Melissa Waddell

Melissa Waddell inquired if any timing issues, such as early paydowns or late fundings, skewed the net investment income (NII) this quarter. She also asked about the company's strategy for spillover income, specifically if they plan to retain a base level rather than using the entire $0.73 per share to cover dividend shortfalls.

Answer

Chairman and CEO Art Penn and CFO Rick Allorto stated that no significant timing issues jumped out regarding NII. Rick Allorto highlighted that a decrease in the PSLF dividend was a primary variance. Art Penn indicated that the company might consider retaining a base level of spillover income, similar to the ongoing spillover observed in their sister BDC, PFLT.

Melissa Waddell inquired about the company's strategy regarding spillover income, specifically whether the entire $0.73 per share is intended for distribution or if a certain level will be retained.

Answer

Art Penn, Chairman and CEO, indicated that the company would likely consider retaining a certain base level of spillover income, similar to the practice observed in their sister BDC, PFLT.

Melissa Waddell inquired about OCSL's expectations for investment activity, including new net funding and potential outsized repayments, for the upcoming December quarter, and also asked about the higher yield on new investments, specifically if the Walgreens deal's complexity contributed to this, and the pipeline for similar complex, high-spread transactions.

Answer

Armen Panossian, CEO and CIO, stated that OCSL does not anticipate any outsized repayments or material deviations from past quarters in terms of deployment or leverage levels for the December quarter, despite judicious deployment due to tightening spreads. Chris McKown, CFO and Treasurer, confirmed Walgreens contributed to the higher yield, also noting higher originations into IBOR indexed loans in the prior quarter. Armen Panossian added that while OCSL has an active non-sponsored direct lending function, the Walgreens deal's high spread is not expected to be repeatable in the current calendar quarter, though some higher-spread opportunities exist.

Melissa Waddell inquired about the significant increase in net funding activity, seeking insights into OCSL's expectations for investment activity in the December quarter and any potential outsized repayments.

Answer

Armen Panossian, CEO and CIO of OCSL, stated that no outsized repayments are expected for the December quarter, and deployment levels are not anticipated to materially deviate from past quarters, despite judicious deployment due to tightening spreads. Melissa Waddell also asked about the higher yield on new investments, specifically the Walgreens deal, and the pipeline for similar complex transactions. Chris McKown, CFO and Treasurer, confirmed Walgreens' impact and noted higher originations into IBOR-indexed loans in the June quarter. Armen Panossian added that while the Walgreens deal's high spread is not easily repeatable in the calendar fourth quarter, OCSL maintains an active non-sponsored direct lending function.

Melissa Waddell asked about the mitigating actions being taken to offset the impact of lower base rates, specifically how the timing of these efforts and asset rotation might influence future dividend decisions. She also sought an update on the company's perspective on portfolio leverage in the current market environment.

Answer

Tanner Powell, CEO, explained that the company benefits from a large sourcing engine for deployment, allowing for deliberate and granular asset rotation. He highlighted the accretion opportunity from Merck proceeds (previously earning 2.5%) and the improved cost of capital from the CLL reset (down 90 basis points) as key mitigants. Tanner Powell also stated that the target leverage remains at 1.4x, and the company aims to return to this level in a measured way, supported by attractive investment-grade CLL levels.