Oaktree Specialty Lending Corporation Q4 FY2025 earnings call

• Matt Pendo noted that 2025 reflected steady improvement despite a choppy macro environment. In the fourth quarter, adjusted net investment income increased, and nonaccruals decreased. - Armen Panossian discussed the market environment: private credit deal flow showed modest improvement but had mixed quality; momentum in Europe slowed; private credit spreads possibly bottomed out at SOFR plus $4.50. - Raghav Khanna shared investment activity: new funded investment commitments in the fourth quarter were $120 million, up 54% from the prior quarter; first lien loans accounted for 88% of new originations; over 40% of portfolio companies were marked up; made progress in reducing nonaccruals, including work with Mosaic and Inopen Therapeutics. - Christopher McKown reviewed financial results: In the fourth fiscal quarter, adjusted net investment income was $35.4 million or $0.40 per share; NAV per share was $16.64; leverage ratio was 0.97 times; joint ventures generated an aggregate ROE of 12.4% in the fourth quarter.

In the fourth quarter, OCSL achieved adjusted net investment income of $0.40 per share, up from $0.37 in the prior quarter. For the full year 2025, nonaccruals were 2.8% of the portfolio measured at fair value, down 20 basis points from the third quarter and 100 basis points from the previous year. As of September 30, 83% of the portfolio was composed of first lien senior secured debt, and the weighted average yield on debt investments was 9.8%. The median EBITDA of portfolio companies was approximately $150 million, portfolio company weighted average leverage slightly increased to 5.2 times from 5.1 times, and weighted average interest coverage remained at 2.2 times.

• Matt mentioned several levers to offset lower base rates on net investment income, such as prudently increasing balance sheet leverage, optimizing joint ventures, and reducing nonaccruals and equity positions. - Armen stated that there were no expected outsized repayments for the December quarter, and deployment was prudent and not materially different from past quarters.

• Uncertainty in the macro environment. - Mixed quality of private credit deals. - Political and economic uncertainty in Europe. - Risks associated with nonaccrual investments, like ongoing workouts with Mosaic and Inopen Therapeutics.

Q: Melissa Wedel inquired about investment activity and outsized repayments in the December quarter.

A: Armen Panossian said no outsized repayments were expected, and deployment was prudent and not materially different from past December quarters.

Q: Melissa Wedel asked about the higher yield on new investments related to the Walgreens deal.

A: Christopher McKown said it was related to the Walgreens deal and June's LIBOR indexed loans with hedging impact causing noise; Armen added Walgreens was a high-spread loan but nothing as high in the fourth quarter.

Q: Sean Paul Adams asked about nonaccruals in the healthcare and pharma segments.

A: Armen Panossian said there were chunky positions in life sciences like FIO2, being worked out with operational improvements but no near-term significant changes.