Oaktree Specialty Lending Corporation (OCSL) Earnings

Management highlights

### 2026 Core Objectives Progress - *Reduction of non-accruals*: Non-accrual levels fell 140 bps year-over-year to 1.8% of the debt portfolio at fair value, with five non-accrual positions exited in the last two quarters. Over 85% of the year-over-year decline in non-accrual dollars came from repayment proceeds and investments returning to accrual status. - *Balance sheet flexibility*: Net leverage ended the quarter at 1.02x, below the midpoint of the 0.9x-1.25x target range, down from 1.04x prior quarter. Total available liquidity was nearly $700 million at quarter end, positioning the firm to invest in market opportunities. The firm plans to address the $350 million of unsecured notes maturing in January 2027 over the next several quarters. ### Portfolio Activity Highlights - The highest-profile portfolio development was resolution of the Thrasio non-accrual position: Thrasio repaid 100% of its first out term loan and 75% of its second out term loan via asset sale proceeds, the remaining second out position was returned to accrual status (marked to 99% of par, up from 80% prior quarter) and is expected to be fully repaid in the coming months. - New investment commitments totaled $206 million for the quarter (stable relative to $204 million prior quarter), with proceeds from prepayments, exits and paydowns totaling $263 million. The weighted average yield on new debt investments was 10.0%, up from 9.2% prior quarter, reflecting wider spreads on new originations. - Portfolio remains well diversified: the average debt position is 0.65% of total fair value, no single position exceeds 2.1% of fair value. Portfolio company median EBITDA rose 4% sequentially to $189 million, weighted average leverage improved slightly to 5.1x from 5.2x, and interest coverage improved to 2.4x from 2.1x. ### Market Environment Update - Credit and equity markets stabilized in the third quarter, with lower volatility than the prior quarter, though high dispersion across credit quality persists. Direct lending deal value fell to a 2.5-year low amid a slowdown in private equity activity driven by a difficult exit environment, macro uncertainty and persistent inflation concerns. - Competitive conditions have improved for lenders: underwriting standards have strengthened, new 2026 originations offer more attractive terms than 2024-2025 deals, with new sponsor-backed first lien direct loans pricing at SOFR + 500-550 bps, up from SOFR + 450-475 bps in 2025. - The firm leverages the combined Oaktree-Brookfield platform to source differentiated opportunities beyond traditional U.S. sponsor-backed direct lending, including asset-backed finance, liquid credit, situational lending, non-U.S. direct lending and secondary transactions, allocating capital to opportunities with the strongest risk-adjusted returns.

Guidance

Management did not release explicit numerical earnings or return guidance. Key forward-looking outlooks are: - Maintain the existing 0.9x to 1.25x long-term target leverage range, with a current strategy of conserving capital and maintaining a defensive posture to prepare for expected future volatility and broader deployment opportunities. - Expect additional volatility and wider spreads over coming quarters related to upcoming maturities of 2021-2022 leveraged buyout loans (primarily 2027-2029), which will create attractive investment opportunities for well-capitalized lenders. - The firm expects existing redemption queues in non-traded BDCs may take several quarters to normalize, with reduced competition from these vehicles creating opportunities for permanent capital public BDCs including secondary purchases and industry consolidation. - The firm will address the $350 million of unsecured notes maturing in January 2027 over the next several quarters.

Segment performance

As of June 30, 2026, the overall debt portfolio had a weighted average yield of 9.3%. First lien senior secured debt represented 82% of the portfolio at fair value. The software industry segment represented 20% of the portfolio at fair value (down slightly quarter-over-quarter), with high AI risk software exposure holding at 3% of the performing debt portfolio at fair value. Non-accrual investments represented 1.8% of the total debt portfolio at fair value, down 80 bps sequentially and 140 bps year-over-year. Adjusted total investment income for the quarter was $69.2 million (down slightly from $69.7 million prior quarter), adjusted net investment income was $32.2 million ($0.37 per share, down from $33.7 million/$0.38 per share prior quarter). NAV per share was $15.70, stable relative to $15.69 at the end of the prior quarter. Joint ventures held $524 million of investments across 135 portfolio companies, generating 11.3% aggregate return on equity for the quarter, with leverage of 2.1x (up from 1.9x prior quarter).

Risks & headwinds

- Persistent inflation has increased the risk that base interest rates will remain higher for longer, which supports higher income from floating-rate loans but also increases interest burdens for portfolio companies, requiring close monitoring of interest coverage metrics. - Underlying macroeconomic weakness remains beneath the surface, with elevated energy costs, labor costs and interest rates creating pressure on portfolio company performance. - A meaningful portion of loans originated in 2020-2021 (particularly ARR-based software loans) mature in 2027-2028, and refinancing these loans will be a market test, with negative outcomes concentrated in high-leverage, low free cash flow software borrowers exposed to AI disruption. - Non-traded BDCs face elevated redemption requests driven by liquidity mismatches between investor redemption expectations and illiquid underlying assets, which may take multiple quarters to resolve. - Bifurcated public credit markets mean high-quality public credits trade at extremely tight spreads, while low-quality stressed/defaulted securities have very limited market liquidity, limiting attractive opportunities in most segments of public credit.

Analyst Q&A

• Q: Given macro headwinds for portfolio companies and improved deal structure from lower competition, how does management characterize the current position in the cycle for returns? /

  A: Management noted current spreads are 50-75 bps wider than six months ago due to outflows from non-traded BDCs. Upcoming maturities of 2021-2022 LBO loans (2027-2029) will likely bring more volatility that creates wider spread, better return opportunities. Management is maintaining a capital-conserving, defensive, risk-averse posture to lean into opportunities later, and does not see the maximum opportunity set available today despite surface-level economic stability.

• Q: What is management's deployment posture, how does it view relative value across sponsor-backed direct lending versus other opportunities, and what is the outlook for industry consolidation? /

  A: Deployment conditions are better than six months ago but not as attractive as they are expected to become. On a relative value basis, private credit currently offers better return per unit of risk than public credit, as high-quality public credits have tightened sharply while private credit spreads have widened. The most attractive unmet opportunity is in bespoke asset-backed finance, where market inefficiencies generate strong returns. For industry consolidation, management is open-minded to small platform or sourcing opportunities, but large scale M&A consolidation is not a critical priority and no material deals are actively in progress.

• Q: The quarter saw realized losses of ~$50 million as part of non-accrual reduction efforts. How will rating agencies view the tradeoff of lower non-accruals versus higher realized losses? /

  A: Most of the realized losses came from crystallization of longstanding markdowns on legacy positions (the largest loss dated back to a 2017 BDC acquisition). Quarter-over-quarter NAV was stable, which is a positive signal. Rating agencies are primarily focused on three key metrics: non-accrual levels (which have shown strong improvement), NAV stabilization, and prudent leverage (running around 1x at the lower end of the target range). Management does not expect the realized losses to be viewed as troubling given this context.