Name: Oaktree Specialty Lending Corp Q2 2025 Earnings Call
Start: 2025-05-01T15:01:00.000Z

Executive Summary

OCSL’s Q2 FY2025 results missed Wall Street consensus: GAAP net investment income (NII) per share was $0.45 vs $0.49 estimate*, and total investment income was $77.6M vs $84.4M estimate*, driven by lower interest income from a smaller average portfolio, new non‑accruals, and lower reference rates .
NAV per share declined to $16.75 from $17.63 in Q1, primarily reflecting losses on certain debt and equity investments .
Management emphasized active resolution of challenged positions (Mosaic, SiO2, Dialyze) and increased origination to 32 investments and 152 companies, improving diversification; leverage moved to the low end (net 0.93x), with ample liquidity and reduced facility margins post‑amendment .
Dividend policy maintained: base $0.40 and supplemental $0.02 for Q2 (down from $0.07 in Q1); capital structure enhancements included new 2030 notes and a facility amendment lowering SOFR spreads—supportive of future NII .
Near‑term narrative: cautious deployment amid tariff uncertainty and elevated rates, with the JVs positioned to add leverage opportunistically; medium‑term focus on large, diversified borrowers and rescue financing opportunities .

What Went Well and What Went Wrong

What Went Well

Portfolio diversification improved: commitments of $407M across 32 investments; portfolio companies increased to 152; focus on first‑lien exposure (~81%) and larger, diversified borrowers .
Capital structure strengthened: $300M 2030 notes issued; facility amended to reduce margins to SOFR +1.75–1.875% (+0.10% adj) and extend maturities; management expects lower interest expense to favor NII .
Continued shareholder alignment: Oaktree purchased $100M of OCSL shares at NAV; total return hurdle instituted; management fee reduced to 1% .

What Went Wrong

Earnings miss and NII per share declined QoQ: adjusted NII was $0.45 vs $0.54 in Q1, reflecting lower adjusted total investment income and new non‑accruals .
Non‑accruals rose: 10 investments on non‑accrual; 4.6% of debt at fair value (7.6% at cost), with significant markdowns (Mosaic ~76% on unsold portions; SiO2 ~69%; Dialyze ~76%) .
NAV compressed further: $16.75 vs $17.63 in Q1 on realized/unrealized losses; weighted average yield on debt investments declined to 10.2% from 10.7% .

Financial Results

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025
Total investment income ($USD Millions)	$94.685	$86.647	$77.568
Adjusted total investment income ($USD Millions)	$95.000	$87.070	$77.195
Net investment income per share ($USD)	$0.55	$0.54	$0.45
Adjusted net investment income per share ($USD)	$0.55	$0.54	$0.45
Earnings (loss) per share ($USD)	$0.45	$0.09	$(0.42)
NAV per share ($USD)	$18.09	$17.63	$16.75
Net debt to equity ratio (x)	1.07x	1.03x	0.93x
Weighted avg yield on debt investments (%)	11.2%	10.7%	10.2%

Consensus vs Actual (Q2 FY2025)

Metric	Consensus	Actual	Surprise
Primary EPS ($USD)	$0.490*	$0.45	-$0.040* (Miss)
Revenue / Total Investment Income ($USD Millions)	$84.427*	$77.568	-$6.859* (Miss)
# EPS Estimates	4*	—	—
# Revenue Estimates	2*	—	—
Values retrieved from S&P Global.*

Segment/Exposure Composition

Asset Class (% of fair value)	Q4 FY2024	Q1 FY2025	Q2 FY2025
First lien debt	81.7%	81.8%	80.9%
Second lien debt	3.5%	3.0%	3.4%
Unsecured debt	3.6%	3.9%	5.0%
Equity	5.0%	4.8%	4.6%
JV interests	6.1%	6.5%	6.1%

KPIs and Portfolio Metrics

KPI	Q4 FY2024	Q1 FY2025	Q2 FY2025
Non‑accrual FV ($USD Thousands)	$114,292	$105,326	$125,643
Non‑accrual % of debt (FV)	4.0%	3.9%	4.6%
Non‑accrual % of debt (Cost)	4.9%	5.1%	7.6%
Number of investments on non‑accrual	9	9	10
Number of portfolio companies	144	136	152
Weighted avg interest rate on debt outstanding	6.7%	6.2%	6.7%
Cash & cash equivalents ($USD Thousands)	$63,966	$112,913	$97,838
Total principal debt outstanding ($USD Millions)	$1,660.0	$1,610.0	$1,470.0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Base dividend per share	Q1 → Q2 FY2025	$0.40 (Q1)	$0.40 (Q2)	Maintained
Supplemental dividend per share	Q1 → Q2 FY2025	$0.07 (Q1)	$0.02 (Q2)	Lowered
Target net leverage range	Ongoing	0.9x–1.25x	0.9x–1.25x	Maintained
Revolving credit facility margin	Q2 FY2025	SOFR +2.00% (+adj)	SOFR +1.75–1.875% +0.10% adj	Lowered
Expected interest expense trajectory	Forward	N/A	Lower facility spreads expected to favor NII	Improved outlook

Note: The company does not provide formal revenue/EPS guidance; dividend policy now includes a base plus variable supplemental component .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024, Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Tariffs/macro uncertainty	Focus on inflation/elevated rates in forward‑looking statements	Management highlights tariff uncertainty, bank pullback, slower M&A; cautious deployment	Deteriorating macro visibility
Portfolio non‑accruals	9 non‑accruals; 4.0% FV, 4.9% cost (Q4) ; 9 non‑accruals; 3.9% FV, 5.1% cost (Q1)	10 non‑accruals; 4.6% FV, 7.6% cost; markdowns on Mosaic/SiO2/Dialyze	Worsening credit marks
Diversification/originations	Q4: $259M commitments; 144 companies ; Q1: 136 companies	$407M commitments; 152 companies; focus on first‑lien and larger borrowers	Improving diversification
Capital structure actions	Mgmt fee cut to 1% (Q4); incentive fee cap; $100M Oaktree share purchase (Q1)	Issued $300M 2030 notes; amended facility to lower spreads and extend maturities	Strengthening/liability optimization
Dividend framework	Q4: $0.55 dividend	Base $0.40 + supplemental $0.07 (Q1) → $0.02 (Q2)	Variable component down
JV strategy	JVs ROE ~ attractive; operational updates	Plan to opportunistically add leverage/deploy as markets dislocate	Potential NII support

Management Commentary

“Certain challenged portfolio company investments weighed on our results in the second quarter. We are focused on resolving these issues while also positioning our portfolio to deliver more consistent performance going forward.” – Armen Panossian, CEO & Co‑CIO .
“Our Board approved a base dividend of $0.40 per share and a variable supplemental dividend of $0.02… we successfully issued new unsecured bonds… and amended our senior secured revolving credit facility… We believe that lower interest expense and associated fees will have a favorable impact on our net investment income.” – Mathew Pendo, President .
Non‑accrual additions/markdowns: Mosaic (~76% markdown on remaining unsold portions after ~50% cash paydown), SiO2 (~69% markdown), Dialyze (~76% markdown); collectively now represent <1% of portfolio FV post marks .
“We continue to emphasize investments at the top of the capital structure… approximately 84% of the portfolio was invested in senior secured loans, including 81% in first lien loans.” – Armen Panossian .
“We are seeing a return of some larger borrowers into the direct lending market… pipeline… on the margin better… deals are getting done more frequently in the direct lending market rather than the broadly syndicated loan market.” – Armen Panossian .

Q&A Highlights

Run‑rate NII and yields: Management noted a decent run‑rate yield after rate resets and non‑accrual impacts; net leverage at 0.93x with patience around deployment; JVs seen as an easier deployment channel to support NII .
Repayments outlook: Expect repayment/refi activity to slow amid volatility, but idiosyncratic exits continue; potential to redeploy into JVs as public credit dislocates .
Large borrower pipeline: Volatility has pulled some larger borrowers back to direct lending; M&A volumes subdued given tariff uncertainty; focus remains on high‑quality businesses insulated from tariff impacts .
JV ROE: Current aggregate ROE ~10.6%; management sees potential to reach ~11–12% depending on opportunities .

Estimates Context

Q2 FY2025 EPS missed consensus by ~$0.04 ($0.45 vs $0.49*) and total investment income missed by ~$$6.86M ($77.6M vs $84.4M*), reflecting lower interest income from a smaller average portfolio, additional non‑accruals, and lower base rates . Values retrieved from S&P Global.*
Consensus breadth: EPS based on 4 estimates*; revenue based on 2 estimates*; limited breadth suggests sensitivity to actuals and to portfolio credit developments.*

Key Takeaways for Investors

Earnings miss driven by non‑accruals and lower reference rates; monitor credit resolution milestones (Mosaic asset sales, SiO2 contracts, Dialyze restructuring) as primary drivers of NAV/NII trajectory .
Diversification momentum and first‑lien focus should support future loss mitigation; increased origination suggests pipeline health despite macro uncertainty .
Liability optimization (2030 notes; facility margin cuts) and low‑end leverage provide capacity to redeploy; expect interest expense tailwinds to partially offset yield compression .
Dividend framework stable; supplemental variable reduced to $0.02—sensitivity to NII implies near‑term prudence in payout while preserving base .
JV strategy is an actionable lever: expect opportunistic deployment amid public credit volatility with potential ROE uplift to ~11–12% .
Watch macro tariff policy, rate path, and M&A volumes; management tone is cautious but opportunistic, favoring larger, diversified credits and rescue financing opportunities .
Tactical consideration: near‑term trading likely tied to updates on non‑accrual resolutions and origination pace; medium‑term thesis anchored on disciplined underwriting, fee alignment, and improved funding costs .

Notes on sources:

Q2 FY2025 earnings press release (full financials, portfolio, liquidity, dividend): .
Q2 FY2025 earnings call transcript (prepared remarks and Q&A): .
Credit facility amendment press release: .
Prior quarters’ press releases: Q1 FY2025 ; Q4 FY2024 .
Estimates from S&P Global: EPS and revenue consensus for Q2 FY2025.*

Oaktree Specialty Lending Corp (OCSL)·Q2 2025 Earnings Summary