.57 | ||||||||||
Earnings per common share basic and diluted |
$ | 0.06 | $ | 0.29 | $ | | $ | 0.42 | $ | 0.19 | ||||||||||
Weighted average common shares outstanding basic and diluted |
29,466,768 | 29,466,768 | 29,466,768 | 29,466,768 | 29,466,768 | |||||||||||||||
Distributions per common share |
$ | 0.145 | $ | 0.14 | $ | 0.19 | $ | 0.475 | $ | 0.605 |
Conference Call Information
Oaktree Strategic Income will host a conference call to discuss its third fiscal quarter results at 12:30 p.m. Eastern Time / 9:30 a.m. Pacific Time on August 8, 2018. 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. During the earnings conference call, Oaktree Strategic Income intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Strategic Income website, www.oaktreestrategicincome.com. Alternatively, a live webcast of the conference call can be accessed on Oaktree Strategic Incomes website.
For those individuals unable to listen to the live broadcast of the conference call, a replay will be available for 30 days on Oaktree Strategic Incomes website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10121987, 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 firm seeks 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. Oaktree Strategic Income is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Strategic Incomes website at www.oaktreestrategicincome.com.
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 or natural disasters; 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; 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.
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
Third Quarter Fiscal Year 2018 Earnings Presentation August 8, 2018 Nasdaq: OCSI Exhibit 99.2
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 Capital Management, L.P. (“Oaktree” or our “Investment Adviser”) to reposition our portfolio and to implement our Investment Adviser’s future plans with respect to our business; 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 and our quarterly report on Forms 10-Q for the quarters ended March 31, 2018 and June 30, 2018. 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 or natural disasters; 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; 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, 2018.
Accomplishments Since Oaktree Became Investment Adviser on October 17, 2017 ü Significant Progress Optimizing Portfolio Reduced non-core assets by $216 million in 34 individual positions, including many illiquid investments The vast majority of these investments were exited at par value or above their previously disclosed fair value marks More than doubled the amount of core investments, adding $344 million of new investment commitments across 47 companies Only 15% of the portfolio at fair value remains in non-core investments as of June 30, 2018 ü Improved Earnings and Dividends Net investment income (“NII”) per share increased by $0.02 per share since the quarter ended December 31, 2017 NII per share growth primarily attributable to higher interest income from our larger investment portfolio and reducing operating costs Two consecutive quarters of dividend growth Dividend has increased by $0.015 per share since the quarter ended December 31, 2017 ($ in millions, at fair value) +108% -73% ü Optimized Capital Structure Lowered borrowing costs and increased size of Citibank credit facility Reduced interest rate from LIBOR + 2.25%-2.50% to LIBOR + 1.70%-2.25%; increased size from $100 million to $180 million, providing flexibility to increase leverage to target range of 1.2x to 1.6x debt-to-equity Reduced interest rate on East West Bank credit facility from LIBOR + 3.25% to LIBOR + 2.85% 1 1Excludes investments in the Glick JV.
Q3 2018 Highlights Net investment income per share increased $0.01 to $0.17 for the quarter ended June 30, 2018 Our Board of Directors increased the dividend by $0.01 per share to $0.155 per share; payable on September 28, 2018 to stockholders of record as of September 15, 2018 Second consecutive quarter with an increase in the dividend Monetized approximately $28 million of non-core investments during the quarter ended June 30, 2018 Non-core investments decreased to 15% of the portfolio at fair value as of June 30, 2018 $23 million of non-core performing and $5 million of non-core, non-accrual investments Monetized approximately $215 million of non-core investments since September 30, 2017 Entered into $114 million of new investment commitments First lien originations represented 96% of new investment commitments 7.1% weighted average yield of new investments Net asset value per share of $9.91 as of June 30, 2018
Portfolio Summary as of June 30, 2018 (As % of total portfolio, at fair value; $ in millions) (As % of total portfolio, at fair value) Portfolio Composition Top 10 Industries1 Portfolio Characteristics (at fair value) $571 million invested in 72 companies 100% of debt portfolio consists of floating rate investments 7.9% weighted average yield on debt investments $8 million average debt investment size 1 Excludes multi-sector holdings, which includes our investments in the Glick JV. < 1%
Portfolio Summary: Core vs. Non-core Assets ($ in millions, at fair value) $435 million (85% of the total portfolio at fair value) Represents 57 companies, increase from 45 as of Q2 2018 Average debt price: 99.3% $114 million of new investments originated during Q3 2018 Core Investments1 Non-core Investments1 Performing Investments $78 million (15% of the total portfolio at fair value) Represents 13 companies, down from 16 as of Q2 2018 Non-accrual Investments $0.1 million (< 1% of the total portfolio at fair value) Represents 1 company As of June 30, 2018, unless otherwise noted Note:Numbers are rounded to nearest millions and percentage points. 1Total portfolio excludes investments in the Glick JV. -73% +108% $0.01
Non-core: Performing Portfolio Characteristics Non-core performing portfolio reduced by approximately $23 million (23%) during Q3 2018 $78 million non-core performing investments remain, consisting of the following: $20 million we expect will be monetized in the near term $19 million – publicly-quoted liquid loans Average debt price: 99.7% 5 companies $0.7 million – equity investments $39 million – privately placed debt investments Average debt price: 94.5% 4 companies (As % of non-core performing investment portfolio, at fair value; $ in millions) Non-core: Performing Investments by Type Non-core Investment Portfolio Detail As of June 30, 2018 Note:Numbers may not sum due to rounding. < 1% -73% ($ in millions) Non-core: Performing Portfolio Trend
Q3 2018 Portfolio Originations $114 million of new investment commitments $112 million in 15 new portfolio companies and $2 million in 1 existing portfolio company 96% First lien 4% Second lien Diversified across 14 industry sectors 7.1% weighted average yield at cost on new investments 100% of new debt investment commitments at floating rates New Investment Highlights1 (As % of total portfolio, at fair value – top 10) New Investment Industry Composition1 (As % of total 3Q18 commitment; $ in millions) New Investment Composition1 1New investments exclude fundings of existing revolver and delayed draw term loan commitments.
Historical Financial Information ($ in thousands, except per share data) Operating Results Q3’18 Q2’18 Q1’18 Q4’17 Q3’17 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Total investment income $11,661 $10,555 $10,731 $11,820 $12,171 Net expenses 6,589 5,965 6,184 6,300 6,861 Net investment income 5,072 4,589 4,547 5,521 5,930 Net unrealized appreciation (depreciation) on investments 21,214 3,120 1,742 (20,001) (5,803) Net realized gain (loss) on investments (24,560) 973 (4,383) 17 12 Net increase (decrease) in net assets resulting from operations $1,725 $8,683 $1,906 ($14,463) $139 Net investment income per common share $0.17 $0.16 $0.15 $0.19 $0.20 Net realized and unrealized appreciation (depreciation) per common share (0.11) 0.13 (0.09) (0.68) (0.20) Earnings (loss) per common share – basic and diluted $0.06 $0.29 $0.06 ($0.49) $0.00 Distributions per common share $0.145 $0.140 $0.190 $0.190 $0.190 Select Balance Sheet and Other Data Investment Portfolio (at fair value) $570,794 $542,673 $541,408 $560,437 $565,178 Debt Outstanding1 258,550 257,978 251,905 260,733 266,160 Total Net Assets 291,953 294,501 289,944 293,636 313,698 Net Asset Value per share $9.91 $9.99 $9.84 $9.97 $10.65 Total Leverage 0.89x 0.88x 0.88x 0.90x 0.86x Weighed Average Yield on Debt Investments2 7.9% 7.9% 7.1% 7.5% 7.9% Cash Component of Weighted Average Yield on Debt Investments 7.7% 7.7% 6.9% 7.3% 7.6% Weighted Average Yield on Total Portfolio Investments3 7.8% 7.7% 6.9% 7.4% 8.0% Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree Capital Management, L.P., which occurred on October 17, 2017. Results in prior periods occurred during management by Fifth Street Management LLC. 1Net of unamortized financing costs. 2 Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments, including our share of the return on the debt investments in the Glick JV. 3 Annual stated yield earned plus net annual amortization of original issue discount or premium earned on accruing investments and dividend income, including our share of the return on the debt investments in the Glick JV.
Historical Portfolio Activity ($ in thousands) As of and For Three Months Ended Q3’18 Q2’18 Q1’18 Q4’17 Q3’17 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Investments at Fair Value $570,794 $542,673 $541,408 $560,437 $565,178 Number of Portfolio Companies 72 65 66 67 68 Average Portfolio Company Debt Investment Size $8,100 $8,500 $8,300 $8,500 $8,200 Asset Class: Senior Secured Debt 89.7% 89.0% 89.2% 89.5% 88.3% Glick JV 10.1% 10.7% 10.6% 10.3% 10.9% Equity 0.2% 0.3% 0.2% 0.2% 0.8% Interest Rate Type for Debt Investments: % Floating Rate 100% 100% 100% 100% 100% Investment Activity at Cost: New Investment Commitments $113,600 $94,300 $136,200 $108,700 $58,000 New Funded Investment Activity1 114,300 94,700 143,900 108,400 66,900 Proceeds from Prepayments, Exits, Other Paydowns and Sales 83,800 98,400 161,400 94,500 43,400 Net New Investments2 29,800 (4,100) (25,200) 14,200 14,600 Number of New Investment Commitments in New Portfolio Companies 15 11 17 10 11 Number of New Investment Commitments in Existing Portfolio Companies 1 0 3 7 1 Number of Portfolio Company Exits 8 12 22 8 4 Note:Results during Q1’18 occurred during management transition from Fifth Street Management LLC to Oaktree Capital Management, L.P., which occurred on October 17, 2017. Results in prior periods occurred during management by Fifth Street Management LLC. Numbers may not sum due to rounding. 1New funded investment activity includes drawdowns on existing revolver commitments. 2Net new investments consists of new investment commitments less proceeds from prepayments, exits, other paydowns and sales.
Net Asset Value Per Share Bridge ($0.14) 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. 1 Excludes reclassifications of net unrealized appreciation / (depreciation) to net realized gains / (losses) as a result of investments exited during the quarter. 1 1
Capital Structure As of June 30, 2018 1Long-term portfolio leverage may vary depending on market conditions. 2 Approximate weighted average spread on debt. 3This credit facility was amended on July 18, 2018 to increase the size to $180 million from $100 million and extended the reinvestment and maturity periods by approximately 6 months. Current leverage of 0.89x debt-to-equity; target leverage ratio 1.2x to 1.6x1 Multiple capital sources provides us with flexibility to optimize new investment fundings in order to maintain competitive borrowing costs Amended revolving credit facility with Citibank in July; increased size of facility to $180 million from $100 million and extended reinvestment and maturity periods by approximately 6 months Amended revolving credit facility with East West Bank in May 2018; reduced borrowing costs from LIBOR + 3.25% to LIBOR + 2.85% Funding Sources as of June 30, 2018 Capacity Outstanding Interest Rate Maturity 2015 Debt Securitization $200.0 million $180.0 million LIBOR + 2.00%2 May 2025 Citibank Revolving Credit Facility3 $100.0 million $71.6 million LIBOR + 1.70%-2.25% January 2023 East West Bank Facility $25.0 million $9.0 million LIBOR + 2.85% January 2021
Opportunities to Increase Return on Equity Increasing leverage up to 2x debt-to-equity by modifying the required minimum asset coverage ratio from 200% to 150% On July 10, 2018, stockholders approved the proposal to modify the minimum asset coverage requirements to OCSI We expect it will take several quarters to reach our target leverage ratio of 1.2x to 1.6x debt-to-equity Redeploy non-interest generating investments comprised of equity and loans on non-accrual Exited virtually all the our non-interest generating assets during the quarter ended June 30, 2018; received $5 million from exits of two investments on non-accrual Modest increase in second lien investments Second liens represented 4% of the portfolio at fair value as of June 30, 2018 Realization of lower borrowing costs following refinancing Citibank facility and East West Bank facility Realized first full quarter of savings from the approximate 0.40% interest rate reduction related to Citibank facility Benefit from rising interest rates as 100% of debt investment portfolio is comprised of floating rate securities Experienced a full quarter of higher interest rates related to increased LIBOR Rotation into higher yielding proprietary investments During the quarter, we temporarily increased our exposure to broadly syndicated loans as we are taking a disciplined and selective approach to investing in the current environment Broadly syndicated loans priced lower than LIBOR + 4.00% totaled $34 million as of June 30, 2018
Contact: Michael Mosticchio, Investor Relations ocsi-ir@oaktreecapital.com
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