Oaktree Strategic Income Corporation
Q1 2021 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Welcome and thank you for joining Oaktree Strategic Income Corporation’s Fiscal First Quarter Conference Call. Today’s conference call is being recorded. Now, I would like to introduce Michael Mosticchio of Investor Relations, who will host today’s conference call. Mr. Mosticchio, you may begin.

[Michael Mosticchio:]

Thank you, operator and welcome to Oaktree Strategic Income Corporation’s first fiscal quarter conference call. Our earnings release that was issued this morning and the slide presentation that accompanies this call can be accessed on the Investors section of our website at oaktreestrategicincome.com.

[Matt Pendo:]

Thank you, Mike and welcome everyone to our first quarter earnings conference call. We appreciate your continued interest in and support of OCSI and we hope everyone listening is well. We begin fiscal year 2021 with very strong earnings and originations while maintaining solid credit quality. NAV was up 4% to $9.38 per share, approximately 97% of its pre-pandemic level, as tighter credit spreads in the liquid loan and private debt markets drove higher valuations in our portfolio in the December quarter. Net investment income for the first quarter was $0.14 per share, up 7% from the prior quarter, driven by lower interest expense that was due to a small decrease in outstanding borrowings as well as lower Part I incentive fees, which Mel will explain in more detail. Based on the strength of OCSI’s earnings, our Board of Directors declared a cash dividend of $0.155 per share, an increase of 7% from the prior quarter’s distribution and the second consecutive quarterly distribution increase. We continued to build momentum and generated another solid quarter of origination activity. During the quarter, we originated $55.8 million of new investment commitments, exceeding the $34.3 million of proceeds from prepayments, exits, other pay-downs and sales during the quarter. All of our new investments in the quarter were first lien loans, attractively priced and spread across a wide array of businesses and industries. The weighted average yield on new debt investments was 8.2%, which compares favorably to the approximately 5% weighted average yield on the investments that we exited during the quarter.

[Armen Panossian:]

Thanks, Matt and good morning everyone. I will begin with our view on the environment. The recovery in credit and equity markets that developed in calendar 2020 has continued into this year, underpinned by extraordinary fiscal and monetary stimulus and also supported to an extent by gradually improving economic conditions and consumer sentiment. Investors are also encouraged by the rollout of COVID-19 vaccines and commitments by the new administration to step up the inoculation process in hopes of vaccinating enough people to end the pandemic later this year. And yet, valuations feel elevated and might not necessarily reflect current macro conditions or the prevailing outlook for gradual economic growth this year.

[Mel Carlisle:]

Thank you, Armen. OCSI delivered another quarter of strong financial performance. For the first quarter of fiscal year 2021, total investment income was $9 million, consistent with the September quarter. Net expenses for the quarter totaled $5 million, down $0.2 million from the previous quarter. The decline was mainly due to $0.4 million lower interest expense resulting from lower average borrowings and $0.3 million lower Part 1 incentive fees. This was partially offset by $0.6 million higher professional fees incurred in connection with the pending merger. For the quarter, OCSI reported net investment income of $4 million or $0.14 per share, up 7% from $3.7 million or $0.13 per share for the fourth quarter of fiscal year 2020.

[Matt Pendo:]

Thank you, Mel. The defensive repositioning that we launched in 2017 has largely been completed, and we feel very good about our current holdings. As Armen noted, our overall pipeline of potential transactions remained strong and we expect to continue to identify compelling investment opportunities throughout fiscal 2021. We will also continue to position the portfolio for an improved yield by rotating out of lower-yielding investments priced at LIBOR plus 400 or lower. We made good progress on this initiative in the quarter as we opportunistically sold $14 million of these types of investment. At December 31, we had $39 million of these lower-yielding loans, which we plan to replace over time with higher yielding proprietary investment.

[Operator:]

Thank you. The first question comes from Chris Gastelu of CGA. Please go ahead.

[Chris Gastelu:]

Thank you and congrats on a good quarter another good quarter and also congrats on guiding OCSI to a nice conclusion once that merger wraps up. I guess on earnings day, you guys will be able to have lunch going forward since this 12

[Michael Mosticchio:]

Mel, do you want to answer that?

[Mel Carlisle:]

Sure. There is not an update. The number we included in the proxy, it should come out pretty close to that.

[Chris Gastelu:]

Okay, great. That’s it. That’s all for me. Thank you.

[Operator:]

Showing no further questions, I’ll now turn the call back over to Michael Mosticchio.

[Michael Mosticchio:]

Thanks, Melissa and thank you all for joining us on today’s earnings conference call. A replay of this call will be available for 30 days on Oaktree Strategic Income’s website in the Investors section, or by dialing 877-344-7529 for U.S. callers or 412-317-0088 for non-U.S. callers, with the replay access code 10151068, beginning approximately 1 hour after this broadcast.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.