Oaktree Strategic Income Corporation
Q1 2017 Earnings Call Transcript

Published: 10 Feb 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Fifth Street Senior Floating Rate Corporation's First Quarter 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Ms. Robyn Friedman, Head of Investor Relations. Ma'am, you may begin.

[Robyn Friedman:]

Thank you, Chelsea. Good morning, and welcome to Fifth Street Senior Floating Rate Corp's first quarter 2017 earnings call. I am joined this morning by Patrick Dalton, Chief Executive Officer; and Steven Noreika, Chief Financial Officer. Replay information for this call is included in our February 9, 2017, press release and is posted on the Investor Relations section of Fifth Street Senior Floating Rate Corp's Web site, which can be found at fsfr.fifthstreetfinance.com. Please note that this call is the property of Fifth Street Senior Floating Rate Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call may include forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. Forward-looking statements may include statements as to the future operating results, dividends, and business prospects of Fifth Street Senior Floating Rate Corp. Words such as believes, expects, seeks, plans, should, will, estimates, projects, anticipates, intend, and future, or similar expressions, are intended to identify forward-looking statements, although not all forward-looking statements include these words. These forward-looking statements are subject to the inherent risks and uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected or implied in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. To obtain copies of our latest SEC filings, please visit our Web site, or call Investor Relations at 203-681-3720. FSFR undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. The format for today's call is as follows; Patrick will provide an overview of our results and outlook, and Steve will summarize the financials. I will now turn the call over to Patrick.

[Patrick Dalton:]

Thank you, Robyn. Welcome to FSFR's first quarter 2017 earnings conference call. Before diving into the quarter, let me begin by saying that I am pleased to be here for my first earnings call as CEO, after officially joining in the beginning of January and assuming responsibility for all aspects of FSFR's investment and operating strategies. As you may know, in mid-September I was engaged as an advisor to FSAM Board of Directors based on the recommendation of an independent member of FSAM's Board. In that role, I was tasked with evaluating and making recommendations across three key areas

[Steve Noreika:]

Thank you, Patrick. We ended the first fiscal quarter of 2017 with total assets of $590.2 million as compared to $622.4 million at September 30, 2016. Portfolio investments totaled $540.1 million at fair value, and were spread across 61 companies at December 31, 2016. At the end of the December quarter, we had $43.7 million of cash and cash equivalents, including restricted cash, on our balance sheet. Net asset value per share was $10.86 as compared to $11.06 at the end of the September quarter. For the three months ended December 31, 2016, we generated total investment income of $11.6 million and net investment income of $5.9 million or $0.20 per share. During the first fiscal quarter of 2017, we closed $41.3 million of investments in six new and two existing portfolio companies and funded $37.6 million across new and existing portfolio companies. We also received $58.3 million in connection with repayments and exits of eight of our investments, all of which were accepted at or above par and an additional $8.4 million in connection with other pay downs and sales of investments. As of December 31, 2016, 87.3% of the portfolio consisted of senior secured floating-rate loans a 11.4% of the portfolio consisted of investments in the subordinated notes and equity interests in FSFR Glick JV; and 1.2% consisted of equity investments in other portfolio companies. At December 31, 2016, the average size of a portfolio debt investment was $8.7 million, and average portfolio company EBITDA was $66.9 million. Only two portfolio companies were on non-accrual status, representing 2.9% of total debt investments at fair value. FSFR's senior secured loan joint venture with the Glick family had $170 million in assets, including senior secured loans across 32 portfolio companies as of December 31, 2016. The joint venture generated $1.6 million of income for FSFR during the quarter representing an 8.9% weighted average annualized return on our investment. The weighted average yield on our debt investments, including the return on the JV, was 8.5% as of December 31, 2016 and included a cash component of 8.2%. We ended the first fiscal quarter of 2017 at 0.79x debt to equity, below our targeted range of 0.8x to 0.9x. As of December 31, 2016, we had $177.6 million of notes payable outstanding related to our securitization and $72.3 million drawn on our Citibank and East West Bank credit facilities. I will now turn it back over to Robyn.

[Robyn Friedman:]

Thank you for joining us on today's call. We appreciate you spending the time to listen as we discussed a comprehensive plan for FSFR. Since we have a covered a lot of material, we have chosen not to host a live Q&A for this conference call, but have reached out to schedule a time with all of our analysts. And we encourage investors that have questions to call Investor Relations at 203-681-3720 or email Investor Relations at [e-mail]. I will now turn the call over to Chelsea.

[End of Q&A:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.