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

Los Angeles, California, UNITED STATES


LOS ANGELES, CA, Aug. 10, 2020 (GLOBE NEWSWIRE) -- 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.

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 income744,122  296,894  2,838 
Fee income108,580  380,114  284,081 
Total investment income8,636,161  10,342,613  13,808,523 
Net expenses5,467,652  5,780,838  7,890,136 
Net investment income3,168,509
  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 value506,452,244  524,379,311  597,104,447 
Total debt outstanding312,156,800  327,156,800  294,656,800 
Net assets249,709,066  211,233,898  284,450,006 
Net asset value per share8.47  7.17  9.65 
Total debt to equity ratio1.25x 1.55x 1.04x
Net debt to equity ratio1.13x 1.44x 1.02x

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.

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.

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.

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


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 equivalents30,102,649   21,931,375   5,646,899  
Restricted cash7,792,996   9,321,466   8,404,733  
Interest, dividends and fees receivable1,940,633   1,489,472   3,813,730  
Due from portfolio companies556,404   539,587   350,597  
Receivables from unsettled transactions29,207,404   28,775,575   5,091,671  
Deferred financing costs2,010,442   2,308,557   2,139,299  
Deferred offering costs101,846        
Derivative asset at fair value281,117   316,967   20,876  
Other assets879,067   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 payable1,641,920   1,442,121   1,368,431  
Due to affiliate1,136,158   1,041,237   1,457,007  
Interest payable1,983,791   2,532,742   2,750,587  
Payables from unsettled transactions11,385,018   44,817,245   37,724,473  
Director fees payable      25,000  
Credit facilities payable312,156,800   327,156,800   294,656,800  
Total liabilities329,615,736   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, 2019294,668   294,668   294,668  
Additional paid-in-capital369,199,332   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  


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