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News Release

Oaktree Strategic Income Corporation Announces Fourth Fiscal Quarter 2017 Financial Results

LOS ANGELES, Dec. 01, 2017 (GLOBE NEWSWIRE) -- Oaktree Strategic Income Corporation (formerly known as Fifth Street Senior Floating Rate Corp. through October 17, 2017) (NASDAQ:OCSI) (“Oaktree Strategic Income” or the “Company”), a specialty finance company, today announced its unaudited financial results for the fourth fiscal quarter ended September 30, 2017.

Fourth Fiscal Quarter 2017 Highlights

  • Net investment income of $5.5 million, or $0.19 per share;

  • Net asset value per share as of September 30, 2017 of $9.97;

  • Originated $108.7 million of new investment commitments and received $71.3 million in connection with full repayments and exits of investments; and

  • On August 7, 2017, the Company’s Board of Directors declared a fourth quarter dividend of $0.19 per share, payable on December 29, 2017 to stockholders of record on December 15, 2017.

Recent Developments

  • On October 17, 2017, Oaktree Capital Management, L.P. was appointed as the investment adviser of the Company and Edgar Lee was appointed Chief Executive Officer. Other members of the executive leadership team include Matt Pendo, Chief Operating Officer, Mel Carlisle, Chief Financial Officer, and Kim Larin, Chief Compliance Officer.

Management Commentary

“We are very excited to be managing Oaktree Strategic Income,” said Edgar Lee, Chief Executive Officer of Oaktree Strategic Income. “The vast majority of the portfolio is invested in senior secured loans to established middle-market companies that are performing well. We have begun making new investments and over time, we intend to increase our exposure to larger, more liquid first lien loans in both the broadly syndicated and private placement markets. We believe the Oaktree platform and our ability to co-invest alongside other Oaktree funds positions us well to deliver stable income and attractive returns to our stockholders over time.”

Portfolio and Investment Activity

As of September 30, 2017, the fair value of the investment portfolio was $560.4 million and total assets were $608.7 million. The investment portfolio consisted of investments in 67 companies and also included the Company’s investment in FSFR Glick JV LLC ("Glick JV").

At fair value, 89.5% of the Company's portfolio as of September 30, 2017 consisted of senior secured floating-rate debt investments, including 84.9% of first lien loans and 4.6% of second lien loans; 10.3% consisted of a subordinated note in Glick JV; and 0.2% in equity investments in other portfolio companies.

As of September 30, 2017, Glick JV had $126.7 million in assets, including senior secured loans to 23 portfolio companies.  The joint venture generated income of $1.2 million for Oaktree Strategic Income during the fourth quarter.

The weighted average yield on the Company's debt investments as of September 30, 2017, including the return on our subordinated note investment in Glick JV, was 7.5%, including 7.3% representing cash payments.

During the quarter ended September 30, 2017, the Company originated $108.7 million of investment commitments in 10 new and seven existing portfolio companies and funded $108.4 million across new and existing portfolio companies.

During the quarter, the Company received $71.3 million in connection with the full repayments and exits of eight of its investments, and an additional $23.2 million in connection with other paydowns and sales of investments.

Results of Operations

Total investment income for the quarter ended September 30, 2017 was $11.8 million, including $10.9 million of cash interest income from portfolio investments.

Net expenses for the quarter ended September 30, 2017 were $6.3 million. Net expenses increased slightly from $6.2 million in the quarter ended June 30, 2017.

Net unrealized depreciation on the investment portfolio for the quarter was $20.0 million, which was primarily due to significant write-downs on a number of the Company's portfolio companies, including $10.3 million on one of the Company's investments.

Liquidity and Capital Resources

As of September 30, 2017, the Company had $43.0 million of cash and cash equivalents, total principal value of debt outstanding of $263.0 million, and $67.0 million of undrawn capacity on its credit facilities, subject to borrowing base and other limitations. The weighted average interest rate on debt outstanding was 3.26% as of September 30, 2017.

As of September 30, 2017, the Company’s total leverage ratio was 0.90x debt-to-equity.

Dividend Declaration

On August 7, 2017, the Company’s Board of Directors declared a fourth quarter dividend of $0.19 per share, payable on December 29, 2017 to stockholders of record on December 15, 2017.

Dividends are paid primarily from distributable (taxable) income. To the extent taxable earnings for a fiscal taxable year fall below the total amount of distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to the Company’s stockholders.

Portfolio Asset Quality

As of September 30, 2017, there were three investments on which the Company had stopped accruing cash and/or PIK interest or original issue discount ("OID") income that, in the aggregate, represented 5.6% of the debt portfolio at cost and 1.1% at fair value.

     
($ in thousands)    
Non-Accrual - Debt Investments As of September 30, 2017 As of June 30, 2017
Non-Accrual Investments at Fair Value $ 6,293   $ 7,922  
Non-Accrual Investments/Total Investments at Fair Value 1.1 % 1.4 %
         



 
Oaktree Strategic Income Corporation
Consolidated Statements of Assets and Liabilities
 
  September 30,
 2017
  June 30,
 2017
  September 30,
 2016
ASSETS        
Investments at fair value:          
Control investments (cost September 30, 2017: $71,340,632; cost June 30, 2017: $71,117,506; cost September 30, 2016: $71,117,506) $ 57,606,674     $ 61,614,406     $ 63,316,667  
Affiliate investments (cost September 30, 2017: $17,479,053; cost June 30, 2017: $18,006,812; cost September 30, 2016: $15,953,798) 935,913     11,778,272     13,006,458  
Non-control/Non-affiliate investments (cost September 30, 2017: $516,270,639; cost June 30, 2017: $500,706,398; cost September 30, 2016: $513,397,659) 501,894,073     491,785,575     497,281,256  
Total investments at fair value (cost September 30, 2017: $605,090,324; cost June 30, 2017: $589,830,716; cost September 30, 2016: $600,468,963) 560,436,660     565,178,253     573,604,381  
Cash and cash equivalents 35,604,127     19,258,982     19,778,841  
Restricted cash 7,408,260     7,651,878     9,036,838  
Interest, dividends and fees receivable 3,014,075     2,883,409     4,579,935  
Due from portfolio companies 286,260     305,501     336,429  
Receivables from unsettled transactions 505,000     846,065     12,869,092  
Deferred financing costs 1,222,933     1,348,806     2,063,133  
Other assets 185,336     344,196     148,492  
Total assets $ 608,662,651     $ 597,817,090     $ 622,417,141  
LIABILITIES AND NET ASSETS        
Liabilities:          
Accounts payable, accrued expenses and other liabilities $ 482,877     $ 466,921     $ 1,246,286  
Base management fee and incentive fee payable 2,236,187     2,163,704     2,987,721  
Due to FSC CT 450,517     427,646     402,073  
Interest payable 1,996,171     1,946,228     1,798,653  
Payables from unsettled transactions 49,029,789     12,831,700      
Amounts payable to syndication partners         18,750  
Director fees payable 98,008     122,450     236,275  
Credit facilities payable 82,956,800     86,656,800     107,426,800  
Notes payable (net of $2,224,132, $2,296,658 and $2,514,236 of unamortized financing costs as of September 30, 2017, June 30, 2017 and September 30, 2016, respectively) 177,775,868     179,503,342     177,485,764  
Secured borrowings at fair value (proceeds September 30, 2016: $5,000,000)         4,985,425  
Total liabilities 315,026,217     284,118,791     296,587,747  
Commitments and contingencies          
Net assets:          
Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding at September 30, 2017, June 30, 2017 and September 30, 2016 294,668     294,668     294,668  
Additional paid-in-capital 373,995,934     373,995,934     373,995,934  
Net unrealized depreciation on investments and secured borrowings (44,653,664 )   (24,652,463 )   (26,850,007 )
Net realized loss on investments (24,354,622 )   (24,371,682 )   (10,969,707 )
Accumulated overdistributed net investment income (11,645,882 )   (11,568,158 )   (10,641,494 )
Total net assets (equivalent to $9.97, $10.65 and $11.06 per common share at September 30, 2017, June 30, 2017 and September 30, 2016, respectively) 293,636,434     313,698,299     325,829,394  
Total liabilities and net assets $ 608,662,651     $ 597,817,090     $ 622,417,141  
 



   
Oaktree Strategic Income Corporation  
Consolidated Statements of Operations  
   
    Three months
ended
September 30,
2017
  Three months
ended
June 30, 2017
  Three months
ended
September 30,
2016
  Year ended
September 30,
2017
  Year ended
September 30,
2016
 
Interest income:                      
Control investments   $ 1,290,389     $ 1,452,148     $ 1,383,409     $ 5,541,299     $ 5,065,350    
Affiliate investments       130,217     97,191     331,804     182,194    
Non-control/Non-affiliate investments   9,559,293     10,406,975     10,736,098     38,489,924     42,152,565    
Interest on cash and cash equivalents   68,306     36,094     15,319     166,896     68,630    
Total interest income   10,917,988     12,025,434     12,232,017     44,529,923     47,468,739    
PIK interest income:                      
Control investments   223,125             223,125        
Affiliate investments       63,551     48,595     164,331     91,097    
Non-control/Non-affiliate investments           13,182     20,965     75,968    
Total PIK interest income   223,125     63,551     61,777     408,421     167,065    
Fee income:                      
Affiliate investments       3,351     3,148     9,647     6,296    
Non-control/Non-affiliate investments   1,022,638     498,497     206,405     2,199,909     3,071,634    
Total fee income   1,022,638     501,848     209,553     2,209,556     3,077,930    
Dividend and other income:                      
Control investments           700,000     187,420     2,712,500    
Allowance for control investments   (343,272 )   (420,192 )       (763,464 )      
Total dividend and other income   (343,272 )   (420,192 )   700,000     (576,044 )   2,712,500    
Total investment income   11,820,479     12,170,641     13,203,347     46,571,856     53,426,234    
Expenses:                      
Base management fee   1,420,696     1,419,603     1,516,133     5,654,699     6,134,304    
Part I incentive fee   815,491     1,143,101     1,477,820     3,236,320     5,211,729    
Professional fees   543,226     280,008     664,247     1,515,536     4,193,532    
Board of Directors fees   153,008     127,464     81,275     538,072     546,300    
Interest expense   2,645,090     2,661,975     2,546,007     10,769,842     9,594,441    
Administrator expense   205,152     127,533     98,269     661,170     504,299    
General and administrative expenses   516,854     480,490     483,778     2,030,756     1,955,177    
Total expenses   6,299,517     6,240,174     6,867,529     24,406,395     28,139,782    
Base management fee waived           (6,232 )   (6,232 )   (6,232 )  
Insurance recoveries               (250,000 )      
Net expenses   6,299,517     6,240,174     6,861,297     24,150,163     28,133,550    
Net investment income   5,520,962     5,930,467     6,342,050     22,421,693     25,292,684    
Unrealized appreciation (depreciation) on investments:                      
Control investments   (4,230,858 )   103,555     (214,065 )   (5,933,119 )   (5,979,787 )  
Affiliate investments   (10,314,600 )   (1,633,615 )   (566,607 )   (13,595,800 )   (2,947,340 )  
  Non-control/Non-affiliate investments   (5,455,743 )   (4,272,744 )   2,426,107     1,739,837     (8,067,972 )  
Net unrealized appreciation (depreciation) on investments   (20,001,201 )   (5,802,804 )   1,645,435     (17,789,082 )   (16,995,099 )  
Net unrealized (appreciation) depreciation on secured borrowings           14,575     (14,575 )   14,575    
Realized gain (loss) on investments and secured borrowings:                      
  Non-control/Non-affiliate investments   17,060     11,535     590,889     (13,384,915 )   (12,769,777 )  
Net realized gain (loss) on investments and secured borrowings   17,060     11,535     590,889     (13,384,915 )   (12,769,777 )  
Net increase (decrease) in net assets resulting from operations   $ (14,463,179 )   $ 139,198     $ 8,592,949     $ (8,766,879 )   $ (4,457,617 )  
Net investment income per common share — basic and diluted   $ 0.19     $ 0.20     $ 0.22     $ 0.76     $ 0.86    
Earnings (loss) per common share — basic and diluted   $ (0.49 )   $     $ 0.29     $ (0.30 )   $ (0.15 )  
Weighted average common shares outstanding — basic and diluted   29,466,768     29,466,768     29,466,768     29,466,768     29,466,768    
Distributions per common share   $ 0.19     $ 0.19     $ 0.225     $ 0.80     $ 0.90    

__________
Note: All interim financial results presented in this release are unaudited. Financial results for the year ended September 30, 2017 are  subject to the completion of the Company’s annual audit.

Conference Call Information

Oaktree Strategic Income will host a conference call to discuss results for its fiscal quarter and year ended September 30, 2017 on December 1, 2017 at 1:00 p.m. Eastern Time / 10:00 a.m. Pacific Time.  The conference call may be accessed by dialing (877) 507-4376 (U.S. callers) or +1 (412) 317-5239 (non-U.S. callers), participant password “Oaktree Strategic Income.”  During the earnings conference call, Oaktree Strategic Income intends to refer to an investor presentation that will be available on the Investors section of the Oaktree Strategic Income website, www.oaktreestrategicincome.com. Alternatively, a live webcast of the conference call can be accessed through the Investors section of Oaktree Strategic Income website, www.oaktreestrategicincome.com.

For those individuals unable to listen to the live broadcast of the conference call, a replay will be available for 30 days on Oaktree Strategic Income’s website, or by dialing (877) 344-7529 (U.S. callers) or +1 (412) 317-0088 (non-U.S. callers), access code 10114279, beginning approximately one hour after the broadcast.

About Oaktree Strategic Income Corporation

Oaktree Strategic Income Corporation (NASDAQ:OCSI) is a specialty finance company dedicated to providing customized capital solutions for middle-market companies in both the syndicated and private placement markets. The Company seeks to generate a stable source of current income while minimizing the risk of principal loss and, to a lesser extent, capital appreciation by providing middle-market companies with primarily first lien secured debt financings that pay the Company interest at rates which are determined periodically on the basis of a floating interest rate. The Company is regulated as a business development company under the Investment Company Act of 1940, as amended. Oaktree Strategic Income is managed by Oaktree Capital Management, L.P. For additional information, please visit Oaktree Strategic Income's website at www.oaktreestrategicincome.com.

Forward-Looking Statements

Some of the statements in this press release constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements may include statements as to: our future operating results and distribution projections; our business prospects and the prospects of our portfolio companies; and the impact of the investments that we expect to make. In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this press release involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in our annual report on Form 10-K. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or regulated investment companies; and other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this presentation on information available to us on the date of this presentation, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Contacts

Investor Relations:
Oaktree Strategic Income Corporation
Michael Mosticchio
(212) 284-1900
ocsi-ir@oaktreecapital.com

Media Relations:
Financial Profiles, Inc.
Moira Conlon
(310) 478-2700
mediainquiries@oaktreecapital.com

 

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