Oaktree Returns to Profit as Investment Losses Narrow
Non-accrual investments declined to six from 10 in the preceding quarter.
Oaktree Specialty Lending (OCSL), a business development company, returned to an operating profit as investment losses narrowed sharply, producing earnings of $0.35 a share after a $0.21-a-share loss in the preceding quarter.
The rebound came despite continued pressure on investment income from a smaller portfolio and lower yields. Net asset value stabilized at $15.70 a share, up one cent sequentially but down from $16.76 a year earlier.
Total investment income fell to $69.4 million, or $0.79 a share, from $70.4 million, or $0.80 a share, in the prior quarter and $75.3 million, or $0.85 a share, a year earlier. The sequential decline was mainly due to a lower average portfolio balance and less nonrecurring income. GAAP net investment income decreased to $32.5 million, or $0.37 a share, from $34.4 million, or $0.39 a share, sequentially.
Interest income declined to $61.6 million from $65.3 million, while payment-in-kind interest rose to $5.2 million from $3.5 million. Dividend income increased to $1.6 million from $378,000, partly offsetting the weaker cash-interest contribution. Net expenses increased $0.6 million to $36.6 million as higher incentive fees outweighed lower interest expense from reduced average borrowings.
Net realized and unrealized losses narrowed to $1.6 million from $53.3 million in the preceding quarter. That shift lifted the net increase in assets from operations to $30.9 million from a decrease of $18.9 million, though the result remained below the $38.4 million increase recorded a year earlier.
Credit metrics also improved. Non-accrual investments represented 1.8% of debt investments at fair value, down from 2.6% sequentially and 3.2% a year earlier. At cost, the ratio fell to 4.2% from 5.9% in the prior quarter and 6.6% a year earlier.
The portfolio contracted to $2.742 billion at fair value from $2.766 billion, while net investment outflows narrowed to $27.3 million from $135.5 million as funded activity increased and repayment, exit and sale proceeds declined. First-lien exposure fell to 81.5% from 83.7%, alongside increases in second-lien and unsecured debt.
Oaktree reduced total debt outstanding to $1.439 billion from $1.482 billion, lowering its debt-to-equity ratio to 1.05 times from 1.08 times. The portfolio’s cash yield still eased to 8.2% from 8.4%, leaving the lender with lower leverage as cash returns remained under pressure.